Bond replacement products

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We are advising renters to be wary of products that are advertised as cheaper alternatives to rental bonds. These products (often called ‘bond replacement’ products) are not legal in Victoria.
 
Some providers have started advertising ‘bond replacement’ products that they claim free up renters’ money, which would otherwise be ‘locked away’ in bonds, while still offering similar protections to landlords/owners. These providers suggest that, with their products, renters can use their money for other things they want.
 
Renters should be wary of claims about ‘bond replacement’ products, and landlords/owners and agents should be aware that accepting a bond replacement product may put them in breach of Victoria’s residential tenancy laws. 
 
The exact details of how bond replacement products work vary. Generally, these products involve a renter -with their landlord or owner’s agreement - paying a fee in exchange for a ‘guarantee’ that the product’s provider will pay a landlord or owners costs, up to a specified amount, if the renter owes the landlord money at the end of the tenancy.
 
Unlike bonds lodged with the Residential Tenancies Bond Authority (RTBA), fees apply for bond replacement products that:

  • are not refundable at the end of a lease, and
  • do not contribute to the cost of any claim that may be paid out to the landlord/owner. 

The fees for these products vary based on factors including: 

  • applicants’ rental and credit histories
  • amount of rent, and
  • in some cases, other personal information used to assess creditworthiness.

Where a lease extends beyond the initial period covered by the bond replacement provider, the renter will need to pay a renewal fee, which may have increased in the meantime.
 
Renters should be aware that the guarantee provider will cover a valid claim up to the level specified in the guarantee and no more. The provider may then seek to recover their payout to the landlord from the renter, which could include taking legal action. 
 
If the amount of money owed to the landlord/owner is more than the provider is obliged to pay them under the guarantee, then the landlord/owner may also seek additional compensation from the renter. This is the same as what happens where the amount of money owed to the landlord/owner exceeds the amount of bond lodged with the RTBA. This may add further costs for the landlord/owner and renter.
 
We encourage renters to be wary of products advertised as cheaper alternatives to residential tenancy bonds. The costs of these products over the life of the tenancy, and when it ends, may be significantly more than the costs associated with a bond lodged with the RTBA.