Consumer Protection is advising tenants to be wary of products that are advertised as cheaper alternatives to rental bonds. These products are not legal in Western Australia.

How ‘bond replacement’ products compare to bonds

Bonds

At the start of a lease, tenants may be asked to pay a bond, usually around one month’s rent, as security against the tenant owing money to the lessor at the end of a tenancy – for example due to property damage or non-payment of rent.

Generally, a rental bond is only paid once and there are no other fees payable. In Western Australia, the bond can roll over if the lease is renewed or extended, and can also be changed/varied.

This bond must be lodged with Consumer Protection’s Bond Administrator, and will be returned to the tenant at the end of the tenancy, less any deductions for money owing to the lessor. 

The bond is not released to the lessor unless:

• all tenants and the lessor agree; 
• a court order is obtained from a magistrate for a residential tenancy agreement; or
• an order is obtained from the State Administrative Tribunal for a residential parks long-stay tenancy agreement.

Bond replacement products

Some providers have started advertising ‘bond replacement’ products that they claim free up tenants’ money which would otherwise be ‘locked away’ in bonds, while still offering similar protections to lessors. These providers suggest that, with their products, tenants can use their money for other things they want.

Tenants should be wary of claims about ‘bond replacement’ products, and lessors and agents should be aware that accepting a bond replacement product may put them in breach of Western Australia’s current residential tenancy laws.

The exact details of how bond replacement products work vary. Generally, these products involve a tenant – with their lessor’s agreement - paying a fee in exchange for a ‘guarantee’ that the product’s provider will pay a lessor’s costs, up to a specified amount, if the tenant owes the lessor money at the end of the tenancy.

Unlike the existing residential bond system in Western Australia fees apply for bond replacement products which:

• are not refundable at the end of a tenancy, and
• do not contribute to the cost of any claim that may be paid out to the lessor.

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 tenant will need to pay a renewal fee, which may have increased in the meantime.

Tenants 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 lessor from the tenant, which could include taking legal action. 

If the amount of money owed to the lessor is more than the guarantee provider is obliged to pay the lessor under the guarantee, the lessor may also seek additional compensation from the tenant. This is the same as what happens where the amount of money owed to the lessor exceeds the amount of bond lodged with the Bond Administrator. This may add further costs for the lessor and the tenant.

Consumer Protection encourages 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 tenancy bonds.