Go to top of page
Renting & Letting Advice
CBS updates
20 December 2018

The Commissioner for Consumer Affairs is advising tenants to be wary of products that are advertised as cheaper alternatives to rental bonds as they may not be legal in South Australia.

While it is understood these products are currently being withdrawn from the South Australian market, they may continue to be promoted online more broadly.
 

How ‘bond replacement’ products compare to bonds

Bonds

At the start of a lease, South Australian tenants may be asked to pay a bond. The bond acts as security against the tenant owing money to the landlord at the end of a tenancy – for example due to property damage or non-payment of rent.

Only one tenancy bond can be paid for each agreement. The bond can roll over if the lease is renewed or extended. Bonds cannot be increased unless at least two years have passed since lodging or the last increase.

The bond must be lodged with CBS and will be returned to the tenant at the end of the tenancy, less any deductions for money owing to the landlord. 

The bond is not released to the landlord unless the:

  • tenant agrees in writing for that to happen (for example, not carrying out a final clean and agreeing with the landlord that the cost of that can come out of the bond) or
  • landlord disputes the refund and the tenant doesn’t respond to the dispute within the relevant timeframe or
  • landlord successfully applies to South Australian Civil and Administrative Tribunal (SACAT) for a full or partial refund.

Bond replacement products

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

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

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

Unlike the existing residential bond system in South 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 landlord.

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 landlord from the tenant, which could include taking legal action.  

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

The Commissioner for Consumer Affairs 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.

 

Related information

Renting in South Australia

Residential tenancies - bonds