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Holding deposits

The process of renting a property often entails the prospective tenant making two types of deposit payment, a security deposit and a holding deposit. This guide deals with some of the questions involving holding deposits. For information on security deposits, read Deposit protection schemes.
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Holding deposits are sometimes requested by landlords or letting agents to hold a property for a prospective tenant and take the property 'off the market'. This is to hold the property for the tenant prior to checks being made and the tenancy contract being signed. It's designed to provide reassurance that the tenant is serious about renting the property.

Tenant - - if a tenant decides to pull out of a tenancy agreement before contracts are signed, the landlord or letting agent is sometimes entitled to retain some or all of the holding deposit. This is dependent on the terms of the holding deposit. For example, a term of the holding deposit might state that it's non-refundable. However, the landlord or managing agent should only retain a proportion of the holding deposit to cover their administrative costs to prevent being unfair.

Landlord - if the landlord or letting agent fails to hold a property after receiving a holding deposit, or decides to rent it to someone else following checks, this should be returned to the prospective tenant in full. Landlords are not permitted to take multiple holding deposits for the same property. A property may be advertised in multiple places which can lead to double bookings. Therefore, tenants should check whether the property is being advertised elsewhere before agreeing to pay a holding deposit.

Some letting agents or landlords may have unfair terms attached to holding deposits, including that it is non-refundable. It's a good idea to have a holding deposit agreement in writing which sets out the relevant terms and conditions. If the landlord or letting agent breaks any of these terms, the tenant will then be able to bring a claim for breach of contract.

If you think a landlord or letting agent is not acting fairly or is being unscrupulous, then you can make an official complaint to the letting agent or landlord. If your complaint is not handled satisfactorily, then you may be able to refer the matter to a trade body or professional organisation (eg ARLA, NAEA, NALS, UKALA etc).

You can also complain to:

  • trading standards at your council (who can fine the landlord or agent and help you apply to a tribunal to get your money back)
  • a letting agent redress scheme provided the letting agent is a member (such a scheme can investigate your complaint and tell the agent to apologise or compensate you)

Unlike security deposits, there is currently no legal requirement to protect holding deposits taken by landlords. As such, the money will normally be paid directly into the bank account of the landlord and he must take reasonable steps to ensure that the money is held safely. This is why having a written holding deposit agreement is important.

Since 1 April 2019, any holding deposit taken by a letting agent must be protected through membership of a client money protection scheme.

In general, the holding deposit will either be put towards the security deposit (ie it will be deducted from the total amount of security deposit which needs to be paid) or else it will be refunded upon starting the tenancy. If the holding deposit is put towards the security deposit, it will then need to be protected in a relevant scheme along with the rest of the security deposit.

The maximum you can ask a tenant for is one week’s rent as a holding deposit. If you have more than one tenant and they are all jointly liable for the rent, you should change them the amount they all own together. For example, if two tenants pay £200 a week, you can change them a £200 holding deposit, not £200 each.

You should provide tenants with information about why you are requesting a holding deposit, including the sum that is required and the circumstances where they may lose all or part of the deposit. You should also provide information about the agreed rent for the property, the specified date for reaching an agreement (‘the deadline for agreement’) and other material agreed terms you will be letting the property on.

You may keep the whole or part of the holding deposit if a tenant:

  • provides false or misleading information which you can reasonably consider when deciding to let a property
  • fails a right to rent check
  • withdraws from a property
  • fails to take all reasonable steps to enter into a tenancy agreement and the landlord or agent takes all reasonable steps to do so

This is not the case if you, as the landlord, acted in such a way that it would be unreasonable to expect a tenant to enter into a tenancy agreement. This is also subject to the tenant fees ban.

If you decide to retain all or part of your holding deposit you must set out in writing why you are retaining a tenant’s holding deposit within 7 days of deciding not to let to them if this is before the deadline for agreement’ or within 7 days of the ‘deadline for agreement’ passing, otherwise you will lose the right to retain their holding deposit and must return it to them. You must inform the tenant in writing why you are retaining their holding deposit.

A tenant is entitled to a full refund of their holding deposit where a landlord or agent imposes a requirement that breaches the tenant fee ban.

In Scotland, landlords cannot require a tenant to pay a holding deposit (also known as ‘key money’, a ‘premium’ or a ‘holding fee’) to secure a property. Landlords and letting agents are only legally allowed to request that a tenant pay a security deposit in addition to the first month’s rent. Asking for a holding deposit is illegal.

Landlords may state that this deposit or fee is to cover the costs of checking credit references or other administrative tasks, and that it is not refundable. This is illegal and tenants should not pay additional money.

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