The process for renting a property in England and Wales is usually for a tenant to view a property, make a decision and enter into an assured shorthold tenancy agreement with the landlord. A landlord or letting agent acting on their behalf will want to check if that the new tenant can afford the rent and is suitable for the property before entering into the AST contract. This is when a holding deposit is used.
What is a holding deposit?
It is commonplace for a letting agent or a landlord to ask for a holding deposit when a tenant has registered interest in a property. A holding deposit reserves the rental property for the tenant whilst they get their affairs in order and prevents the landlord from accepting other tenants and further advertising the property. For example, a tenant might need to identify a guarantor and put them in touch with the Landlord. Landlords can only accept holding deposits from one person at a time. During this time the landlord or the letting agent might also run a credit check and reference check on the tenant in order to determine their suitability for the property.
Holding deposits aim to provide redress to a landlord who has missed out on selecting other tenants for a property because they have been waiting on an individual to complete on the property who does not ultimately follow through with it.
How much can a landlord charge to ‘hold’ the property for you?
Following the tenant fees ban reforms in the Tenant Fees Act 2019 a landlord cannot charge a tenant a holding fee of more than one weeks’ rent of the property they are listing. For example, if a landlord was advertising a property for £600 a month, the holding deposit is capped at £150.
If a landlord or letting agent charges more than the capped rate then they may receive a £5,000 fine for their first offence. If the landlord or letting agent does the same again within five years of the original offence, they may find themselves subject to the penalties of the criminal law or can receive a civil fine of up to £30,000.
If you find yourself being charged over the 1 weeks’ cap, you can report the landlord or letting agent, typically to trading standards at the local council.
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Is a holding deposit a tenancy deposit?
A holding deposit is not the same as a tenancy deposit as the latter is a security deposit and is capped to 5 weeks of rent and needs to be protected by one of the government's approved deposit protection schemes. A holding deposit can count towards the tenancy deposit or the initial rent payment once the tenancy agreement has been signed.
What happens after you pay a holding deposit?
After paying the holding deposit, there is a deadline for the agreement. Once the holding deposit has been paid, a tenant has 15 days (unless otherwise agreed in writing) to enter into the tenancy agreement with the landlord.
If the individual signs the tenancy agreement the landlord or letting agent must either:
- Provide a full refund of the holding deposit to the tenant within 7 days of completion;
- Deduct the holding deposit from the first month's rent if the tenant agrees; or,
- Put the holding deposit towards the tenant’s property deposit with the consent of the tenant.
However, the sheer fact that an individual has signed a holding deposit for the property does not mean that they are guaranteed to become the tenant. A landlord or letting agent can later decide not to rent to the property or the prospective tenant might fail the right to rent checks meaning the landlord is legally required to refuse the let. A landlord also has the right to refuse a let if the prospective tenant has provided misleading information to the letting agent or landlord (such as about their credit ratings). A landlord or letting agent can refuse the let if the tenant's referencing checks are not satisfactory.
If the individual does not go ahead with the tenancy agreement, they naturally lose the holding deposit- its very purpose was to provide the landlord with redress if this was to occur.
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The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.