While the majority of payments related to a tenancy are requested after the contract has been signed, there is one key upfront transaction that both tenants and landlords need to understand - holding deposits. A standard practice used by landlords and letting agencies, a holding deposit is a payment made by potential tenants to demonstrate their commitment to a property. Similarly, if a landlord accepts a holding payment, this acts as a commitment to the tenants demonstrating that they intend to move forward with their application. This means that they stop taking viewings and receiving offers from other applicants.
After the payment is made, all parties have a limited amount of time to enter into a tenancy - usually formalised by a written contract. Whether you're a landlord or a tenant, you should think carefully before accepting or providing a holding payment, as there are strict rules governing what must happen next and the circumstances under which the deposit should be refunded or withheld.
To find out more about holding deposits and what they entail, check out our FAQ guide below.
What is a holding deposit?
A holding deposit, also known as a holding fee, is a refundable payment requested by a property’s landlord or letting agency to reserve a property. The payment essentially puts the property “on hold” for a prospective tenant and takes the listing off the market. The holding deposit is usually requested once the general terms of a lease are agreed upon, which include move-in date, rent amount, and fixed tenancy term.
The holding deposit shows landlords or letting agencies that an applicant is serious about a property. After the deposit is paid, the landlord or agency will begin the tenancy administration process, starting with background checks to confirm the details provided by the prospective tenant in support of their application. At this time, no other potential tenants should be considered nor should any other holding deposits be accepted.
How much is a holding deposit and how do they work?
The holding deposit is capped by law at a maximum of one week’s worth of rent. After the deposit is made, all parties have 15 days to take 'all reasonable steps' to enter into a tenancy agreement. This timeline is also known as the deadline for agreement. By the 15th day, if the deadline passes without all parties entering into a tenancy agreement, then:
- The tenant, if they have taken all reasonable steps to enter into a tenancy without similar action from the landlord or agent, they are entitled to receive a holding deposit refund and are free to walk away from the proposed agreement.
- The landlord, if they have taken all reasonable steps to enter into a tenancy without similar action from the prospective tenants, is entitled to terminate the proposed agreement and retain part or all of the holding deposit.
The tenancy deadline agreement can also be extended if the two parties agree on doing so.
If the tenancy doesn't go through and the landlord is at fault, the deposit should be returned in full to the applicants. Likewise, if the tenancy falls through because the potential tenant is at fault, the letting agency or landlord is entitled to keep their holding deposit. Landlords or agencies keep the deposit as payment for lost money and time, though in some cases the deposit it might be returned to applicants (see more below).
What does the Tenant Fee Act say about holding deposits?
As of 2019, the Tenant Fee Act bans most letting fees and restricts the maximum cost of tenancy deposits in England. Refundable holding deposits are permitted under the act and cannot exceed more than a week’s worth of rent. Even if the application is on behalf of multiple tenants, in a joint tenancy the total holding deposit cannot exceed more than the total collective week’s worth of rent. In other words, if four flatmates agree to a weekly rent cost of £300, together their holding deposit is at most £300; they cannot be charged £300 each.
When can the landlord/agent keep the holding deposit?
Landlords and agents are entitled to keeping the holding deposit if:
- The tenant withdraws from the agreement through no fault of the property owner.
- The landlord or agency takes all reasonable steps to go through with the application and the potential tenant fails to take all reasonable steps for entering a tenancy agreement, the landlord can terminate the tenancy and the deposit can be withheld.
- The potential tenants provided misleading or false information on their application.
- The applicant fails a Right to Rent check.
While sometimes the landlord or agency willingly refunds some or all of the holding deposit (for example, on compassionate grounds where the applicant is unable to enter into a tenancy through unforeseen misfortune), they are not legally required to do so. If the landlord or agent decides to keep the deposit, they must provide a written response to the applicant explaining why within 7 days of the decision or within 7 days of the deadline for agreement passing. Within their reasoning, evidence of costs needs to be provided as well.
If a notice explaining why the holding deposit is being kept is not issued within 7 days, the applicant will be able to recover the deposit via the local authority, usually trading Standards or First-tier Tribunal.
If the landlord does not have a valid claim for holding onto the deposit (i.e. cannot demonstrate any financial loss), the tenant may also be able to recover the payment with assistance from the council. However, if marketing activities related to letting the property ceased for any period of time due to the payment of a holding deposit, the landlord will almost always have incurred additional costs.
When should the landlord/agent refund the holding deposit?
Holding deposit refunds must be issued within 7 days if:
- A tenancy agreement being signed (unless, as is often the case, all parties agree to deduct the holding deposit from the balance of rent due for the sake of convenience).
- There is a landlord-initiated application withdrawal.
- The deadline of agreement has passed and the applicant has taken all reasonable steps to enter into a tenancy.
If the landlord or agent is not refunding the holding deposit under circumstances in which they should, the applicant should write to them directly asking for a full refund. Applicants can also speak to the Citizens Advice consumer helpline for further advice.
A holding deposit is a standard letting practice that shows agents or landlords that a tenant is committed to a property. By getting to know what the deposit entails, you can better understand what’s expected of you financially and what potential risks you may face in the future. Whether the tenancy agreement goes through or not, tenants and landlords alike must pay attention to what is happening with a holding deposit to ensure that it is handled correctly and retained or refunded in accordance with the Tenant Fee Act.
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