Holding deposits are an important part of the tenancy process. They provide a safeguard for both landlords and tenants, ensuring that a property is not taken off the market and then left vacant. But what exactly is a holding deposit, and when is it refundable? In this blog post, we’ll answer these questions and provide guidance on how to create a fair and legal holding deposit policy.

What is a holding deposit?

A holding deposit is a payment made by a tenant to reserve a property and in essence, take it off the market. It is typically a small amount, legally no more than one week’s rent, and is separate from the tenancy deposit. Unlike a tenancy deposit, which is paid at the start of the tenancy and held for the duration, a holding deposit is paid before the tenancy agreement is signed and is intended to hold the property for the tenant while the landlord carries out reference and credit checks.

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Why do landlords request holding deposits?

Landlords may request holding deposits to ensure that the property is not taken off the market unnecessarily. This is particularly important in high-demand areas where properties can be rented quickly. By taking a holding deposit, landlords can be confident that the tenant is committed to the tenancy and is unlikely to back out, leaving the property vacant and the landlord out of pocket.

When can a landlord keep a holding deposit?

There are circumstances in which a landlord may be justified in keeping a holding deposit. For example, if the tenant provides false information during the referencing process or fails to provide the information required to complete the tenancy agreement. Additionally, if the tenant decides to withdraw their offer, the landlord may be entitled to keep the holding deposit to cover their costs.

When must a holding deposit be refunded?

Under the Tenant Fees Act 2019, a holding deposit must be refunded in the following circumstances:

• If the tenancy agreement is not entered into within 15 days of the holding deposit being paid, unless an extension is agreed between the landlord and tenant.
• If the landlord or letting agent decides not to enter into the tenancy agreement. The holding deposit must be refunded within seven days of the decision not to proceed.
• If the tenant decides not to enter into the tenancy agreement. However, the landlord or letting agent may be entitled to keep the holding deposit if the tenant provides false or misleading information which materially affects their suitability as a tenant, or if the tenant fails a right to rent check.

It’s important to note that a holding deposit can be used to offset the first rent payment or tenancy deposit, with the tenant’s agreement. Also, landlords and letting agents are allowed to deduct from the holding deposit if the tenant withdraws from the tenancy or provides false or misleading information.

How to ensure your holding deposit policy is legal and fair

Landlords have legal obligations when it comes to holding deposits, as set out by the Tenancy Fee Act (2019). The policy must be fair, transparent and reasonable. The amount of the holding deposit must not exceed one week’s rent and the tenant must be provided with written details of the terms of the holding deposit. It is also important to ensure that the holding deposit is held in a secure account and not used for any other purpose.

To ensure your holding deposit policy is fair and reasonable, consider providing clear information on your website and in your rental advertisements. This could include details on the amount of the holding deposit, the circumstances in which it will be refunded, and the timeline for refunding the deposit.

What to do if a dispute arises over a holding deposit

If a dispute arises over a holding deposit, landlords and tenants should attempt to resolve the matter through communication and negotiation. If this is not successful, the tenant may be able to take legal action, and it is important to seek legal advice before proceeding. If they complain it’s crucial to fully investigate their complaint and issue them with a final response.

Conclusion

Holding deposits are an important part of the tenancy process for landlords. They provide a safeguard for both landlords and tenants, but it is essential to ensure that holding deposit policies are legal, fair and reasonable. By following the guidelines outlined in this blog post, landlords can create a policy that is compliant with the law and promotes good relationships with tenants.