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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What is a holding deposit?

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.

What happens if the rental doesn't go ahead?

Tenant - if a tenant decides to pull out of a tenancy agreement before contracts are signed, the landlord or letting agent is generally 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. 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.

Unfair terms in relation to holding deposits

Some letting agents or landlords may have unfair terms attached to holding deposits, such as 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).

Do holding deposits need to be protected?

Unlike security deposits, there is currently no legal requirement to protect holding deposits. As such, the money will normally be paid directly into the bank account of the landlord or letting agent. This is why having a written holding deposit agreement is important.

What happens to the holding deposit once a rental agreement has been signed?

In general, the holding deposit will either be put towards the security deposit (so 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.

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