Holding Deposits for Landlords

Written By PropertyLoop
February 12, 2021

The introduction of the Tenant Fees Act (2019) brought in new rules for landlords in England and Wales around what they should do with a tenant’s holding deposit.  

This is money paid upfront to the landlord by the tenant to show that they are serious about renting the property. Once the tenancy starts the money is then put towards the tenancy deposit, or simply given back to the tenant. 

Can a Landlords Keep a Holding Deposit?

If the landlord decides not to go ahead with the tenancy then the tenant’s money is returned. If the tenant, however, changes his or her mind about moving in, then the landlord is allowed to keep the holding deposit. 

From June 1, 2019 a new law came into being with respect to holding deposits. It decreed a number of changes, such as: 

  • A holding deposit should be no more than a week’s rent 
  • Landlords can only take a holding deposit from the one tenant for the same property 
  • Referencing fees can’t be taken from the deposit by the landlord 
  • 15 days is as long as a holding deposit can be ‘held’ for by a landlord and it must be repaid to the tenant within seven days 

The minute a holding deposit for a property is given to the landlord (or letting agent), the property should be removed from rental listings. This gives the landlord time to check the prospective tenant’s references. 

What Happens if a Tenant Fails Reference Checks?

If the individual who intends moving into the flat fails reference checks then, as a landlord you can’t automatically keep the deposit. You can, however, hold on to it if the prospective tenant has lied to you about their status ie that they were employed when, in fact, they are unemployed, or if they provided false addresses.  

If there was no lying though and the prospective tenant still failed their reference check, you can still let the tenancy go ahead by asking the tenant for a guarantor ie someone who guarantees to pay the rent if the tenant can’t. If the tenant is young then usually a parent is a good, first choice. This is certainly the case in a lot of private student accommodation these days. 

If it makes you feel more secure about the tenancy, you can also ask for more than one month’s rent upfront. 

Best Way to Pay a Holding Deposit

Most property analysts agree, a holding deposit is best paid via bank transfer. That way both tenant and landlord have a record of the transaction. Accompany this with a paper receipt for the tenant. 

How Long Is a Holding Deposit Valid For? 

In an ideal world, all tenancies would go smoothly and take less than two weeks to set up. We don’t, however, live in such an exemplary manner. Some tenancies take more than 15 days to set up (the time limit for a landlord keeping a holding deposit).  

In this situation the best thing to do is produce a written agreement for an extended deadline, and get the tenant to sign it. 

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