Tenants are able to pay landlords a holding deposit if they want to reserve the rental opportunity and enter into a tenancy agreement with the owner. Once the holding deposit has been paid the landlord is legally obligated to remove the rental property from the market and is prohibited from accepting new offers from tenants. Once the sums have been paid the landlord and tenant will then begin to negotiate the terms of the tenancy agreement providing that the tenant passes all referencing checks.
Typically, once the referencing process has been completed and both parties wish to proceed into a tenancy agreement the amounts paid for the holding deposit will be deducted from the first months’ rent, put towards the security deposit, or occasionally refunded directly to the tenant.
Once the sums for the holding deposit are paid by the tenant an agreement must be reached within 15 days. If this deadline passes and the tenant has taken all reasonable actions to try and secure a tenancy, the landlord must return the holding deposit in full within 7 days. Similarly, if the landlord decides that they do not want to process with the tenancy then the full amount taken for the holding deposit must be returned.
With this being said, if the landlord does not want to offer the aspiring renter a tenancy because they have provided false information during the referencing process in an attempt to pass the affordability checks or mislead the landlord, seeing the renter provide false references or employment details, the landlord is under no obligation to return the amounts taken for the deposit. Landlords are able to keep these amounts under such circumstances as compensation for taking their rental off the market and pursuing a tenancy under false information.
With the introduction of the Tenant Fees Act 2019, the UK government looked to make the private rental sector more accessible to first time tenants by removing many of the excessive charges typically found within the sector, seeing administrative fees and high upfront costs bombard renters.
One of the many reforms established by the act saw the amount landlords are able to ask their tenants to pay towards a holding deposit be firmly cut, with a cap being introduced at the equivalent cost of a single weeks’ rent.
Prior to the introduction of the regulations, tenants commonly paid around a month’s rent for the holding deposit, with a study carried out by Open rent revealing that almost half of all UK tenants had paid a holding deposit of over £750 during their time renting.
Although tenants will find themselves paying both the holding and security deposit at the outset of the tenancy, there are essential differences between the two sums that should be noted. Sometimes referred to as the tenancy deposit, the security deposit is a far larger sum than the holding deposit, largely thanks to the purpose of the deposit and how the fee safeguards the landlord.
Whilst the holding deposit is intended to reserve a rental opportunity, allowing the tenant to come to an agreement with the landlord, the security deposit functions somewhat akin to an insurance policy, allowing the landlord to claim for any damage to the property that occurs during the tenancy.
Landlords are able to recoup expenses for damage to the property or its contents, alongside any rental payments that may have been missed by the occupants. However, similarly to the holding deposit, the Tenant Fees Act 2019 also established a monitory threshold on the amount landlords are able to charge residents for the security deposit.
The act dictates that if the annual rental charge for the property is up to £50,000 the landlord is able to ask their tenants pay up to the equivalent of five weeks rent for the security deposit; however if the amount the occupants pay each year in rent is over this amount, the owner can request they pay as much as six weeks rent for this deposit.
If a tenant fails to pass the referencing process this does not automatically entitle the landlord to keep any amounts paid towards the holding deposit. As mentioned, if the tenant provides the owner with false or misleading information during referencing then the landlord is entitled to retain the amounts taken for the holding deposit. However, if the tenant has failed the affordability checks determining the likelihood of the tenant consistently paying rent, the landlord could still offer the renter a tenancy on the provisions that they obtain a guarantor, or pay rent in advance.
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