Is a Holding Deposit Same as a Tenancy Deposit?

Written By PropertyLoop
February 16, 2021

You can be forgiven for getting confused over the different types of deposits involved in letting, particularly if this is your first time renting a property. With both a holding deposit, security deposit and potentially rent in advance all to cough up before moving in, we offer this guidance to first-time tenants to cut through the confusing upfront costs to renting.

Is a holding fee the same as a deposit? PropertyLoop

What Is a Holding Deposit When Renting?   

Tenants will be expected to pay a holding deposit once they have found a rental property that they wish to rent and need to “reserve” the opportunity. Once the holding deposit is paid to the landlord, they must remove any advertisement for the rental and proceed to negotiate with the aspiring tenant, placing them through the referencing process and setting a date for the all-important move.  

What Is a Tenancy Deposit?   

A tenancy deposit is commonly requested by a landlord at the start of a tenancy, offering the owners a financial safety net against any issues that occur during the tenancy. This is because the deposit is held until the end of the fixed period, allowing the landlord to deduct the cost of any repairs that need to be carried out because of the tenant’s negligence. It is worth noting that owners are strictly prohibited from making deductions for damage that would be considered “fair wear and tear”, put simply the damage that is expected to occur within a property over the course of many tenancies.  

Although many will associate a tenancy deposit with deductions been made for damage, landlords are also able to use the deposit to recover any amount not paid in rent by the tenant; however, with a limit being placed on the amount a tenant is obligated to pay for a security deposit, landlords will unfortunately not be able to recover significant amounts of rent arrears through deposit deductions.  

Can landlord keep holding deposit?PropertyLoop

How Much Is a Holding Deposit?

Once again upheld by the reforms introduced by the 2019 tenant fees act, landlords are unable to ask their aspiring renters to pay more than the equivalent cost of a single weeks’ rent for the holding deposit. 

Are Tenancy and Holding Deposits Refundable?   

Typically, if both the landlord and the renter agree to enter into a tenancy agreement, the sums paid for the holding deposit will be deducted from the tenant’s first rental payment. However, it is not uncommon for this amount to simply be transferred back to the tenant.  

Further to this if the landlord decides that they simply do not wish to rent to the tenant then the holding deposit will be refunded in full. However, if the renter changes their mind or the tenant provides false or misleading information during the referencing process then the sums can be kept by the landlord as compensation for withdrawing their rental opportunity from the market.  

How Much Is a Security Deposit?   

After the introduction of the Tenant Fees Act, a threshold was placed on the amount a landlord could request their tenants pay for a security deposit. The regulations state that the amount a landlord can ask their tenants to pay for a tenancy deposit is informed through the annual rental charge for the property. If the occupants pay up to £50,000 each year in rent then they can ask for no more than five weeks rent; however, if the tenants pay over £50,000 in rent each year the landlord can request as much as six weeks rent for the tenancy deposit.  

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