What are the rules for charging a holding deposit?

It is fairly normal for a landlord or letting agent to charge a holding deposit to a prospective tenant so the property is held for them (and the property is taken off the market) while the tenant is checked out and the paperwork drawn up.

You don’t have to charge a holding deposit if you don’t want to, but if you do decide to do this, there are now strict rules.

For English tenancies, the rules for this are set out in the Tenant Fees Act 2019.

In Wales, different rules apply under the Renting Homes (Fees, Discrimination etc.) (Wales) Act 2019. Unless otherwise stated, the guidance below concerns England. The Welsh differences are explained below.

How much can you charge?

You can charge up to one week’s rent. This is the annual rent divided by 52. You should round DOWN rather than up.

If several tenants will share under a joint tenancy, the maximum is one week’s rent for the whole tenancy, divided between them. You cannot charge each applicant that amount separately. Where rooms are let under separate tenancies, the cap applies to the rent for each proposed tenancy.

In England, you must not take a holding deposit from another applicant for the same accommodation while an earlier holding deposit remains outstanding, unless it has been lawfully retained or applied towards rent or a tenancy deposit.

Your other responsibilities

• You should provide applicants with a draft copy of the tenancy agreement before taking the deposit
• You should make it clear to them what your expectations are and check their basic income and creditworthiness before taking the deposit
• Applicants need to know what sort of things will count against their creditworthiness
• You must not unlawfully discriminate

How long can the deposit be held?

There is a ‘deadline for agreement’. By default, this is the fifteenth day of the period beginning with the day the landlord or agent receives the holding deposit. The day of receipt counts as day one.

The landlord or agent and applicant can agree a different deadline in writing, including by exchange of emails. This can be longer or shorter than the default period.

If no tenancy agreement is entered into before the deadline, the deposit must normally be refunded within the following statutory seven-day period, unless the landlord or agent is entitled to retain it.

When should the deposit be repaid to the tenant?

Unless one of the exceptions below applies, the holding deposit must be repaid within the seven-day period beginning with:

• the date of the tenancy agreement, if the landlord and applicant enter into one;
• the date the landlord decides not to proceed, if that decision is made before the deadline for agreement; or
• the deadline for agreement, if no tenancy agreement has been entered into before that deadline.

The relevant date counts as day one of the seven-day period.

If the tenancy proceeds, the holding deposit can instead be applied towards the first payment of rent or the tenancy deposit, with the consent of the person who paid it. This might be a parent rather than the tenant. We recommend recording that consent in writing.

When can the deposit money be withheld by the landlord or agent?

• If the landlord is legally prohibited from granting the tenancy because the applicant does not have the Right to Rent, provided that neither the landlord nor any instructed letting agent knew, or could reasonably have been expected to know, this before accepting the deposit.
• If the applicant provides false or misleading information and if this materially affects their suitability as tenants – for example, if they say they have a higher salary than is, in fact, the case, or if they say they have no CCJs but your credit check shows that they do.  In this context see this video clip of a talk by David Cox.
• If the applicant notifies the landlord or agent before the deadline for agreement that they have decided not to proceed with the tenancy.
• If the applicant fails to take all reasonable steps to enter into the tenancy agreement before the deadline, despite the landlord and any instructed agent taking all reasonable steps on their side. For example, the applicant may fail to respond to reasonable requests for necessary information. A referee’s failure to reply does not, by itself, justify retaining the deposit.

However, you cannot rely on the applicant’s withdrawal or failure to take reasonable steps if, before the deadline, you or your agent imposed a prohibited requirement under the Tenant Fees Act, or behaved towards the applicant or someone acting for them in a way which made it unreasonable to expect the applicant to proceed.

If you retain the deposit, you must give the person who paid it written reasons within the seven-day period beginning with the landlord’s decision not to proceed, where made before the deadline, or otherwise beginning with the deadline for agreement. If you fail to give those reasons within the required period, you must repay the deposit.

Note that providing false or misleading information is not the same as simply failing referencing. The information, or the applicant’s conduct in providing it, must be relevant to the landlord’s decision whether to grant the tenancy. Misleading information can include failing to disclose relevant information when asked. An insignificant mistake does not justify retaining the deposit.

If an agent is used – who keeps the holding deposit if it is forfeit, the landlord or the agent?

This is not set out in the legislation and so will need to be agreed between the landlord and the agent.  Ideally, this is something that should be set out in the agency agreement with the landlord.

If there is no specific agreement that the agent will retain the holding deposit then it will need to be paid to the landlord as under agency law agents can only claim payments which are specifically authorised by their agency agreement.

However, there is no reason why the holding deposit money should not be retained and offset against the agents’ agreed fees.

Tenants rights in England

You need to be careful about offsetting the holding deposit against rent or the tenancy deposit, as if you do this without the consent of the person who paid it, they can apply to recover this through the First Tier Tribunal. So make sure you have written evidence of the payer’s consent, such as an exchange of emails or a signed copy letter, before you do this.

Application to the First Tier Tribunal is also the way for tenants to recover the holding deposit if you should have returned it when you should have done.