Holding Deposit Guide: UK Rules and Tenant Fees Act 2019 Compliance

For both first-time landlords and tenants, the holding deposit process often raises significant questions. When will the deposit be returned? Is it considered a prohibited tenant fee? Understanding how to handle these payments is crucial for remaining compliant with UK rental law. Therefore, this guide provides a comprehensive overview of holding deposit rules to ensure a smooth tenancy transition.

Furthermore, as the rental market becomes increasingly regulated, precision in handling deposits is essential. Consequently, both parties must understand their rights and obligations under the Tenant Fees Act 2019. Regardless of whether you are a landlord or a prospective tenant, the following sections will clarify the most common misconceptions.

What is a holding deposit and how does it work?

Importantly, a holding deposit (sometimes referred to as a holding fee) is a short-term payment made by a prospective tenant to “reserve” a property while reference checks are completed. To ensure you follow the correct procedure, follow these steps:

1. Apply to rent the property and agree on the basic terms of the tenancy.
2. Pay a holding deposit, which must not exceed one week’s rent in England and Wales.
3. Undergo formal tenant reference checks, including credit and employment verification.
4. Sign the tenancy agreement before the “Deadline for Agreement” (usually 15 days).
5. Deduct the holding deposit from the first month’s rent or the security deposit upon successful completion.

Holding Deposits vs Tenancy Deposits: Key Differences

Crucially, a holding deposit is distinct from a standard tenancy deposit. While a holding payment is made before any agreement is signed, a tenancy deposit is usually paid just before the move-in date. Moreover, in England, tenancy deposits are capped at five weeks’ rent for properties under £50,000 per annum, or six weeks for higher rents.

In addition, tenancy deposits must be stored in a government-approved deposit protection scheme such as the Deposit Protection Service (DPS) or MyDeposits. However, a holding deposit does not legally require protection in a scheme, as it is intended to be a temporary measure. As a result, landlords must be diligent in tracking these payments to avoid disputes later.

Legality in England, Wales, and Scotland

Furthermore, it is important to note that the legality of a holding deposit varies significantly across the UK. In England and Wales, a deposit of one week’s rent is permitted under the Tenant Fees Act 2019 and the Renting Homes (Wales) Act 2016. In contrast, holding deposits are generally considered illegal “premiums” in Scotland under the Housing (Scotland) Act. Therefore, Scottish landlords can only ask for a tenancy deposit once an agreement is reached.

Reference Checks and the Deadline for Agreement

Once the holding deposit is paid, the landlord or agent will typically carry out formal references. This includes a 6-year credit check, an employment reference, and a previous landlord reference. Importantly, the “Deadline for Agreement” is the date by which the tenancy agreement must be signed—usually 15 days after the deposit was paid. If the deadline passes without an agreement, the deposit must usually be returned unless the tenant is at fault.

When can a landlord keep a holding deposit?

Moreover, while the intention is always to return the deposit or offset it against rent, there are specific circumstances where a landlord or agent can legally retain the funds. Crucially, these include:

• The tenant provides false or misleading information that affects the landlord’s decision to let.
• The tenant pulls out of the arrangement before the tenancy agreement is signed.
• The tenant fails a Right to Rent check (Section 22 of the Immigration Act 2014).
• The landlord takes all reasonable steps to enter the agreement, but the tenant fails to do so.

Consequently, landlords must provide a written explanation within 7 days if they intend to keep the holding deposit. Failure to do so may result in a breach of the Tenant Fees Act 2019, leading to potential fines.

Is a holding deposit a prohibited tenant fee?

Alternatively, some tenants worry that a holding deposit is a prohibited fee. However, under the Tenant Fees Act 2019, it is explicitly listed as a “permitted payment.” In addition, because the money is either returned to the tenant or deducted from their first month’s rent, it is not considered a fee for service. Importantly, LettingaProperty ensures all our processes are fully compliant with the latest UK legislation, including Gas Safety (CP12) and EICR requirements.

Frequently Asked Questions (FAQs)

How much can a landlord ask for as a holding deposit?

In England and Wales, the maximum amount a landlord or agent can ask for is one week’s rent. Any amount above this is a prohibited payment under the Tenant Fees Act 2019.

When do I get my holding deposit back?

If the tenancy goes ahead, the deposit is usually deducted from your first month’s rent. If the landlord decides not to proceed, the deposit must be returned in full within 7 days of the decision.

Can a landlord keep my deposit if I fail referencing?

A landlord can only keep the deposit if you provided false or misleading information. If you were honest about your circumstances but still failed to meet the criteria, the landlord must usually return the deposit.