How to keep your holding deposit and the law on your side

So, you’ve seen what seems like a million properties and you think you’ve finally found the one, but you worry that someone else will snap it up before you. This is where the holding deposit comes into play. But first things first…

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What is a holding deposit and is it the same as a tenancy or security deposit?

A holding deposit is a sum of money that you pay to your prospective landlord or lettings agency to reserve a property and make sure nobody else gets to view it.

A holding deposit is not the same as a tenancy deposit. The latter is more like a prenuptial agreement — a security measure that is designed to protect if things go wrong AFTER signing on the dotted line. On the other hand, a holding deposit is like an engagement ring. It’s a formal show of intent and, in this case, that is your decision to rent a particular property.

Do you need a formal holding deposit agreement?

You are certain you like the property and want to rent it, you hand over your money and happily walk away with the knowledge that the place will definitely be yours in the very near future, right? Wrong!

Sometimes a property is marketed by more than one estate agent and despite you paying for it to be “reserved”, someone else might still beat you to it. So, before you let go of your hard-earned cash, here’s what you need to know.

Payment of any kind of a deposit enters you into what is essentially a contractual agreement. But what are you agreeing to? Be sure to discuss the exact conditions under which the landlord or agent will hold the property for you. For example, what would happen if either party decides to back out?

To go further

>>>The tenant’s guide to deposits
>>> Common ways to lose your deposit
>>> Difference between holding fees, admin fees and deposits
>>> 5 easy steps for a proper check-in when renting

The holding deposit agreement should include details of any administrative fees, whether any part of the deposit will be retained and under what circumstances. Sometimes, the holding deposits will be transferred towards a tenancy deposit upon signing the tenancy agreement. This too should be specified. The signed holding deposit agreement can be used as your payment receipt.

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Is my deposit covered by the Tenancy Deposit Protection Scheme?

Unlike the tenancy deposit, a holding deposit is not subject to the government-backed deposit protection scheme. This makes obtaining a signed agreement even more important. However, once you become a tenant, your holding deposit can be transferred into the protected deposit account and then it becomes part of your tenancy deposit.

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What happens if it all turns sour?

You should expect to receive the full holding deposit back if the prospective landlord or letting agent decides not to go ahead with the tenancy. If you weren’t able to move into a property due to exceptional circumstances (e.g. an unexpected and serious health issue, hospitalisation, etc.) or if the property became uninhabitable before you entered into a tenancy agreement, your holding deposit is likely to be returned.

If you can’t come to an amicable agreement with your prospective landlord or the estate agent, a court can help you settle the dispute.

For a court to enforce a contract its terms must be clear and fair. The government has produced Guidance on Unfair Terms in Tenancy Agreements that specifies how a court is likely to act in a handling a deposit dispute.

A blanket “no refunds” clause, for example, is unlikely to be considered fair by the courts. A landlord or his estate agents are also not supposed to impose unfair penalties (those that significantly exceed any actual losses).

But what if it’s you who decides to pull out of the deal? Paragraph 3.42 of the Guidance states the following: ‘where cancellation is the fault of the tenant, the landlord or agent is entitled to hold back from any refund of prepayments a reasonable sum to cover either the net costs or the net loss of profit. Tenants would be at fault if, for instance, they gave false or misleading information, but not merely because the landlord thought their references were not sufficiently good.’

Know your rights, be honest, and your holding deposit will be safe.

Discussion6 Comments

  1. Avatar

    Hello,
    I just searched for the document, and saw it has been withdrawn in June.
    Does it mean that the document is not valid anymore ?
    Thank you
    Bence

  2. Pingback: What Happens To Your Application Deposit If You Don’t Rent? | Apartment Agents Blog

  3. Avatar

    “However, once you become a tenant, your holding deposit can be transferred into the protected deposit account and then it becomes part of your tenancy deposit.”

    -What makes the tenant a tenant. Is this when we receive the signed contract or when the contract begins?
    A tenant would’nt have tenure over the property unless they move in, am I mistaken?

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