What is a Holding Deposit?
The holding deposit is sometimes called a holding fee. The rules for holding deposits are set in the Tenant Fees Act, TFA, (2019).
A holding deposit is a refundable payment made by the tenant to the landlord or their agent. The holding deposit should only be placed once the general terms of the let are agreed. That means:
- The move-in date
- The terms of the tenancy agreement
- The rent
- The tenants
- The length of the fixed term
- The rental period (e.g. quarterly, monthly or weekly)
If the landlord wishes to change any of these things after you have paid the deposit, then you can refuse. If this prevents the tenancy going ahead, then you should receive the holding deposit back in full.
One you have paid the holding deposit, the tenancy is taken to be agreed subject to referencing. The landlord should not proceed with other tenants, and must not accept any other holding deposits. The landlord or agent will hold your holding deposit while we run any referencing checks they may require. Referencing is free of charge.
How Much Is a Holding Deposit?
The TFA capped holding deposits placed after 1st June 2019 at a maximum of one week's rent. Any payment over one week's rent will constitutes a prohibited payment.
What Happens to My Holding Deposit?
Once the holding deposit is paid, three things can happen:
1. The tenancy proceeds
2. The tenancy doesn't go ahead because the landlord pulls out
3. The tenancy doesn't go ahead because you pulled out
Landlords/agents only allowed to keep the holding deposit for 15 days, unless you agree another deadline in writing. If the landlord has failed to accept or reject your application by the deadline, then the money must be returned to you in full.
1. The Tenancy Proceeds
If the landlord is happy with your referencing report, they will go ahead with the tenancy. In this case, you get the holding deposit back or the money is usually put towards the other move in cost such as the rent or deposit.
2. The Tenancy Doesn't Go Ahead Because the Landlord Pulls out
If the landlord decides not to proceed, then your holding deposit should be refunded in full. Landlords are no longer allowed to deduct any fees or costs of referencing from your holding deposit.
3. The Tenancy Doesn't Go Ahead Because You Pull out
If you pull out, the landlord/agent is entitled to your holding deposit as forfeit. In this scenario, you don't get your deposit back. It goes to the landlord or agent to cover them against any loss of time and money.
What is a Tenancy Deposit?
The tenancy deposit on an occasion is called a security deposit. The deposit is paid at the start of the tenancy. It is refunded to the tenant at the end of the tenancy, but the landlord can make deductions from it to pay for:
- The repair of any damage done to the property
- Permitted fees that are included in the tenancy agreement (e.g. replacing lost keys)
When you pay the tenancy deposit, the landlord must register it with a government-approved deposit protection scheme, such as the DPS or TDS. The landlord/agency will also have to send you information about the scheme they've used, total deposit and how you can contest any deductions they may make.
This information is called the prescribed information. The landlord must give it to you within a time limit of 30-days from when you pay the deposit.
How Much Is a Tenancy Deposit?
The size of the tenancy deposit is limited by the TFA. It must be no more than 5 weeks' rent. If your tenancy began after 1st June 2019, and you paid a deposit that is more than five weeks' rent, then this is a prohibited payment and the landlord/agency must refund you the excess amount immediately.
If you paid a tenancy deposit that is more than 5 weeks' rent, but your tenancy began before 1st June 2019 then no action is needed until 1st June 2020. Your landlord must refund you the excess amount before 1st June 2020, as after this date, the new TFA rules apply to all existing tenancies.
What Can Be Deducted From a Tenancy Deposit?
Your landlord/agency can deduct any rent you owe when you move out. They can also make deductions for missing items that were supplied within a furnished property.
Deductions can be made for damage to the property, but not for normal wear and tear. There's no precise definition of wear and tear, but if you use the property and its supplied furnishings in a normal, responsible way, then you shouldn't have to pay any damages.
What Are Rental Fees?
The TFA banned all mandatory rental fees except:
- The rent
- The holding deposit
- The tenancy deposit
- Some contractual default fees
Optional fees are still legal, but they must be truly optional. An optional fee might be that the tenant either must return the property in a clean state or pay for a professional cleaning service. Because the fee can be avoided by cleaning yourself, the fee is optional and therefore permissible.
Rent in Advance
Tenancies in the UK require the rent to be paid in advance of the rental period the rent covers. For example, if your rental period runs from the 5th of the month to the 4th of the following month, then you would need to pay your rent for the upcoming month before the 4th.
The alternative, paying for the month just gone, is called paying in arrears. However, this is not very common.
Paying More than One Month in Advance
When it comes to moving in, you must pay the first month's rent in advance. You may also be asked or agree to paying additional months' rent in advance. This happens quite often, but usually it is only one month's rent that is required.
If you have agreed to pay more than one month's rent in advance, then you won't need to pay again until the time period that rent covers has elapsed.
For example, if you pay three months' rent in advance for a tenancy beginning in September, then you won't need to pay again until December's rent is due.