Renting a property involves several steps, and one of the first things tenants will need to know about is the holding deposit. This payment is a key part of the rental process, but understanding its purpose, how it works, and when it’s refundable can help both tenants and landlords ensure a smooth experience. In this guide, we’ll break down the basics of holding deposits, how they fit into the renting process, and what both parties need to know.
Related: The landlord guide to amending and renewing tenancy agreements
What is a holding deposit?
A holding deposit is a small payment made by a potential tenant to reserve a rental property before the formal tenancy agreement is signed. It shows the landlord or letting agent that the tenant is serious about renting the property and intends to proceed with the application. The holding deposit essentially “holds” the property for the tenant while background checks and other necessary steps take place.
In essence, the holding deposit secures the property for a short period, ensuring the property is taken off the market while the tenant’s application is processed.
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How does a holding deposit work?
Once a tenant expresses interest in a property, the landlord or letting agent may ask for a holding deposit to confirm that the property will be held for them while they complete the application process. This deposit is typically equal to one week’s rent, though this can vary depending on the property or landlord’s policy.
During this time, the landlord will carry out necessary checks, such as referencing and credit checks, to ensure the tenant is suitable for the property. If everything is in order and both parties agree to move forward, the holding deposit is usually applied to the tenancy deposit or the first month’s rent when the tenancy agreement is signed.
Related: Landlord guide: How to conduct a rent- to- right check
What does a holding deposit agreement cover?
A holding deposit agreement is a document that outlines the terms and conditions surrounding the holding deposit. This agreement ensures that both tenants and landlords understand what is expected and when the deposit will be refunded. It typically includes:
- The amount of the holding deposit
- The timeframe during which the property will be held (usually 14 days)
- The conditions for refunding or retaining the deposit
- The process for progressing to the formal tenancy agreement
Having a clear holding deposit agreement in place helps both parties know what to expect and can prevent misunderstandings down the line.
Related: Understanding tenancy deposit protection
Holding deposit refund: When is it refundable?
A holding deposit refund is issued when the application progresses, and both parties sign the tenancy agreement. However, there are circumstances where the holding deposit may not be refunded. These include:
If the tenant decides not to proceed: If the tenant pulls out of the rental application or decides they no longer wish to rent the property, the deposit may not be refunded.
If the tenant provides false or misleading information: If a tenant fails a background check or provides inaccurate information during the application process, they may lose the holding deposit.
If the tenant fails to meet the conditions outlined in the holding deposit agreement: If the tenant fails to comply with the agreed terms (such as submitting required documents or meeting deadlines), the holding deposit could be withheld.
In most other cases, such as if the landlord decides not to proceed with the tenancy or the property is withdrawn from the market, the holding deposit should be refunded in full.
Related: What rights to private tenants have?
How much is a holding deposit?
The amount of a holding deposit is typically one week’s rent, though this can vary depending on the property or landlord. The amount is usually clearly stated in the agreement, and it’s important that tenants confirm the exact amount before making any payments.
Landlords are legally restricted from charging more than the equivalent of one week’s rent for a holding deposit, ensuring the payment remains affordable and fair for tenants.
Holding deposit and tenancy: How are they linked?
Once the holding deposit is paid, the property is secured for the tenant while the rental application is processed. If everything goes smoothly and both parties agree to move forward, the holding deposit is typically deducted from the tenancy deposit or first month’s rent.
If the tenant successfully moves into the property, the holding deposit forms part of the total payment toward the rental agreement. However, if the tenancy does not proceed, the holding deposit may be refunded, depending on the terms of the agreement.
More clarity and support
A holding deposit is an essential part of the renting process, providing security for both tenants and landlords. For tenants, it ensures the property is held while their application is processed, and for landlords, it demonstrates the tenant’s commitment to renting the property. By understanding how holding deposits work, what’s required in a holding deposit agreement, and when they are refundable, both tenants and landlords can avoid confusion and move forward with confidence.
If you’re looking for more clarity on holding deposits or need assistance with the renting process, get in touch with your local Ellis & Co branch today. We’re here to help.
