What is a holding deposit?
When you want to rent a flat – either through a letting agency or from a landlord – you may encounter two types of deposits: a security/tenancy deposit and a holding deposit. They are separate from each other and their legal principles are different.
Imagine a situation where you find a perfect house or a flat of your dreams. You have decided to rent it but you are still in the middle of referencing process, where your references from the previous landlord, your credit history and employment conditions are being verified. You may have concerns that before the referencing process ends, someone else will take over your dream property. This is where you can use a holding deposit.
How much is a holding deposit?
This is usually the amount of rent for the period of one week, which you pay to a letting agency or a landlord to declare your genuine interest in a tenancy, and also to reserve a chosen flat or house. You then agree to sign a tenancy agreement right after you pass your referencing process, whereas the agency or landlord agree to withdraw the property from the market for the meantime.
What is the difference between a security/tenancy deposit and a holding deposit?
A security/tenancy deposit is usually the amount of rent for the period of four to six weeks, payable together with the amount due for the first month. It is paid at the same time a tenancy agreement is being signed, and it is a form of security for the landlord in the event of damage to a rented house or flat. It is important to note that the deposit payment must be registered, and that such deposits are subject to deposit protection scheme according to the Housing Act 2004.
Holding deposits, on the other hand, are not subject to deposit protection scheme. The payment of a holding deposit is already a kind of a tenancy agreement that imposes obligations on both parties. It is therefore necessary to take into account all aspects that may affect the return or the retention of the deposit.
When is a holding deposit non-returnable?
After you sign a tenancy agreement once your referencing process has been completed, your holding deposit becomes fully returnable – either separately from other fees, or as a reduction of the first month’s rent.
You are also entitled to a full return of your holding deposit when a landlord or a letting agency eventually decides not to let you the property.
If you are unable to move in due to unforeseeable circumstances such as serious health problems, or because in the meantime the property has become uninhabitable (e.g. due to damage), then your holding deposit should be returned as well. However, such circumstances should be clearly defined in advance in an agreement signed by both parties.
On the other hand, if a tenancy agreement is not concluded through your fault (change of decision without providing a specific or important reason, intentional deception of a landlord, etc.), then you lose your right to receive a deposit return. A landlord or a letting agency may keep the deposit as a form of compensation for the losses incurred in this way.