Understanding Holding Deposits

A holding deposit is a sum of money a prospective tenant pays to a landlord or letting agent to reserve a property while their application is being processed. It essentially takes the property off the market, preventing other potential tenants from viewing or applying for it. This deposit serves as a gesture of commitment from the renter and a safeguard for the landlord against the property being left vacant due to the tenant changing their mind.

What is the Purpose of a Holding Deposit?

The primary purpose of a holding deposit is to secure the property for a specific period. It signifies your serious intent to rent the property and allows the landlord or agent to begin the referencing process, which can take time. It also provides a degree of security for the landlord, knowing that if the tenant withdraws their application without a valid reason, they can retain the deposit to cover some of their losses (such as lost rent or re-marketing costs).

How Much Can a Landlord Charge for a Holding Deposit?

In the UK, the Tenant Fees Act 2019 significantly limits the amount that can be charged for a holding deposit. For most tenancies, a holding deposit cannot be more than **one week’s rent**. If the monthly rent is £1,000, then the maximum holding deposit is approximately £230 (calculated as £1000 / 12 months * 1 week). This cap is designed to prevent landlords from demanding exorbitant sums upfront.

When Should a Holding Deposit be Returned?

There are several scenarios in which a holding deposit must be returned to the tenant, usually within 7 days of receiving it:

• If the landlord or letting agent decides not to proceed with the tenancy after receiving the deposit.
• If the landlord or agent fails to provide the tenant with required information about the property or the tenancy agreement within the agreed timeframe.
• If the tenant decides not to proceed with the tenancy, but only if they do so before the deadline set for the tenancy to commence and before the landlord has reasonably incurred costs.
• If the tenant has provided false or misleading information in their application, and the landlord discovers this.

When Can a Landlord Keep a Holding Deposit?

A landlord or letting agent can lawfully retain a holding deposit under specific circumstances, as outlined by the Tenant Fees Act 2019:

• If the tenant withdraws their application or decides not to proceed with the tenancy, and there was no valid reason for them to do so.
• If the tenant fails to take reasonable steps to enter into a tenancy agreement after the landlord has taken reasonable steps to offer it. This could include failing to respond to communication or refusing to sign the contract without a valid excuse.
• If the tenant provides false or misleading information in their application, which the landlord relied upon when deciding to offer them the property.

It’s important to note that the landlord must provide evidence to justify retaining the holding deposit. They cannot simply keep it without a valid reason.

The Tenancy Agreement and Holding Deposits

Once a tenancy agreement is signed, the holding deposit is typically treated as a part-payment towards the first month’s rent or the tenancy deposit (security deposit). If it’s treated as a tenancy deposit, it must then be protected in a government-approved deposit protection scheme within 30 days of receipt. If it’s used towards the first month’s rent, this should be clearly stated in the tenancy agreement.

Understanding Referencing Fees

Referencing fees, often referred to as tenant referencing or credit checks, are charges levied by landlords or letting agents to verify a prospective tenant’s suitability for a rental property. This process typically involves checking your credit history, employment status, income, and previous landlord references.

What is the Purpose of Referencing?

The primary purpose of referencing is to mitigate risk for the landlord. By assessing a tenant’s financial stability and reliability, landlords aim to ensure that rent will be paid on time and that the property will be well-maintained. Referencing helps landlords make informed decisions about who to rent their property to.

Are Referencing Fees Legal?

Under the Tenant Fees Act 2019, **referencing fees are now largely prohibited for new tenancies signed on or after 1 June 2019**. Landlords and letting agents cannot charge prospective tenants for carrying out credit checks, affordability checks, or obtaining references from previous landlords.

What About Referencing for Guarantors?

There is a specific exception related to guarantors. If a tenant requires a guarantor, and the landlord or agent needs to conduct referencing on that guarantor, then a fee can be charged. However, this fee is capped at a maximum of **£20 (including VAT)** per guarantor.

What if I Signed a Tenancy Agreement Before 1 June 2019?

If you signed your tenancy agreement before 1 June 2019, the rules regarding referencing fees may differ. The Tenant Fees Act 2019 primarily applies to new tenancies. If you are on a periodic tenancy that started before this date, you may still be subject to the old rules. However, for any new fixed-term tenancy signed after this date, the prohibition on referencing fees generally applies.

What if a Landlord or Agent Charges Prohibited Fees?

If a landlord or letting agent charges you for referencing or any other prohibited fee, they are acting unlawfully. You have the right to:

• Refuse to pay the illegal fee.
• Report the landlord or agent to Trading Standards.
• Seek a refund for any prohibited fees you have already paid.

Trading Standards can issue fines and take legal action against landlords and agents who breach the Tenant Fees Act.

Key Differences and Similarities

While both holding deposits and referencing fees are upfront costs associated with renting, they serve distinct purposes and are governed by different rules.

Table: Holding Deposits vs. Referencing Fees

Overlapping Concerns

It’s crucial to distinguish between the two. A holding deposit is a payment made to secure the property, while referencing is the process used to evaluate your application. While referencing is now free for tenants, the holding deposit still plays a role in the initial stages of renting.

Your Rights as a Renter

As a renter, you have significant rights concerning holding deposits and referencing fees. Familiarising yourself with these rights is your first line of defence against unfair practices.

What Information Should You Receive?

Before paying any holding deposit, you should receive clear information about:

• The amount of the holding deposit.
• What the holding deposit is for.
• The circumstances under which the landlord or agent can keep the deposit.
• The deadline for entering into the tenancy agreement.

For any legitimate charges (like a guarantor referencing fee), you should receive a clear breakdown of what you are paying for.

What to Do If You Suspect Unlawful Fees

If you believe you have been charged an illegal fee:

1. Communicate with the Landlord/Agent: Politely point out the relevant legislation (Tenant Fees Act 2019) and request a refund. Keep all communication in writing.
2. Seek Advice: Contact a local Citizens Advice Bureau, Shelter, or a reputable tenant’s union for free advice.
3. Report to Trading Standards: If the landlord or agent refuses to comply, you can report them to your local authority’s Trading Standards department. They have the power to investigate and issue fines.
4. Consider Legal Action: In some cases, you might consider small claims court to recover unlawfully charged fees.

Tips for Renters

To ensure a smooth and fair renting experience, consider these practical tips:

• Read Everything Carefully: Before signing any agreement or paying any money, read all documents thoroughly.
• Get Everything in Writing: Any agreements, promises, or details about fees should be documented in writing.
• Understand the Deadline: Be aware of the deadline for signing the tenancy agreement after paying a holding deposit.
• Keep Records: Retain copies of all receipts, communications, and agreements.
• Don’t Be Pressured: If something feels wrong or unclear, don’t feel pressured to proceed.
• Research the Landlord/Agent: Look for reviews or ask for recommendations if possible.