As a landlord in Rugby, you may ask what are holding deposits, and wonder how holding deposits work. Two common questions our team at Horts often answer are:
“Why are holding deposits needed?“
“When is a holding deposit returned?”
To help, the Horts team has compiled an overview so you can gain an understanding of holding deposits for landlords.
What are holding deposits and are they the same as a tenancy deposit?
The first confusion arises when landlords mistake a holding deposit and a tenancy deposit for the same thing. This isn’t the case. A holding deposit (or holding fee) is money prospective tenants pay when they apply for a rental property in Rugby.
A holding deposit secures the property and is made before the individual becomes a tenant. Once the holding deposit is paid, landlords are legally obligated to remove the rental property in Rugby from the market. Legally, a holding deposit can only be the maximum amount of one week of rent. A tenancy deposit differs and is paid before the tenant moves into the rental property. This can be a maximum of 5 weeks’ rent in England if the annual rent is under £50,000. It's 6 weeks’ rent if annual rent is over that figure.
A tenancy deposit is placed into one of the deposit protection schemes approved by the government. If this doesn't happen within 30 days of its receipt, landlords may face penalties. Holding deposits are not required by law to be put into one of the deposit protection schemes.
The Tenant Fees Act of 2019 introduced by the government aims to make the private rental market easier for tenants. It achieved this by removing administrative charges and high initial expenses that would often overwhelm first-time renters.
Among the reforms was the adjustment of the amount of holding deposit landlords can request from tenants.
Once a tenant has paid a holding deposit, the landlord carries out reference checks. When the tenant passes those checks, the next step is to sign the tenancy agreement and arrange a move in date. Should the tenant fail the checks, however, the amount paid as a holding deposit will come into play.
Can I get my holding deposit back if I don't pass referencing?
Failing the referencing process doesn't automatically give the landlord the right to withhold any sums paid as the holding deposit. However, if the tenant has provided false or misleading information the landlord has the right to keep the holding deposit. If the tenant doesn't pass the affordability checks, the landlord may still offer a tenancy. In this case, the tenant would need to find a guarantor or pay rent upfront. If the landlord chooses to no longer proceed with renting out the property, the tenant will receive their deposit back.
In a similar vein, if the tenant submits their application and progresses to referencing before backing out, retaining the deposit is often the course of action. So, as you have read here, understanding holding deposits is crucial!
When is a holding deposit returned?
When the holding deposit is paid by the tenant, an agreement with the landlord must be reached within 15 days. If this deadline is not met and the tenant has done all they can to secure a tenancy, the landlord must refund the full holding deposit within 7 days. When everything goes smoothly with the tenant’s application, the tenant will receive the amount of their holding deposit back. This is usually in the form of a deduction from the first month of rent paid.
Are tenant fees and holding deposits the same thing?
Holding deposits aren’t fees that tenants are charged. Rather, they’re safety measures that protect landlords and their letting agent in Rugby from any financial losses. A ban on tenant fees enacted in 2019 has caused some confusion about holding deposits. However, since tenants receive back the amount they pay as a holding deposit, it isn’t deemed to be a fee. Therefore, it’s entirely acceptable and encouraged.
To find out more about holding deposits, lettings and property management services in Rugby, please get in touch with the lettings team at Horts on 01788 550044 or email lettings@horts.co.uk.
You may also be interested to read: Should You Work With A Letting Agency In Rugby
