A ‘holding deposit’ or ‘reservation deposit’ is different to a ‘Tenancy Deposit’.
Holding deposits
Holding deposits (often the equivalent of a week’s rent) are taken so that the agent or landlord can take the property off the market whilst they conduct their reference checks.
Assuming the reference checks are successful, this holding deposit is normally then offset against either the rent or the deposit due for the tenancy. If, however, the references or your application are unsuccessful, you’ll usually lose your deposit.
It’s important when paying a holding deposit that you clarify the exact terms under which you are paying it and what will happen to the money once it has been paid.
We’d recommend clarifying the following points before handing over any money:
- What is the holding deposit for?
- What will happen to the holding deposit if my application is successful?
- What will happen to the holding deposit is my application is unsuccessful?
- How do I get the holding deposit back?
Failure to protect your deposit
If the landlord fails to protect the deposit properly, a court can award a penalty of up to three times the value of the deposit to the tenant. The landlord will also not be able to serve notice properly for you to vacate.
Getting your deposit back
The release of funds at the end of the tenancy requires both parties to agree on any deductions. If they aren’t able to do so, the schemes will provide an Alternative Dispute Resolution (ADR) process to arbitrate. If either the landlord or tenant does not agree to the ADR process, they will need to initiate a claim through the courts.
Any interest earned by holding the deposit would be retained by the party holding the funds. It is important to distinguish the money as client money, not trading funds.
