The DIY Landlord – What is a holding deposit?

A guest blog on being a DIY landlord from self service letting agents, Upad:


When a tenant has made an acceptable offer on your property, you might want to take a holding deposit to “reserve” it for them while you carry out the credit checks, verify their references and prepare the tenancy agreement.

Only when they’ve paid a deposit can you be sure that they’re serious about taking the property and that they haven’t put offers on other places at the same time. It’s not unusual for tenants to change their minds about a place, especially those renting rooms in house-shares.

A holding deposit can be as much or as little as you feel comfortable with, but to give you an idea of what’s “normal,” letting agents usually ask for £100 to £500, depending on the value of the rent.

It’s important that you explain to the tenant that if they back out of the deal they might lose some or all of their holding deposit. You should put this in writing by creating a holding deposit agreement for both you and the tenant(s) to sign.

Once the tenant is ready to move in, you can deduct the holding deposit from the first month’s rent.

You mustn’t make the mistake of stating the tenants deposit is “non-refundable”, as this could be in breach of trading standards regulations.

If the tenant changes their mind and doesn’t take the property, you must grant a holding deposit refund and return their holding deposit minus any costs you’ve incurred on their behalf and any loss of rent you’ve suffered as a result of their action.

Unless you ask a tenant to pay separately for credit checks, you can deduct the cost of these from the holding deposit along with the cost of preparing a tenancy agreement, inventory and check-in report if they decide to back out of deal.

If the tenant changes their mind shortly before they’re due to move in and you’re left with a void as a result, you can also deduct the cost of the lost rent from the tenants’ deposit.

Incidentally, this doesn’t need to be protected in a government authorised scheme because holding deposits are not kept for the duration of the tenancy.

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