Do I return a holding deposit if I don't take a tenant?

Question

I have taken a holding deposit from a potential tenant, but it turns out that we’re not going to move forward with the tenancy after all. Do I have to return the full deposit?

Answer

It depends on the circumstances.

You are allowed to keep a holding deposit in the event of a tenant not wishing to move forward with the property. If they pull out of the agreement, you can retain the holding deposit in order to cover any potential costs that you might have incurred. These can include loss of rent, referencing costs and inventory costs.

If you choose not to proceed with the tenant, even if this is on the grounds of a failed reference check, you are not permitted to keep the deposit.

Unlike a security deposit, you do not have to protect a holding deposit within a scheme as they are not kept for the entire length of a tenancy. If the holding deposit is then used as some, or all of the security deposit when the eventual tenancy agreement is sign it must be protected in the normal way, and prescribed information must be issued as normal.

However, it is a good idea to issue the individual with a document to say that you have taken it, and if you return it, a document to state that this has been returned. Doing this via email will give you a solid digital paper trail, should the individual raise any sort of dispute.

There are changes afoot with regards to how holding deposits are managed, in relation to the Tenant Fee Bill. The bill has just been published and states that you are only allowed to take one weeks’ rent as a holding deposit. Concern has been expressed over how this could impact some landlords, especially those in high rent areas such as London.

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