What is a holding deposit and should I be taking one from new tenants as a matter of course?
Holding deposits are by no means a legal requirement, and are not required in all situations.
A landlord may choose to request a holding deposit if a tenant has shown an interest in their property, but there is further action to be taken – referencing, credit checks etc – before the tenancy agreement can be signed.
By taking a deposit whilst these actions are being carried out, the landlord is being safeguarded against any potential loss of revenue from the property should the tenant withdrawn from the transaction. This is particularly relevant if there is other people interested in the property, and by ‘taking a chance’ on one individual, the landlord risks losing other prospective tenants.
If the worst should happen and the tenant withdraws, the landlord may decide to keep hold of the holding deposit as ‘compensation’ for time wasted. If this is the case, a full written explanation must be provided to the potential tenant at the time that the deposit is taken.
It is important to remember that failing reference checks is not a suitable reason to withhold a holding deposit, as this would constitute the landlord declining the contract.
If the transaction successfully proceeds to a tenancy agreement, the holding deposit would generally be returned to the tenant or credited as rent.
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