Confused about rental fees and costs? When you are about to rent a property, there are several different types of payment you will have to make. The main four are:
- the holding deposit
- the tenancy deposit
- rent in advance (usually one month’s worth)
To help you understand where your money is going – and where it shouldn’t be going – we’ve written a short guide for tenants on these four costs.
Together these costs are known as the move-in moneys.
What Is a Holding Deposit?
A holding deposit is a refundable payment made by the tenant to the landlord or their agent. The holding deposit should only be placed once the general terms of the let are agreed. That means:
- the move-in date
- the terms of the tenancy agreement
- the rent
- the tenants
- the length of the fixed term
- the rental period (e.g. monthly, weekly)
If the landlord wishes to change any of these things after you have paid the deposit, then you can refuse. If this prevents the tenancy going ahead, then you should receive the holding deposit back in full.
One you have paid the holding deposit, the tenancy is taken to be agreed subject to referencing. The landlord should not proceed with other tenants, and must not accept any other holding deposits.
The landlord or agent will hold your holding deposit while they run any referencing checks they may require. They may not charge you for referencing.
How Much Is a Holding Deposit?
The TFA capped holding deposits placed after 1st June 2019 at one week’s rent, maximum. Anything over that now constitutes a prohibited payment.
Before the TFA came into force, we ran a quick poll of renters and found that 69% of tenants have paid over £500 for a holding deposit, with 47% having paid over £750!
Hey Renters – what’s the most you’ve ever paid as a holding deposit on a rental property? 💸
— OpenRent (@OpenRent) September 19, 2017
What Happens to My Holding Deposit?
Once the holding deposit is placed, three things can happen:
- the tenancy goes ahead
- the tenancy doesn’t go ahead because the landlord pulls out
- The tenancy doesn’t go ahead because you pull out
It’s important to get the terms of the holding deposit in writing so that everyone knows what will happen in each of the three scenarios and how your holding deposit will be treated.
OpenRent’s holding deposit terms can be found here.
Landlords are only allowed to keep your holding deposit for 15 days, unless you agree another deadline in writing. If the landlord has failed to accept or reject your application by the deadline, then the money must be returned to you in full.
1. The Tenancy Goes Ahead
If the landlord is happy with your referencing report, they will go ahead with the tenancy. In this case, you get the holding deposit back.
You probably won’t see the money returned to your bank account, however. The money is usually put towards the the other move-in costs; namely, any rent paid in advance and the tenancy deposit.
So in practice, you don’t actually get the holding deposit returned to you. Rather, the value is simply taken off the amount you need to pay for the other move-in moneys. This is normal and nothing to worry about.
2. The Tenancy Doesn’t Go Ahead Because the Landlord Pulls out
If the landlord decides not to proceed, then your holding deposit should be refunded in full. Landlords are no longer allowed to deduct any fees or costs of referencing from your holding deposit.
3. The Tenancy Doesn’t Go Ahead Because You Pull out
If you pull out, the landlord/agent is entitled to your holding deposit as forfeit. In this scenario, you don’t get your deposit back. It goes to the landlord or agent to cover them against any loss of time and money.
There is a chance they will refund you some or all of your deposit, but they are entitled to keep it. It is, of course, worth asking them to return it.
What is a Tenancy Deposit?
The tenancy deposit is sometimes called a security deposit. It a sum paid at the start of a tenancy. It is refunded to you at the end of the tenancy, but the landlord can make deductions from it to pay for:
- the repair of any damage done to the property
- permitted fees that are included in the tenancy agreement (e.g. replacing lost keys)
When you pay the tenancy deposit, the landlord must register it with a government-approved deposit protection scheme. They also have to send you information about the scheme they’ve used, how much money makes up the deposit, and how you can contest any deductions they may make.
This information is called the prescribed information. The landlord must give it to you within a time limit of 30-days from when you pay the deposit.
How Much Is a Tenancy Deposit?
The size of the tenancy deposit is limited by the TFA. It must be no more than 5 weeks’ rent. Here is a tool you can use to check how much five weeks’ rent is for your tenancy: the deposit calculator.
If your tenancy began after 1st June 2019, and you paid a deposit that is more than five weeks’ rent, then this is a prohibited payment and the landlord must refund you the excess amount immediately.
If you paid a tenancy deposit that is more than 5 weeks’ rent, but your tenancy began before 1st June 2019 then no action is needed until 1st June 2020. Your landlord must refund you the excess amount before 1st June 2020, as after this date, the new TFA rules apply to all existing tenancies.
What Can Be Deducted From a Tenancy Deposit
Your landlord can deduct any rent you owe when you move out. They can also make deductions for missing items that were supplied within a furnished property.
Deductions can be made for damage to the property, but not for normal wear and tear. There’s no precise definition of wear and tear, but if you use the property and its supplied furnishings in a normal, responsible way, then you shouldn’t have to pay any damages.
Shelter have a great guide on what is included in wear and tear.
What Are Rental Fees?
The TFA banned all mandatory rental fees except:
- the rent
- the holding deposit
- the tenancy deposit
- some contractual default fees
Optional fees are still legal, too, but they must be truly optional. An example of an optional fee might be that you either must return the property in a clean state or pay for a professional cleaning service. Because the fee can be avoided by cleaning yourself, the fee is optional and therefore permissible.
Before the TFA in England, agents and some landlords would try to charge fees for all sorts. The average fees tenants paid was a staggering £300.
OpenRent never charged admin or agency fees and we’re happy all tenants are now safe from being ripped off.
Rent in Advance
The last kind of move-in cost is rent in advance. Most tenancies in the UK require the rent to be paid in advance of the rental period the rent covers.
For example, if your rental period runs from the 10th of the month to the 9th of the following month, then you would need to pay your rent for the upcoming month before the 10th.
The alternative, paying for the month just gone, is called paying in arrears.
Paying More than One Month in Advance
When it comes to moving in, you must pay the first month’s rent in advance. You may also be asked or agree to paying additional months’ rent in advance. This happens quite often, but usually it is only one month’s rent that is required.
If you have agreed to pay more than one month’s rent in advance, then you won’t need to pay again until the time period that rent covers has elapsed.
For example, if you pay three months’ rent in advance for a tenancy beginning in September, then you won’t need to pay again until December’s rent is due.