Confused about rental fees? There’s holding fees, security deposits, a month’s rent up front, admin fees… and that’s all before you’ve even managed get your hands on the keys!
For tenants, it can feel like all parties are trying their best to extract a share of your hard-earned cash.
To help you understand where your money’s going – and where it shouldn’t be going – we’ve written a short guide for tenants on the big three move-in costs: holding deposits, security deposits and upfront agency fees.
These costs, along with the first month’s rent, are known as they move-in moneys. Read up on your move-in money rights and you’ll never get ripped off again!
What Is a Holding Deposit/Holding Fee?
The holding deposit is also sometimes called a holding fee. It is an amount of money that a tenant puts forward to show the landlord that they are serious about taking the property.
Likewise, the landlord should only accept it if they want to let to you, subject perhaps to completing referencing checks. They hold the money while the checks go on and other admin is completed, such as drawing up the contract and arranging a day to do the signing, etc.
We ran a quick poll of renters and found that 69% of tenants have paid over £500 for a holding deposit, with 46% 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
Once the holding deposit is placed, three things can happen:
- the landlord accepts your offer
- the landlord rejects your offer
- you change your mind and pull out
1. The Landlord Accepts Your Holding Deposit
If the landlord accepts your application, then you get the holding deposit back.
You won’t see the money returned to your bank account, however. If you are going to be the tenant, then you’ll need to pay the other move-in moneys: the first month’s rent and the security deposit. So in practice, you don’t actually get the holding deposit returned. Rather, the value is simply taken off the amount you need to pay for the other move-in moneys.
2. The Landlord Rejects Your Offer
If the landlord rejects your offer, your holding deposit should be refunded. If the landlord or agent ordered referencing on you, then they may detract any referencing fees from your holding deposit.
3. You Change Your Mind and 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
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.
What is a Security Deposit?
The security deposit is the large sum (usually 4-6 weeks rent) paid at the start of a tenancy. It is returned 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.
When you pay the security 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. You’ll need to sign a document saying that you’ve received it within a time limit of 30-days from when you pay.
What Can Be Deducted From a 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 from the security deposit 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 guide on what is included in wear and tear.
What Are Rental Admin Fees?
Letting agents will often try to charge you a fee. If your response to this fact is “Wait, what? Why?” then we agree with you.
OpenRent doesn’t charge any admin or agency fees – and we don’t allow our landlords to charge you any fees, either. That makes us pretty special, since nearly all letting agents charge huge fees to tenants.
While it’s obvious what the security or holding deposits pay for, many agents deliberately make their fees confusing or opaque, meaning they can effectively charge as much as they want. They hide behind terms like “Admin Fee” and “Set Up Fee” which are really code for “Printing a Pre-Written Contract Fee”.
There’s little consensus among agents about how much to charge in fees, or what to claim they pay for. Some agents have a fixed fee, and some charge an amount relative to the rent: e.g. two weeks’ rent.
Government research recently found the average letting agent fee is £300 per tenant. Infuriatingly for the tenants paying this, they don’t seem to receive any service for their money. Things like advertising the property, conducting the viewings and processing referencing checks all benefit the landlord in letting the property, not the tenant. Yet often tenants are told this is what the money is being used to paid for.
Aren’t Tenant Fees Banned Already?
A ban on fees was promised in the November 2016 Autumn Statement, but we’re still a long way away from the ban happening. We don’t think it will happen until 2018 at the earliest.
Until then, you can still avoid paying admin fees by using OpenRent. We let more properties than any agent in the country, so there’s a great chance you’ll find a great new home and save £100s!