The Difference Between Holding Deposits and Tenancy Deposits (and Fees)

Confused about rental fees and costs? There are several different types of payment tenants might have to pay. The main four are:

  • the holding deposit 
  • the tenancy deposit
  • rent in advance (usually one month’s worth)
  • fees (mandatory fees are now illegal)

To help you understand where your money is going – and where it shouldn’t be going – we’ve written this guide for tenants on these four costs.

Together these costs are known as the move-in moneys.

What Is a Holding Deposit?

The holding deposit is also sometimes called a holding fee. The rules for holding deposits are set in the Tenant Fees Act (2019), which we will call the TFA. 

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.

Trying to set up a tenancy? OpenRent can do it all for you.

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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!

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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 the tenant pulls 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. A full guide to how holding deposits work can be found here.

Landlords are only allowed to keep the holding deposit for 15 days, unless both parties agree another deadline in writing. If the landlord has failed to accept or reject the application by the deadline, then the money must be returned to the tenant in full.

1. The Tenancy Goes Ahead

If the landlord is happy with the referencing report, they will go ahead with the tenancy. In this case, the tenany will get the holding deposit back.

The money isn’t usually returned to the tenant’s bank account, however. The money is usually put towards the other move-in costs; namely, any rent paid in advance and the tenancy deposit.

So in practice, tenant’s don’t actually get the holding deposit returned. Rather, the value is simply taken off the amount they 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 the 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 the Tenant Pulls out

If you pull out, the landlord/agent can claim the holding deposit as forfeit. In this scenario, the tenant doesn’t get the 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 the tenant some or all of the deposit, but they may be entitled to keep it. It is, of course, worth asking them to return it, as they may be happy to.

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 the tenant 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
  • rent arrears unpaid at the end of the tenancy
  • permitted fees that are included in the tenancy agreement (e.g. replacing lost keys)

When the tenant pays the tenancy deposit, the landlord must register it with a government-approved deposit protection scheme. They also have to send the tenant information about the scheme they’ve used, how much money makes up the deposit, and how tenants can contest any deductions that are proposed at the end of the tenancy.

This information is called the prescribed information. The landlord must give it to (‘serve’ it to) the tenant within a time limit of 30 days from when the deposit is paid.

OpenRent can collect the deposit and register it in an approved scheme on your behalf.

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How Much Is a Tenancy Deposit?

The size of the tenancy deposit is limited by the Tenant Fees Act. 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 the tenant paid a deposit that is more than five weeks’ rent, then this is a prohibited payment and the landlord must refund the excess amount immediately.

If the tenant paid a tenancy deposit that is more than 5 weeks’ rent, but your tenancy began before 1st June 2019 then no action is needed. The landlord must refund the excess amount if renewing the tenancy, however.

What Can Be Deducted From a Tenancy Deposit

The landlord can deduct any rent the tenant owes at the end of the tenancy. 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 Tenant Fees Act banned all mandatory rental fees except:

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 paid 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.

OpenRent can set up your tenancy and handle all the move in money.

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This article is not intended to form legal or investment advice. Investments in property are not guaranteed and can decrease in value as well as increase.

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