Renting a property involves understanding several key payments: holding deposits, tenancy deposits, and rental fees.
A holding deposit reserves a property while the tenancy agreement is arranged, and a tenancy deposit protects against damages that may occur during the rental period.
In the UK, most rental fees have been banned, so landlords and tenants also need to understand what payments are allowed before entering into a rental contract.
- What is a holding deposit?
- What is a tenancy deposit?
- What are rental fees?
- What are default fees?
- What is rent in advance?
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What is a holding deposit?
The holding deposit, sometimes known as a holding fee, is a refundable payment made to the landlord or letting agent to reserve a property.
This payment secures the property for the prospective tenant and removes it from the market. Holding deposits are most commonly used in England and Wales.
The rules for holding deposits are set by the Tenant Fees Act 2019. The holding deposit should only be placed once the general terms of the tenancy are agreed upon, which include:
- the move-in date
- the terms of the tenancy agreement
- the rent amount
- who the tenants will be
- the length of the fixed term
- the rental period (e.g., monthly, weekly)
If the landlord wants to change any of these terms after the holding deposit is paid, the prospective tenant can refuse.
If this prevents the tenancy from going ahead, then the tenant should receive their holding deposit back in full.
Once the holding deposit is paid, the tenancy is assumed to be agreed upon, subject to referencing. The landlord shouldn’t consider other tenants or take more holding deposits.
The landlord or letting agent holds the deposit during reference checks. Remember, charging tenants for referencing is not allowed.
When can a landlord keep the holding deposit?
After a tenant pays the holding deposit, three things can happen:
- the tenancy goes ahead
- the landlord decides to pull out
- the tenant decides to pull out
It’s important to get the terms of the holding deposit in writing so everyone knows what will happen in each case and how the deposit will be handled.
Landlords can only keep the holding deposit for 15 days unless both parties agree to a different deadline in writing.
If the landlord doesn’t accept or reject the application by the deadline, the deposit must be returned to the tenant in full.
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If the tenancy goes ahead…
If the tenancy goes ahead, the tenant should get the holding deposit back.
It’s often used towards other costs, like the tenancy deposit or the first month’s rent, rather than being refunded directly.
If the tenancy doesn’t go ahead…
If the landlord decides not to proceed, the holding deposit should be refunded in full. Since the Tenant Fees Act, landlords cannot deduct any fees from the holding deposit.
If the tenant decides not to proceed, the landlord or agent can keep the holding deposit. However, there might be a chance of getting some or all of it back, so it’s worth asking for a refund.
How much is a holding deposit?
Since June 1, 2019, the Tenant Fees Act limits holding deposits to one week’s rent. Any amount above that is not allowed.
For more information, you can refer to OpenRent’s holding deposit terms.
What is a tenancy deposit?
The tenancy deposit is sometimes called a security deposit. It’s paid at the start of a tenancy and refunded to the tenant at the end of the tenancy.
However, the landlord can make deductions from it to pay for:
- repairs 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 (i.e., ‘serve’ it) to the tenant within 30 days from when the deposit is paid.
How much is a tenancy deposit?
The Tenant Fees Act limits tenancy deposits to a maximum of five weeks’ rent in England.
In Wales, similar regulations cap tenancy deposits at around one month’s rent, while in Scotland, they the amount cannot exceed two months’ rent.
Use our simple calculator to find out how much five weeks’ rent will be for your tenancy. Get Started
What can be deducted from a tenancy deposit?
Landlords can take money from the deposit for unpaid rent or missing items from a furnished property.
They can also deduct for damage to the property, but not for normal wear and tear.
While there is no precise definition of wear and tear, if tenants use the property and its supplied furnishings in a normal, responsible way, then they shouldn’t have to pay any damages.
What about a deposit for a lodger?
A landlord can ask for a reasonable deposit from a lodger at the start of a new licence agreement to cover any possible damage.
When the lodger leaves, the landlord must return the deposit, keeping only what is needed for damage or unpaid rent.
Unlike with Assured Shorthold Tenancies (ASTs), a resident landlord doesn’t have to use a government-approved deposit protection scheme for a lodger’s deposit.
With Rent Collection, OpenRent can track all payments and send reminders to tenants if they fall behind on their rent. Find Out More
What are rental fees?
The Tenant Fees Ban restricted all mandatory rental fees except for:
- the rent
- the holding deposit
- the tenancy deposit
Some default fees are allowed, but they must be clearly listed in the tenancy agreement for the landlord to charge them.
What are default fees?
1. Late rent fees
Landlords can charge a fee if rent is more than two weeks late. The fee can be up to 3% plus the Bank of England base interest rate.
2. Fees for lost keys
Landlords can charge for lost keys or security devices but must only charge a reasonable amount and provide evidence of the cost if asked.
3. Changes to the contract
Landlords can charge up to £50 for changing the terms of the tenancy, such as adding a new tenant or allowing a pet.
They can charge more than £50 only if they can show their costs are higher, but this is rare.
This rule doesn’t apply to renewals or changes in the length of the tenancy.
4. Other fees
Optional fees are still legal but must be truly optional.
For example, if you have the choice to return the property in a clean state or pay for a professional cleaning service, the cleaning fee is optional because you can avoid it by cleaning yourself.
Before the Tenant Fees Ban, tenants often paid around £300 in extra fees. OpenRent has never charged admin or agency fees, so tenants remain protected from unfair charges.
What is rent in advance?
Rent in advance is when you pay for the rental period before it starts. For most tenancies in the UK, you need to pay the rent for the upcoming period before it begins.
For example, if your rental period runs from the 10th of the month to the 9th of the following month, you must pay the rent for the next month before the 10th.
The alternative, paying for the month just gone, is called paying in arrears.
OpenRent landlords with monthly rental amounts of up to £3,000 can access Rent Guarantee Insurance. Find Out More
Paying more than one month in advance
When moving into a new property, you usually need to pay the first month’s rent in advance. Sometimes, you may also need to pay extra months’ rent ahead of time.
For example, if you’re a student or someone with no renting or credit history, the landlord might ask for more than one month’s rent in advance.
If you pay more than one month’s rent in advance, you won’t need to pay again until the period covered by that rent ends.
This means that if you pay three months’ rent in advance starting in September, you won’t need to pay again until December’s rent is due.
OpenRent can only collect £12,000 as part of our Rent In Advance feature. This amount includes the first month’s rent and the security deposit.
