Renting out a property involves a few key payments, including holding deposits, tenancy deposits and rent itself.
Below you’ll find a clear explanation of what each one means, along with an overview of the updated rules on rent in advance and rental bidding introduced under the Renters’ Rights Act.
It’s important to be aware of these changes, as most tenant fees are now prohibited. Breaching the rules can lead to significant penalties, including fines of up to £30,000 for repeat offences, as well as potential criminal action or banning orders in serious cases.
- What is a holding deposit and how does it work?
- What is a tenancy/ security deposit and how does it work?
- Can you request a deposit from a lodger?
- What rental fees can you charge?
- What are default fees?
- Is it legal to accept rent in advance from tenants?
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What is a holding deposit and how does it work?
A holding deposit, sometimes called a holding fee, is a refundable payment a prospective tenant makes to reserve a property. It takes the property off the market while referencing is completed and is most commonly used in England and Wales.
The rules are set out in the Tenant Fees Act 2019 in England, and the Renting Homes (Fees etc.) (Wales) Act 2019 in Wales. Legally, a holding deposit is strictly capped at a maximum of one week’s rent.
After the holding deposit has been paid, you shouldn’t change these agreed terms. If you do and the tenant no longer wants to proceed as a result, they should receive their holding deposit back in full.
Once you’ve accepted a holding deposit, the tenancy is treated as agreed in principle, subject to satisfactory references. You shouldn’t continue marketing the property, consider other applicants or take holding deposits from anyone else.
The holding deposit is kept by the landlord while reference checks are carried out. Remember, you cannot charge tenants separately for referencing as this is a prohibited payment.
When can the landlord keep the holding deposit?
Once a tenant has paid a holding deposit, one of three things will happen:
- The tenancy goes ahead.
- You decide not to proceed.
- The tenant decides not to proceed.
It’s good practice to set out the terms of the holding deposit in writing, so everyone understands what happens in each scenario and how the deposit will be dealt with.
By default, you can only hold a holding deposit for 15 days (known as the ‘Deadline for Agreement’). If both you and the tenant agree, you can extend this deadline in writing. If you haven’t accepted or rejected the tenant’s application by the deadline, you’ll need to return the holding deposit in full within 7 days.
If the tenancy goes ahead…
If the tenancy goes ahead, the holding deposit must be returned to the tenant within 7 days of signing the agreement. In practice, it’s usually put towards the tenancy deposit or the first month’s rent, but you must obtain the tenant’s explicit written consent to do this rather than refunding it separately.
If the tenancy doesn’t go ahead…
If you decide not to proceed, you must return the holding deposit in full within 7 days. Under the Tenant Fees Act 2019 and the Renting Homes (Fees etc.) (Wales) Act 2019, you cannot make any deductions from it for administrative or referencing costs.
If the tenant decides not to proceed, you have the right to keep the holding deposit. However, you can only legally retain the holding deposit if you provide the tenant with a written breakdown explaining exactly why you are keeping it within 7 days of the application being dropped or the deadline passing. If you miss this strict 7-day window, you legally forfeit the money and must return it in full, even if the tenant was entirely at fault.
You also have the right to keep the deposit if the tenant fails a mandatory Right to Rent check, or if they deliberately provide materially false or misleading information (such as lying about their income or active CCJs).
How much can you charge for a holding deposit?
Since 1st June 2019, the Tenant Fees Act has limited holding deposits to one week’s rent. You cannot ask for more than this. You can use our free holding deposit calculator to work out the correct amount. If you create your tenancy through Rent Now, we’ll calculate it for you automatically.
You might also be interested in…
- How to Gain a Possession Order
- How Much Notice Does a Tenant Have to Give a Landlord to Move Out?
- Holding Deposit, Tenancy Deposit, Rental Fees: Everything You Need to Know
- How Can I Attract More Tenants to My Property Listing?
- Surrendering a Tenancy Agreement by Mutual Consent
What is a tenancy/ security deposit and how does it work?
A tenancy deposit, sometimes called a security deposit, is paid at the start of the tenancy and is usually returned to the tenant when they move out. Under the Tenant Fees Act 2019, this deposit is strictly capped at a maximum of five weeks’ rent (or six weeks’ rent if the property’s annual rent exceeds £50,000).
You can make deductions from the deposit if they’re justified, for example to cover:
- Damage beyond fair wear and tear
- Unpaid rent
- Any permitted costs set out in the tenancy agreement, such as replacing lost keys
Once you’ve received the tenancy deposit, you must protect it in a government-approved tenancy deposit protection scheme.
Following the implementation of the Renters’ Rights Act on 1st May 2026, deposit protection rules apply universally to all Assured Periodic Tenancies (APTs), as traditional Assured Shorthold Tenancies (ASTs) have been completely abolished.
Within 30 days of receiving the deposit, you’ll also need to give the tenant and any relevant person (such as a guarantor who may have paid the deposit on their behalf) the scheme’s prescribed information. This includes details of the scheme you’ve used, the exact amount of the deposit, and how the tenant can challenge any proposed deductions at the end of the tenancy.
Why protecting the deposit matters more than ever
Since the Renters’ Rights Act came into force on 1st May 2026, the consequences of failing to protect a tenancy deposit have become much more serious.
Before the changes, not protecting a deposit or serving the prescribed information on time only prevented landlords from using a Section 21 notice. However, Section 21 has now been abolished across England, and all fixed-term contracts have automatically converted into rolling periodic tenancies.
This means that if you don’t protect the deposit or give the tenant (and any ‘relevant person’ like a guarantor) the prescribed information within 30 calendar days, you will be completely blocked from obtaining a possession order under Section 8 as well.
This is no longer just a penalty for “no-fault” claims; it is a strict statutory bar that paralyses your ability to evict on almost all grounds (including mandatory claims for serious rent arrears, moving back into the property, or selling the home).
If the deposit requirements haven’t been met, the court cannot make a possession order and must dismiss your claim until the issue has been resolved, such as by ensuring the funds are fully protected, serving the delayed paperwork late, or returning the deposit to the tenant in full.
How much can you charge for a tenancy deposit?
In England, the Tenant Fees Act limits tenancy deposits to a maximum of five weeks’ rent for tenancies where the annual rent is under £50,000. If the annual rent is £50,000 or more, the legal limit increases to a maximum of six weeks’ rent.
The rules are different in the rest of the UK. In Wales, there is absolutely no statutory cap on security deposits. While the Renting Homes (Fees etc.) (Wales) Act 2019 gives Welsh Ministers the legal power to introduce a deposit limit, they have never chosen to pass that regulation.
This means Welsh landlords are not legally restricted to a specific number of weeks’ rent, though most still stick to a five-week benchmark in practice to remain competitive and satisfy referencing criteria.
In Scotland, the rules are governed by separate legislation, which states that a tenancy deposit cannot exceed a strict maximum of two months’ rent.
What can you deduct from a tenancy deposit?
You can make deductions from a tenancy deposit if the tenant owes rent, has damaged the property, has left items missing from a furnished property, or has failed to return the property in the same state of cleanliness as documented at the start of the tenancy.
However, you can’t deduct money for fair wear and tear. This covers the natural, expected deterioration that happens through normal day-to-day use, such as minor scuffs on hallway walls, lightly worn carpet traffic lanes, or naturally faded curtains.
There’s no exact legal definition of fair wear and tear, as dispute adjudicators calculate allowances dynamically. If your tenants have looked after the property and its contents in a reasonable way, you shouldn’t expect them to pay for the signs of ordinary use.
Moreover, you cannot claim for “betterment”. You are legally prohibited from replacing old, worn items with brand-new equivalents at the tenant’s expense. For example, if a tenant ruins a five-year-old carpet, you can only claim a pro-rata deduction reflecting its remaining depreciated lifespan, not the cost of a brand-new replacement (and any deduction you propose must be backed by clear, photographic evidence).
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Can you request a deposit from a lodger?
You can ask for a reasonable deposit from a lodger at the start of a new licence agreement to cover any possible damage. While traditional residential deposits are strictly capped by tenant fee laws, lodger deposits have no formal statutory limit, though charging the equivalent of one month’s rent remains the typical benchmark.
When the lodger leaves, you must return the deposit, keeping only what is needed for damage or unpaid rent. Because there is no independent scheme arbitrator for lodger disputes, any deductions you make should be backed up by a solid check-in inventory to protect you from potential small claims court applications.
If you live in the property and share communal living space with your lodger, you are completely exempt from the 2026 rental reforms. This means you are still not legally required to use a government-approved deposit protection scheme for a lodger’s deposit, and you can continue to hold the funds yourself
What rental fees can you charge?
The Tenant Fees Act bans almost all fees charged to tenants in England, with matching strict protections applied in Wales. Following the implementation of the Renters’ Rights Act, compliance is more critical than ever, as local authorities can issue immediate fines of up to £30,000 for charging a prohibited fee.
In almost all cases, you can only legally require tenants to pay:
- Rent
- A refundable holding deposit (capped at one week’s rent)
- A refundable tenancy deposit (capped at five or six weeks’ rent in England)
- Utilities, communication services (broadband, phone), TV licence, and Council Tax
Some additional charges, known as default fees, are also allowed. However, they must be clearly set out in your contracts before you can charge them. These are strictly capped by law and are limited to reasonable costs for a replacement key or security fob, and late rent fees.
What are default fees?
These are the only additional charges you can legally pass on to a tenant, and they must be explicitly written into your rolling contract from day one to be enforceable.
1. Late rent
If a tenant is more than 14 days behind on their rent, you can charge interest at up to 3% above the Bank of England base rate. This interest must be calculated daily against the specific amount of overdue rent from the day it was due. You cannot charge administrative fees, penalties, or separate costs for sending arrears letters or making phone calls to chase the payment.
2. Lost keys
You can charge tenants for replacing lost keys or security devices, but only the reasonable cost of doing so. The charge must strictly reflect the actual cost you incurred to replace the item, and you are legally required to provide a written invoice or receipt as evidence of the cost if the tenant asks for it.
3. Changes to the tenancy agreement
You can charge a fee of up to £50 for making changes to the tenancy agreement at the tenant’s request, such as adding a new sharer or granting written permission to keep a pet.
You can only charge more than £50 if you can explicitly prove your administrative costs were higher, which is exceptionally rare. You can no longer charge tenants for tenancy renewals, as following the implementation of the Renters’ Rights Act, tenancies simply roll on a monthly basis from day one.
Is it legal to accept rent in advance from tenants?
Following the implementation of the Renters’ Rights Act, the days of asking for six or 12 months’ rent upfront to mitigate risk are entirely over for English tenancies.
You are now legally limited to requesting or accepting a maximum of one month’s rent in advance (or 28 days if they pay weekly), and this can only change hands after both you and the tenant have formally signed the tenancy agreement.
You cannot accept any rent money before the contract is fully executed, even if a prospective tenant voluntarily offers a bulk sum to secure the property over other applicants.
Taking rent before signing, or demanding more than the one-month cap, is classified as a prohibited payment under the updated Tenant Fees Act, carrying an immediate civil penalty of up to £5,000 for a first offence.
Once the tenancy is underway, tenants are completely free to voluntarily pay their rent early to help them budget, but you must not mandate, contractually require, or encourage them to do so.
