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Holding Deposit, Tenancy Deposit, Rental Fees: Everything You Need to Know

If you’re finding all the different types of deposits, rental fees, and expenses confusing, don’t worry – we’re here to help you understand it all.

Starting a new lease can be a stressful experience for many, especially if you’re a novice tenant or have been at your previous residence for a few years.

Being a tenant involves more than just paying your monthly rent. You might need to cover a few other costs like the holding deposit, tenancy deposit, and some fees. Altogether, these are simply called ‘move-in monies’.

So, let’s break down all the different payments you might need to make, beginning with the first one you’ll encounter when securing a property – the holding deposit.

  1. What is a holding deposit?
  2. What is a tenancy deposit?
  3. What about a deposit for a lodger?
  4. What are rental fees?
  5. What are default fees?
  6. Rent in advance

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What is a holding deposit?

The holding deposit is also sometimes called a holding fee. This is a refundable payment requested by the landlord or agent to reserve a property. This puts the property on hold for the prospective tenant and takes the listing off the market.

The rules for holding deposits are set in the Tenant Fees Act (2019) (TFA.) The holding deposit should only be placed once the general terms of the let are agreed. These terms are:

  • 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 wishes to change any of these things after you have paid the deposit, then you can refuse. If this prevents the tenancy from going ahead, then you should receive the holding deposit back in full. 

Once you have paid the holding deposit, the tenancy is assumed 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 can’t charge you for referencing.

When can a landlord keep the holding deposit?

Once you’ve paid the holding deposit, three things can happen:

  • the tenancy will go ahead
  • your prospective landlord decides to pull out
  • you, the tenant, 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.

Landlords are only allowed to keep the holding deposit for 15 days unless both parties agree to 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.

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If the tenancy goes ahead…

You will get the holding deposit back. In most cases, it won’t be returned directly, but will instead be rolled into your other costs such as the tenancy deposit or rent in advance. 

If the tenancy doesn’t go ahead…

There are a couple of things that can happen. If the landlord decides not to proceed, the holding deposit should be refunded in full. Since the TFA they are no longer allowed to deduct any fees for costs from your holding deposit.

If the prospective tenant decides not to go ahead, then the landlord or agent can keep the holding deposit as forfeit, so you might not get it back.

There is a chance they will refund some or all of the holding deposit, so it’s worth asking them to return it as they may be happy to

How much is a holding deposit?

The TFA capped holding deposits placed after 1st June 2019 at one week’s rent. Anything over that now constitutes a prohibited payment. 

OpenRent’s holding deposit terms can be found here, and the full guide to how holding deposits work can be found here.

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 (‘serve’ it) to the tenant within 30 days from when the deposit is paid.

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 five weeks’ rent.

For tenancies that started before the 1st June 2019, tenancy deposits that are more than five weeks’ rent are prohibited by the TFA. Landlords must refund the excess amount immediately.

Use our simple calculator to find out how much five weeks’ rent will be for your tenancy.

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If your tenancy started before 1st June 2019 and you paid a deposit that is more than 5 weeks’ rent, then no action is needed. However, if the tenancy is renewed, the landlord must refund the excess amount.

What can be deducted from a tenancy deposit?

Landlords 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.

What about a deposit for a lodger?

The landlord can ask for a reasonable deposit from a lodger at the start of a new license agreement. This might cover any potential damage.

When the lodger leaves landlords must return the deposit, withholding an amount only for damages or rent arrears.

Unlike with assured shorthold tenancies, a resident landlord doesn’t have to protect their lodger’s deposit in one of the government-approved deposit protection schemes. 

With Rent Collection, OpenRent can track all payments and send reminders to tenants if they fall behind on their rent.

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What are rental fees?

The Tenant Fees Act banned all mandatory rental fees except:

  • the rent
  • the holding deposit
  • the tenancy deposit
  • some default fees are allowed but must be in the tenancy agreement in order for the landlord to charge them

What are default fees?

1. Late rent fees

Fees can be charged by the landlord if rent is over two weeks late. The fees can be up to 3% plus the Bank of England base interest rate.

2. Fees for lost keys

Landlords can charge tenants for losing their keys (or other security devices if your property is high-tech). But they can only charge you a reasonable amount and they should provide evidence of the cost if you request it.

3. Changes to the contract

Landlords can charge up to £50 for making changes to the terms of the tenancy. For example, adding a new tenant to the tenancy or allowing a pet.

Landlords can charge more than £50 if they are able to demonstrate their costs exceed £50, but it’s expected that this won’t happen often.

Crucially, this exception does not apply to renewals or changes to the length of the tenancy.

4. Other fees

Optional fees are still legal 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 fee tenants paid was a staggering £300.

OpenRent has never charged any admin or agency fees, and we’re happy that all tenants are now protected from any unfair charges.

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.

OpenRent landlords with monthly rental amounts of up to £3,000 can access Rent Guarantee Insurance.

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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 pay additional months’ rent in advance. This happens quite often, but usually, it’s 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.

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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