Holding deposit

A holding deposit is a payment made by a prospective tenant to a landlord or letting agent to reserve a rental property while referencing is carried out and the final terms of the tenancy are agreed. It is a permitted payment under the Tenant Fees Act 2019 but is subject to strict statutory rules on amount, timescales, and the circumstances in which it can be retained. A landlord who breaches these rules commits a criminal offence under the Act.

In England, a holding deposit cannot exceed one week's rent, calculated as the annual rent divided by 52. This is an absolute cap. A landlord cannot accept a larger holding deposit even if both parties agree to it, and cannot take holding deposits from multiple applicants for the same property at the same time.

The deadline for agreement

When a holding deposit is accepted, the clock starts on what the Tenant Fees Act calls the "deadline for agreement", the date by which both parties must enter into the tenancy agreement. If no deadline is specified in writing, it defaults to 15 calendar days from the date the holding deposit is received. Both landlord and applicant can agree a different deadline in writing at any time before the default period expires. The deadline matters because it determines when the holding deposit must be returned if the tenancy does not proceed.

When a landlord must return the holding deposit

A landlord must return the holding deposit in full, within 15 days of the deadline for agreement, in the following circumstances: the landlord decides not to proceed with the tenancy; the landlord does not take all reasonable steps to enter into the tenancy by the deadline; or the parties simply fail to agree terms by the deadline for reasons that are not wholly or mainly the fault of the applicant. In each of these cases, retaining any part of the holding deposit is a prohibited payment under the Tenant Fees Act and exposes the landlord to a financial penalty of up to £5,000 for a first offence and up to £30,000 for a subsequent offence within five years.

When a landlord may retain the holding deposit

A landlord may retain all or part of the holding deposit in four specific circumstances set out in the Tenant Fees Act 2019:

• The applicant withdraws. If the applicant decides not to take the tenancy before the deadline, the landlord may retain the holding deposit. The withdrawal must be clear and unambiguous. A landlord cannot treat non-communication alone as withdrawal without taking reasonable steps to contact the applicant.

• The applicant provides false or misleading information. If the applicant gave information that materially affects the landlord's decision to let, for example, misrepresenting income, employment status, rental history, or adverse credit, and this is discovered during referencing, the landlord may retain the deposit. The false information must have been relevant and the landlord's reliance on it must be reasonable.

• The applicant fails a right to rent check. If the applicant does not have the legal right to rent in England and this could not reasonably have been established before the holding deposit was taken, the landlord may retain the deposit. This ground does not apply if the landlord could have discovered the right to rent issue through reasonable pre-deposit checks.

• The applicant unreasonably fails to take all reasonable steps to enter the agreement. If the applicant causes delay or fails to provide information or documents promptly enough to allow the tenancy to proceed by the deadline, the landlord may retain the deposit, but only to the extent that the delay is attributable to the applicant rather than to the landlord or the referencing process.

Where any of these grounds apply, the landlord must still return any amount that exceeds the reasonable loss, the holding deposit is a cap on what can be retained, not an automatic forfeiture.

What happens when the tenancy proceeds

If the tenancy goes ahead, the holding deposit must be applied to the first month's rent, the tenancy deposit, or another permitted payment, it cannot simply be pocketed on top of these sums. The landlord must give the applicant written confirmation of how the holding deposit has been applied within seven days of the tenancy beginning.

The holding deposit is distinct from the tenancy deposit, which is a separate protected sum held against damage and unpaid rent during and at the end of the tenancy, capped at five weeks' rent (or six weeks where annual rent exceeds £50,000). For a full explanation of how the two differ and how they interact, see the August guide to the difference between a tenancy deposit and a holding deposit.

The one-week cap and retention rules are set out in the Tenant Fees Act, for a full explanation of permitted and prohibited payments, see the August definition of the Tenant Fees Act.

August's document management feature stores holding deposit receipts, deadline-for-agreement correspondence, and written confirmation of application alongside the rest of the tenancy file, so there is a clear record if a dispute arises.

Frequently asked questions

What is a holding deposit?

A holding deposit is a payment, capped at one week's rent under the Tenant Fees Act 2019, made by a prospective tenant to reserve a rental property while referencing is completed and the tenancy agreement is finalised. It is a permitted payment in England but is subject to strict statutory rules on how much can be taken, when it must be returned, and when a landlord is entitled to keep it.

Is a holding deposit refundable?

It depends on why the tenancy does not proceed. If the landlord decides not to let, fails to take reasonable steps to complete the tenancy by the deadline, or the parties simply cannot agree terms for reasons not mainly caused by the applicant, the holding deposit must be returned in full within 15 days. If the applicant withdraws, provides false information, fails a right to rent check, or unreasonably delays the process, the landlord may retain it. Keeping a holding deposit in any other circumstances is a prohibited payment under the Tenant Fees Act 2019.

How much can a holding deposit be?

No more than one week's rent, calculated as the annual rent divided by 52. This is an absolute cap under the Tenant Fees Act 2019, a landlord cannot accept more even with the applicant's agreement, and cannot take overlapping holding deposits from multiple applicants for the same property simultaneously.

What is the deadline for agreement?

The deadline for agreement is the date by which both parties must enter into the tenancy agreement for the holding deposit rules to apply. It defaults to 15 calendar days from the date the holding deposit is received, unless both parties agree a different deadline in writing before the default period expires. Once the deadline passes, the question of who caused the failure determines whether the deposit is returned or retained.

Can a landlord keep a holding deposit if the tenant fails referencing?

It depends on the reason for failure. If the applicant provided false or misleading information that materially affected the referencing outcome, the landlord may retain the deposit. If the applicant simply did not meet the referencing criteria despite providing accurate information, that alone is not a ground for retention, the deposit must be returned. The distinction is between active misrepresentation and an honest application that does not pass.