What is it?
A holding deposit is taken by a landlord in exchange for ‘holding’ a property off the market for a prospective tenant. Unlike a security deposit, it does not need to be protected by a deposit protection scheme. It’s an act of good faith on the part of the applicant to show that they are serious about renting the property. In exchange, you, as the landlord, will probably be expected to:
- Inform other prospective tenants that a holding deposit has been paid and so, in effect, the property has been taken, though you should also point out no tenancy agreement has been signed so the deal could fall through…
- Stop advertising the property
From your own point of view, once the holding deposit has been paid you should prepare for the start of the tenancy:
- Conduct your credit and reference checks
- Prepare your tenancy agreement
- Prepare a full and comprehensive inventory
- Make sure your gas-safety certificate (CP-12) and Energy Performance Certificate (EPC) are up-to-date, if you have not done so
When should I ask for a holding deposit?
Obviously it’s wise to get a holding deposit wherever possible as it commits the applicant to the property. It’s particularly desirable when demand for the property is healthy and any delays by the applicant could cause other prospective tenants to lose patience and interest.
How much should I take?
It should be an appropriate amount taking into account the losses you would expect to make if the deal falls through. One week’s rent is typical.
Should I keep it or return it?
As long as it’s detailed in writing when the deposit is taken (along with a receipt), you have every right to keep the deposit if the prospective tenant pulls out as it’s just recompense for the inconvenience and costs. Unfortunately, if the tenant fails reference or credit checks, you must return the deposit as by law you are the one declining the contract. If everything goes swimmingly and the prospective tenant becomes your actual tenant, you have the following options:
1.) Return the deposit
2.) Incorporate the deposit into the first rent payment(s)
3.) Incorporate the holding deposit into the security deposit (any security deposit must by law be protected in a deposit protection scheme, now available through Rentify!)