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How to take a Holding Deposit as a Letting Agent

If a tenant applicant decides to take a property you are marketing, you should always take a holding deposit.

Taking a holding deposit as a letting agent

When a tenant applicant wishes to take a property you are marketing, the next step is to request a holding deposit. Payment of a holding deposit indicates that the applicant is serious about renting the property, and would normally have the effect of enabling them to 'reserve' the property whilst the preliminary work is carried out.

It will also assure you that your subsequent work in taking up references and credit checks, and informing the landlord, will not be wasted.

A holding deposit can be up to a month's rent, although it would be usual practice to take somewhere between £300 and £1000 depending on the value of the rent. In Central London for example, £1000 or more would be justified.

You should explain to the applicant that if they change their mind about the property, you reserve the right to withhold some or all of the deposit monies paid. These terms should always be in writing, and for this purpose we provide a ready-drafted Holding Deposit Agreement, ready for personalisation to your agency. The deposit should always be taken by cash or bank transfer, never by credit card. When the tenant moves in, the holding deposit is deducted from the first month's rent.

Remember that the "holding deposit" is different to the "tenancy deposit". It's not used for the duration of the tenancy, and is therefore unconnected with the tenancy agreement and does not need to be protected in one of the government approved deposit protection schemes.

Here's an example:

  1. Applicant views property and confirms he/she would like to take it
  2. Rent is £1000 pcm and holding deposit £500 is paid
  3. Holding deposit agreement is signed
  4. When the tenant moves in they pay £1000 (rent) minus holding deposit of £500, leaving £500 to pay
  5. In addition they'd pay the tenancy deposit as well (to be protected), which would normally be 1.5 times the rent, which would be £1500, resulting in a total first month's invoice of £2000.

You should be careful not to breach consumer law by stating that the holding deposit is non-refundable - some large letting agents do this. In our manual we explain the relevant consumer protection legislation to avoid you falling foul of the law in this respect.

If the applicant changes his/her mind, and doesn't take the property, you have the option of -

  1. refunding the holding deposit in full
  2. refunding it minus any credit check, inventory or tenancy agreement costs you've incurred, or
  3. if it's close to the start of the tenancy, you can deduct the lost rent if this has been incurred.

The Holding Deposit Agreement that we provide in the Southcourt Business Package is legally drafted and covers these scenarios.

Remember, our award winning Lettings and Estate Agency Business Package contains everything you need to start your own lettings or estate agency - from expert guidance, forms, letters, contracts, professional website, cloud based letting and estate agent software - and unlimited expert support from our experienced team.

To order: https://www.lettings-opportunity.co.uk/howtoorder/

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