An agency recently lost a tribunal hearing and was ordered to repay a holding deposit to a tenant even though it was the tenant who pulled out of the agreement.

There were many aspects to this case (you can read the full details here), however, ultimately it boiled down to the fact that the tenancy was not entered in to by the ‘deadline for agreement’ and the agent couldn’t prove that it was the fault of the tenant.

So, are you confident that your team understand the regulations surrounding holding deposits?

Here’s our quick guide..

 

Key Responsibilities

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A holding deposit can be taken to reserve a property whilst reference checks and preparation for a tenancy agreement are undertaken

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The maximum amount holding deposit is 1 week’s rent (based on the TOTAL agreed rent of the property)

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You should provide tenants with clear information about why you are requesting a holding deposit, including the sum that is required and the circumstances where they may lose all or part of the deposit Only one holding deposit can be taken for a property at a time

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Only one holding deposit can be taken for a property at a time

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Once a holding deposit has been taken you should stop advertising the property and not accept any further holding deposits

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You have 15 days from when the holding deposit is paid to enter into a tenancy agreement. This is the “deadline for agreement

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The 15 day deadline can be extended but must be with mutual agreement and must be confirmed in writing

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If a tenancy fails to go ahead and you are retaining all or part of the holding deposit you must put this in writing to the tenant within the prescribed timescales (see below)

Reasons to Keep a Holding Deposit

If the tenancy does not go ahead, the only legitimate reasons for keeping the holding deposit are:

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The prospective tenant changes their mind and decides not to rent the property
(* unless a landlord or agent imposed a requirement that breached the tenancy fees ban or included an unfair term in the tenancy agreement or acted in such a way that it would be unreasonable to expect a tenant to enter into a tenancy agreement with them)

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A prospective tenant has misled the landlord or agent e.g by providing false or misleading information on their application

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A prospective tenant fails a Right to Rent check

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The prospective tenant fails to take all reasonable steps to enter into a tenancy agreement by the deadline for agreement, when a landlord or agent has done so.

Unlawfully retaining a holding deposit is a civil offence with a penalty of up to £5,000

Keeping the Holding Deposit

If a tenancy does not go ahead you firstly need to decide if it is necessary to keep the holding deposit, even if you are entitled to do so.

Guidance provided by the Government encourages landlords and agents to decide on a case-by-case basis whether to retain only part of the deposit to cover specific costs which have been incurred (e.g  referencing checks). You should be able to provide evidence of your costs to demonstrate that they are reasonable.

If you decide to retain all or part of a holding deposit you must set out in writing to the tenant why you are doing so. A tenant is automatically entitled to have their holding deposit returned if you do not do this within:

    • 7 days of deciding not to let the property to them if this is before the ‘deadline for agreement’.
    • 7 days of the ‘deadline for agreement’ (or any agreed extension) passing

If a tenant disagrees with your decision or you do not provide a reasonable explanation or supporting evidence, they can challenge your decision through the local authority, a redress scheme or via the First-tier Tribunal.

Guidance for landlords & letting agents (updated Sept. 2020) is available here: gov.uk/government/publications/tenant-fees-act-2019-guidance  [The section on Holding Deposits starts on page 33]

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