A holding deposit is a sum of money payable by a prospective tenant to reserve a property during the preliminary stages of a rental agreement. It signals intent to proceed and temporarily removes the property from the market while referencing checks and contract negotiations take place. The rules are different depending on the tenancy type:
Residential Lettings
The holding deposit rules for residential lettings are set out in law, which caps the amount of the deposit and enforces strict conditions around its use, refundability, and forfeiture. These statutory protections are designed to ensure transparency and prevent unfair practices. They apply to assured shorthold tenancies, residential licences, lodger agreements and student lettings.
Commercial Tenancies
Holding deposits in commercial contexts are governed entirely by private agreement, with terms negotiated between landlord and tenant. These arrangements are typically documented in heads of terms or pre-lease correspondence and may include provisions for covering administrative costs or losses if the tenant withdraws.
This guide focuses on residential lettings in England. It outlines the key obligations, permissible practices, and common pitfalls for both landlords and tenants to promote lawful conduct, informed decision-making, and dispute avoidance. Commercial arrangements are beyond its scope.
Defining the Holding Deposit
A holding deposit is a legally recognised payment made by a prospective tenant to a landlord or letting agent to reserve a residential property before the execution of a tenancy agreement.
Under the Tenant Fees Act 2019, a holding deposit must not exceed the equivalent of one week’s rent and is subject to specific statutory conditions to protect both parties during the pre-contractual phase.
Typically, a holding deposit is paid once the tenant has expressed interest in the property and the landlord has agreed to pause further viewings. This payment reflects the tenant’s commitment to proceed, subject to satisfactory checks and agreement on final terms. However, the acceptance of a holding deposit does not in itself create a binding tenancy, and both parties retain the right to withdraw before contract formation, subject to the conditions outlined in law.
Holding Deposits vs Tenancy Deposits
It is important to distinguish a holding deposit from a security deposit (also known as a tenancy deposit). While the former is paid before the tenancy agreement is signed and serves to reserve the property, the latter is paid at or shortly after the commencement of the tenancy and is held against potential breaches of the tenancy terms, such as unpaid rent or property damage.
Security deposits must be protected in an authorised tenancy deposit scheme, whereas holding deposits are not subject to such protection and are governed by separate statutory provisions.
For more about tenancy deposit protection rules and landlords’ obligations, read our related Blogs on Protecting Tenant Deposits: What Happens When Landlords Fail to Comply? and Unprotected Tenancy Deposits: Risks, Remedies & How to Proceed.
Permitted Payments and Prohibited Fees
The Tenant Fees Act introduced a statutory framework designed to regulate the financial obligations imposed on certain tenants in England, to curb unfair practices in the private rental sector. The Act limits the types and amounts of payments that landlords and letting agents may lawfully request from tenants.
Prohibited Fees
Section 3 of the Tenant Fees Act prohibits any payment of ancillary charges that are not expressly permitted. The following fees are examples of banned payments which were previously commonplace:
- Charges for viewing a property
- Fees for referencing or credit checks
- Administration or application fees
- Charges for inventory preparation
- Fees for renewing or extending a tenancy
- Third-party fees not expressly permitted by law
Permitted Payments
The only payments that can be lawfully requested from tenants, in addition to rent and the holding deposit, are:
- A refundable tenancy deposit (capped at five weeks’ rent for properties with annual rent under £50,000)
- Payments in respect of utilities, council tax, TV licence and communication services
- Default fees for late payment of rent or replacement of lost keys/security devices (subject to reasonable evidence and limits)
- Early termination fees (where requested by the tenant and limited to the landlord’s reasonable costs)
Landlord Obligations Regarding Holding Deposits
Upon receipt of a holding deposit, landlords and letting agents assume a number of legal responsibilities designed to safeguard tenant interests and ensure compliance with statutory holding deposit rules.
Information Provision
First, landlords must provide the prospective tenant with clear and comprehensive information regarding the terms under which the holding deposit is accepted. This includes:
- The amount of the deposit and how it was calculated
- The circumstances under which the deposit may be retained
- The conditions for refund
- The proposed tenancy start date and rent
- Any pre-tenancy requirements, such as referencing or guarantor provision
This information should be communicated in writing, ideally within a formal holding deposit agreement. While not legally required, written documentation serves as vital evidence in the event of a dispute and reinforces the landlord’s commitment to transparency.
Retain or Refund
Landlords may retain the holding deposit only under specific statutory grounds, which include:
- Tenant providing false or misleading information
- Tenant withdrawing from the proposed letting
- Tenant failing to take reasonable steps to enter into the agreement
In all other circumstances, the holding deposit must be refunded in full. This includes situations where the landlord decides not to proceed with the letting or fails to meet their own obligations within the prescribed timeframe.
Deadline for Agreement
A key procedural element of the holding deposit rules is the deadline for agreement. This refers to the 15 days, commencing on the date the deposit is received, within which the residential letting agreement should be finalised.
The parties may agree to extend this deadline in writing. If the deadline passes without a tenancy being entered, and none of the statutory grounds for retention apply, the holding deposit must be returned to the tenant promptly.
Circumstances Where a Landlord Can Retain a Holding Deposit
While the general principle under the Tenant Fees Act 2019 is that holding deposits must be refunded, there are specific statutory exceptions under which a landlord may lawfully retain the deposit. These exceptions are narrowly defined and must be applied in accordance with holding deposit rules. The permitted circumstances include:
Tenant Withdraw
If a prospective tenant voluntarily decides not to proceed with the letting after paying the holding deposit, the landlord is entitled to retain the deposit.
For example, if a tenant pays a holding deposit but later informs the agent they have accepted another property elsewhere, the landlord can keep the deposit to compensate for lost marketing time.
Tenant Fails the Right to Rent Check
Under the Immigration Act 2014, landlords must verify that tenants have the legal right to rent in the UK. If a tenant fails this check, the landlord may retain the holding deposit. When no valid right to rent is established, the landlord is not legally permitted to proceed with the residential agreement and can keep the deposit.
Tenant Provides False or Misleading Information
If the tenant supplies inaccurate or false information that materially affects the landlord’s decision to let the property, the deposit may be withheld.
For example, if a tenant claims to earn £50,000 annually but referencing reveals an income of £18,000, falling short of the affordability criteria, the landlord may retain the deposit due to misrepresentation.
Tenant Fails to Take Reasonable Steps to Enter into an Agreement
Prospective tenants are expected to act in good faith and cooperate with the pre-tenancy process promptly. If they fail to do so, the landlord may retain the deposit.
For instance, if a tenant repeatedly ignores requests to provide identification, sign the agreement, or confirm move-in dates despite reminders, the landlord may conclude that the tenant is not engaging reasonably and retain the deposit.
Landlords to Justify Retention with Evidence
In all cases, landlords must document the reasons for retaining the holding deposit clearly and accurately. This includes maintaining written records of communications, referencing outcomes, and any relevant documentation.
Transparency is essential not only for compliance with holding deposit rules but also for defending the decision in the event of a dispute or complaint to a redress scheme or local authority.
Circumstances Where a Landlord Must Refund the Holding Deposit
Landlords are legally obliged to refund the holding deposit in all the following circumstances where the tenancy does not proceed through no fault of the prospective tenant:
Landlord Decides Not to Proceed with the Letting
If the landlord or letting agent chooses not to agree to accept a holding deposit, the deposit must be returned in full.
For example, if a landlord receives a holding deposit but subsequently decides to let the property to another applicant, the original applicant is entitled to a full refund.
Tenancy Agreement is Entered Into
Where the letting agreement is successfully concluded, the holding deposit must either be refunded or applied towards the first rent payment or the tenancy deposit. This must be clearly documented and agreed upon by both parties.
So, where a tenant pays a holding deposit and subsequently signs the tenancy agreement, the landlord can deduct the deposit from the first month’s rent with the tenant’s consent and written confirmation.
Deadline for Agreement is Reached
If the tenancy agreement is not entered into within the statutory 15-day deadline for agreement and no extension has been agreed in writing, the holding deposit must be refunded unless the tenant has failed to take reasonable steps to proceed.
For instance, if a tenant provides all required documentation and is ready to sign, but the landlord delays finalising the agreement beyond the deadline, the tenant is entitled to a full refund.
Failure to Enter into Tenancy Agreement
Where neither party enters into a tenancy agreement and none of the statutory grounds for retention apply (e.g. withdrawal, false information, etc.), the holding deposit must be returned.
For example, provided the tenant acted reasonably, the deposit must be refunded if both parties fail to agree on final terms, such as move-in date or rent amount, and the tenancy does not proceed.
Timeframe for Refund
The holding deposit must be refunded within seven calendar days of one of the following events:
- The landlord decides not to proceed
- The deadline for the agreement passes without a tenancy being entered into
- The letting agreement is signed
Failure to refund the deposit within this timeframe may constitute a breach of the holding deposit rules and expose the landlord or agent to enforcement action.
Consequences of Non-Refund
If a landlord fails to refund a holding deposit when legally required, the tenant may complain to the relevant redress scheme or local authority. The landlord may face financial penalties of up to £5,000 for a first offence, and up to £30,000 for repeated breaches.
In addition, reputational harm and potential civil claims may arise.
Tenant Rights and Responsibilities
A clear understanding of tenant rights and responsibilities is essential for compliance with holding deposit rules and for avoiding disputes with landlords or letting agents.
Tenant Rights
Tenants have the following statutory rights in relation to holding deposits:
Accurate Information
Tenants are entitled to clear and accurate information regarding the amount of the holding deposit, the conditions under which it may be retained or refunded, and the proposed terms of the tenancy. This information should be provided in writing and before payment.
Refund in Specified Circumstances
Tenants are legally entitled to a full refund of the holding deposit if the landlord decides not to proceed with the tenancy, if the tenancy agreement is entered into, or if the deadline for agreement passes without fault on the tenant’s part.
Challenge Unlawful Deductions
If a holding deposit is retained unlawfully, tenants may challenge the deduction through the relevant redress scheme or local authority. They can also make a money claim in the County Court. Tenants should retain all correspondence and documentation to support their claim.
Tenant Responsibilities
Tenants have certain responsibilities when paying a holding deposit. These include:
Providing Accurate Information
Tenants must ensure that all information supplied during the application process, such as income, employment status, right to rent and rental history, is truthful and not misleading. False or inaccurate information may justify the landlord retaining the deposit.
Taking Reasonable Steps to Enter into a Letting Agreement
Tenants are expected to act in good faith and cooperate with the landlord or agent to finalise the tenancy. This includes responding to communications, supplying requested documentation (e.g. identification, references, etc.), and signing the agreement within the agreed timeframe.
What Constitutes Reasonable Steps
The term ‘reasonable steps’ is not exhaustively defined in legislation, but includes:
- Timely provision of required documents
- Prompt responses to emails or calls
- Attendance at scheduled viewings or signings
- Willingness to negotiate and agree on tenancy terms
- Avoiding unnecessary delays or evasiveness
Failure to take such steps may result in the landlord lawfully retaining the deposit under the holding deposit rules. Conversely, tenants who act diligently and in good faith are entitled to the protections afforded by law.
Holding Deposits and Tenancy Agreements
The holding deposit plays a pivotal role in the pre-contractual phase of a residential letting, serving as a financial commitment from the prospective tenant before the execution of a tenancy agreement. In accordance with holding deposit rules, this payment is made before the tenancy agreement is signed and does not create a binding tenancy.
Once the tenancy agreement is entered into, the holding deposit must be either refunded to the tenant or credited towards the first rent payment or the tenancy deposit. This treatment must be agreed in advance and documented clearly to avoid ambiguity.
To ensure transparency and legal clarity, it is strongly recommended that landlords include a specific clause within the tenancy agreement referencing the holding deposit. This clause should confirm:
- Amount paid
- Date of payment
- How the deposit has been applied (e.g. credited towards rent or security deposit)
- Confirmation that the holding deposit has been dealt with in accordance with the Tenant Fees Act 2019
Such a clause not only reinforces compliance with holding deposit rules but also provides a clear audit trail in the event of a dispute. It demonstrates that both parties have acknowledged and agreed on the treatment of the deposit, thereby reducing the risk of misunderstanding or legal challenge.
Dispute Resolution
Disputes concerning holding deposits can arise when the prospective tenant believes the deposit has been unfairly retained or mishandled. To resolve such issues effectively and in accordance with holding deposit rules, both landlords and tenants should follow a structured approach that prioritises communication, documentation, and recourse to appropriate legal channels where necessary.
Informal Communication and Negotiation
The first step in resolving any dispute should be direct and constructive dialogue between the landlord (or letting agent) and the tenant. For example, a tenant may believe they are entitled to a refund, while the landlord considers the deposit forfeited due to non-cooperation. In such cases, a calm exchange of written correspondence, supported by relevant documentation, may lead to a mutually acceptable resolution without further escalation.
Complaint to a Redress Scheme or Local Trading Standards Office
Tenants whose holding deposit has been withheld unfairly may seek recourse through a government-authorised redress scheme such as The Property Ombudsman or the Property Redress Scheme, or the Local Trading Standards Office.
They can help assess the claim and, if wrongdoing is established, may instruct to return the deposit.
Application to Tribunal
Tenants may seek to reclaim a holding deposit through the First-tier Tribunal if a landlord or letting agent fails to justify its retention, or neglects to issue a written notice explaining the reasons within seven days of either declining to proceed with the tenancy or the expiry of the agreed deadline.
Escalation to the County Court
If informal negotiation fails and the tenant believes the deposit has been unlawfully retained, they may pursue legal action through the County Court. This process typically involves submitting a claim online with evidence, paying a court fee, and attending a hearing if required.
Importance of Record-Keeping
Both parties should maintain comprehensive records of all communications, agreements, and transactions relating to the holding deposit. This includes:
- Emails and messages
- Payment receipts
- Copies of any holding deposit agreements
- Notes of verbal discussions
Such documentation is essential for substantiating claims and defending positions in any formal dispute resolution process.
Sources of Advice and Support
Tenants seeking guidance on holding deposit disputes may contact the following organisations:
- Citizens Advice offers free, impartial advice on housing and consumer rights
- Shelter provides expert legal information and support for tenants
These services can assist tenants in understanding their rights under holding deposit rules, preparing for legal action, and accessing further support if needed.
Comprehensive information on holding deposits for tenants, landlords and letting agents can also be found in Tenant Fees Act 2019: guidance - GOV.UK.
Best Practices for Landlords and Tenants
Following best practice is key to ensuring compliance with holding deposit rules and maintaining a fair, transparent rental process. Clear agreements, accurate information, and timely communication help prevent disputes and foster trust between landlords and tenants.
Landlords and agents should:
- Provide written confirmation of the holding deposit, including its amount, refund conditions, and how it will be applied if the tenancy proceeds
- Comply fully with the Tenant Fees Act 2019
- Communicate clearly throughout the application process and keep records of all decisions and correspondence
Tenants are advised to:
- Understand their rights under the Tenant Fees Act, including when refunds are due and what may justify retention
- Submit truthful and complete information during the application
- Retain copies of all communications and payment confirmations in case of dispute
Where uncertainty arises, seeking legal advice is recommended to ensure proper handling and avoid enforcement action.
How Can We Help
With extensive expertise in residential property disputes, we support both landlords and tenants in understanding their legal rights and obligations. From proactive guidance to direct representation, we help you navigate holding deposit regulations and protect your position throughout the tenancy process.
To speak with our team, call 0330 173 6983 or get in touch via email.
