Retaining and returning holding deposits under the Tenant Fees Act

Do you know what your referencing provider is asking your applicants? You should, because how well you know your referencing criteria could have a major impact on whether or not you can legally retain a holding deposit, since the Tenant Fees Act came into effect on 1 June 2019, introducing strict rules and new legal obligations around returning or retaining holding deposits. 

What is a holding deposit?

A holding deposit is the money paid by - or on behalf of - a tenant to a landlord or letting agent to reserve a property, before signing an official tenancy agreement. 

When can you retain an applicant's holding deposit?

Under the Tenant Fees Act, there are only four grounds upon which a holding deposit can be retained by the letting agent or landlord. These are:

• If the tenant fails a right to rent check;
• If the tenant provides false or misleading information;
• If the tenant pulls out of the application process before the Deadline for Agreement (the Deadline for Agreement is 15 calendar days from the time the holding deposit was taken to when the contract is signed and dated by both parties);
• If the tenant fails to take all reasonable steps to enter into the tenancy agreement.

When should you return an applicant's holding deposit?

The holding deposit will need to be returned to the tenant if:

• The letting agent or landlord pulls out of the application process before the deadline for agreement;
• The letting agent or landlord fails to take all reasonable steps to enter into the tenancy agreement.

Even if the tenant fails a credit check, they should get a holding deposit refund, unless they provided false or misleading information. 

How can you ensure your applicants provide accurate information?

This is where referencing comes into it. For starters, if a tenant has provided you with completely accurate information but fails referencing, this will be classed as the letting agent or landlord pulling out of the application process and the holding fee will need to be refunded.

This means it’s vital you understand your referencing provider’s criteria for a pass or fail in order to accurately pre-qualify your potential applicants. “Go to your referencing agency and find out exactly what questions they ask as part of their referencing,” ARLA CEO David Cox said in a Goodlord webinar. “Then make sure your application form mirrors those questions exactly.”

How can you check how much an applicant earns?

Cox gives the example of asking a tenant applicant how much they earn. “It’s a very subjective question - are you asking for their basic salary? Are you asking for their target earnings? Are you asking for actual earnings, including bonuses or other commissions?

"Make sure that whatever question the referencing agency is asking, you are asking the same one,” he says. “You could say, ‘How much do you earn?’ and the tenant puts down their on target earnings, but the referencing agency asks for their basic salary. The tenant hasn't lied. They've just given you different information. It was still accurate information.”

How can you check if the information the tenant has provided is misleading?

An application form that’s consistent with your referencing criteria will also be important proof in the event that a tenant provides you with false or misleading information as part of the application process, as you must be able to prove the applicant has actively lied in order to retain the holding deposit.

“Then you can say, ‘We asked you this question, you said this but the referencing agency asked you exactly the same question and got different information’,” says Cox.  “Find out what your referencing agency is going to ask, and make sure you ask exactly the same questions.”