The Tenant Fees Act introduced strict rules around how letting agents and landlords retain and return holding deposits.
Orignally published: February 2024
If a tenant fails referencing and you decide to keep their holding deposit, are you absolutely certain you’re on firm legal footing?
The Tenant Fees Act sets strict conditions and legal obligations for when a deposit can be withheld, and if those conditions aren’t met, you could be facing fines of up to £5,000, or £30,000 for repeat breaches.
These changes placed fresh responsibility on letting agents to grasp referencing criteria in detail and to pre-qualify applicants properly before any deposit is taken.
This blog explores your legal obligations around holding deposits, and the specific circumstances in which you’re permitted to retain or required to return them.
Holding deposits: 4 key takeaways for letting agents
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- What are your obligations regarding holding deposits?
- When can you retain an applicant's holding deposit?
- When should you refund an applicant's holding deposit?
- What are the consequences of not refunding the holding deposit?
- How can you ensure your applicants provide accurate information?
- Can financial checks affect a holding deposit?
- How can you check if the information the tenant has provided is misleading?
- How to track holding deposit payments at scale
- FAQs
What are your obligations regarding holding deposits?
As a landlord or letting agent, accepting a holding deposit is not just about taking the property off the market. From that moment, you’re taking on legal responsibilities designed to protect the tenant and ensure fair play.
To stay compliant and avoid disputes, you should clearly spell out, ideally in writing, what the applicant is agreeing to. That includes:
- Deposit details - State the exact amount being paid and the basis for its calculation. By law, the holding deposit is capped at one week's rent. Is it a flat fee or a percentage of the rent? Make it easy to understand.
- Retention scenarios - Explain the specific situations where you’re legally allowed to keep the deposit, such as if the tenant backs out or provides false information.
- Refund criteria - Outline the conditions under which the deposit will be returned, and when the refund will be issued.
- Tenancy timeline - Include the intended move-in date and the agreed rent amount, so there’s no ambiguity.
- Pre-tenancy steps - Let the tenant know what’s expected before the tenancy begins, whether it’s passing a reference check, providing a guarantor, signing paperwork, or anything else.
While a formal holding deposit agreement isn’t mandatory, it’s strongly recommended. It protects both sides and gives you something to fall back on.
When can you retain an applicant's holding deposit?
Under the Tenant Fees Act, holding deposits must be refunded. But there are four tightly defined exceptions where you’re legally allowed to keep the money. Here’s what you need to know:
1 - If the tenant withdraws
If the applicant changes their mind and pulls out before signing the tenancy agreement, you’re entitled to retain the deposit. If you’ve lost valuable time, the law recognises and supports that.
2 - If the tenant fails the right to rent check
You’re legally required to confirm that the tenant has the right to rent in the UK. If they don’t pass this check, you can’t proceed with the tenancy, and you’re within your rights to keep the deposit. This is because if the tenant doesn’t meet immigration requirements, the tenancy can’t legally go ahead.
3 - If the tenant provides false or misleading information
If the tenant gives you inaccurate details that affect your decision to let, such as overstating their income or hiding adverse credit, you can retain the deposit.
For instance, if they claim to earn £40,000 but referencing reveals it’s closer to £20,000, that’s a material misrepresentation.
4 - If the tenant doesn’t take reasonable steps to proceed
Tenants are expected to cooperate with the application process. If they drag their feet, ignore emails, fail to provide ID, or don’t sign the agreement within the 15-day deadline, you may retain the deposit. The key phrase here is “reasonable steps.” If you’ve chased them and they’ve gone silent, you’re not obliged to wait forever.
In every case, you must be able to justify your decision. That means keeping written evidence such as emails, referencing reports, signed forms, and timelines. Platforms like Goodlord offer timestamped audit trails that will help support your decision.
When should you refund an applicant's holding deposit?
Not every application ends in a signed tenancy, and when it doesn’t, you need to know exactly when the holding deposit must be returned to the tenant. Here are the key scenarios where a refund is required:
1 - You decide not to proceed
If you or your landlord chooses not to move forward with the tenancy, whether it’s due to a change of heart or a better-suited applicant, the holding deposit must be returned in full.
It's important to note that even if referencing hasn’t started, once the deposit is taken, the commitment begins, and backing out means giving the money back.
2 - The tenancy agreement is signed
Once the tenancy is agreed and signed, the holding deposit no longer serves its original purpose. At this point, it should either be refunded or used towards the first rent payment or security (tenancy) deposit.
3 - The deadline for the tenancy agreement passes
Once you take a holding deposit, you’ve got 15 calendar days to wrap up the tenancy agreement. Should you need more time, the 15-day limit can be extended in writing.
For instance, if the tenant has done everything they were asked to and are ready to sign, but you delay or don’t finalise the agreement in time, you must refund the deposit in full.
4 - No agreement is reached, and it’s not the tenant’s fault
Sometimes, despite best efforts, the tenancy doesn’t go ahead. Maybe the rent amount couldn’t be agreed upon, or the move-in date didn’t work. If the tenant has acted reasonably and none of the legal grounds for retention apply (e.g. withdrawal or providing false info), the deposit must be returned.
What are the consequences of not refunding the holding deposit?
Once a tenant pays the holding deposit, you’re legally bound to either move forward with the tenancy or return the money promptly. You get seven calendar days to refund the deposit after one of these happens:
- You decide not to let the property
- The tenancy agreement isn’t signed by the deadline
- The tenant signs the agreement
If you fail to refund the deposit when required, the tenant can escalate the issue to the local authority. That could lead to financial penalties of up to £5,000 for a first offence, and up to £30,000 if it happens again.
Beyond the fines, you may even face civil claims, plus there’s reputational damage to consider. The government lists past decisions here. This means that if you lose, potential tenants can easily look it up and become hesitant to rent from you.
In short, to avoid dispute or tenancy issues, you need to be confident that the information your applicants provide during tenant referencing is accurate and verifiable.
How can you ensure your applicants provide accurate information?
It’s important to get accurate information when referencing a tenant.
For example, 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 to accurately pre-qualify your potential applicants.
Can financial checks affect a holding deposit?
A landlord or letting agent should ensure they know the “suitability requirements before taking a holding deposit”. This includes how much an applicant earns as their basic income.
As part of the referencing process, a prospective tenant will undergo a financial check to determine if they can reliably pay their rent on time. The applicant can decide whether this is done through Open Banking or by sending bank statements.
It is important for letting agents and landlords to ask the appropriate questions during the referencing process. If a letting agent or landlord does not like the prospective applicant's references and wishes to withdraw from the agreement, they must return the holding deposit.
If the tenant has admitted to a poor credit history, landlords or letting agents should “consider whether additional financial assurances would be appropriate”, but they can’t withdraw their application and keep the holding deposit.
How can you check if the information the tenant has provided is misleading?
A consistent referencing application is important proof to check whether the prospective tenant has provided false or misleading information. If a letting agent or landlord believes that an applicant has lied on their application, they can retain the holding deposit.
An application form that’s consistent with the agreed referencing criteria will be important proof if a tenant provides you with false or misleading information, as a letting agent or landlord must be able to prove the applicant has actively lied to retain the holding deposit.
A landlord or letting agent can keep a prospective tenant’s holding deposit if they provide misleading or incorrect information “which reasonably affects [their] decision to let the property”, and ultimately questions whether the applicant will be a suitable tenant.
How to track holding deposit payments at scale
Managing tenant deposits is essential for compliance, transparency, and trust. On a small scale, spreadsheets or manual processes might work. But when your portfolio grows, tracking multiple payments, deadlines, and deposit returns quickly becomes complex, and mistakes can lead to fines, disputes, and wasted time.
Mishandling holding deposits risks reputational damage and financial penalties. The main challenges at scale include manual errors, missed deadlines for deposit registration, difficulty generating reports, and time-consuming dispute management.
This is where technology plays a vital role. Platforms like Goodlord streamline deposit management, giving agents and landlords the tools they need to operate at scale with confidence. Goodlord collects deposits online during the application process, removing the need for manual chasing.
A central dashboard gives agents visibility across all tenancies, while tenants receive instant confirmation and updates, reducing queries and speeding up the process.
The image above show what a holding deposit process looks like in the Goodlord platform.
With holding and security deposits, property managers should standardise deposit processes, set internal reminders alongside automated systems, run regular audits, and integrate platforms like Goodlord with accounting tools for seamless reporting. Educating tenants on how their deposits are protected also reduces disputes and builds trust.
FAQs
What is a holding deposit?
A holding deposit is the money paid by or on behalf of a tenant to HOLD a property before signing an official tenancy agreement. It confirms the tenant’s intent to proceed and temporarily takes the property off the market while referencing checks and contract discussions are underway.
While in commercial tenancies, the holding deposit amount and terms are negotiated between landlord and tenant, residential lettings are governed by strict legal rules. These rules cap the deposit amount and set clear conditions around how the deposit is used, when it must be refunded, and when it can be retained. They’re designed to keep things fair and transparent.
How are holding deposits different from security (tenancy) deposits?
Though they sound similar, holding deposits and security deposits serve very different roles in the rental process.
| Aspect | Holding deposit | Security or tenancy deposit |
| Purpose | Reserves the property before the tenancy agreement is signed | Covers potential breaches of tenancy (e.g. unpaid rent, damage) |
| Timings | Paid before the tenancy begins | Paid at or shortly after tenancy commencement |
| Maximum amount | Capped at one week’s rent | Capped at five weeks’ rent (or six weeks if annual rent exceeds £50,000) |
| Holding period | Can only be held for up to 15 days unless an extension is agreed to in writing | Held for the duration of the tenancy |
The holding deposit reserves the property before any tenancy agreement is signed, while the security deposit, typically paid once the tenancy is signed, serves as a safeguard for the landlord against unpaid rent or damage.
What is the Tenant Fees Act 2019?
It’s a law that bans most fees charged to tenants in England. Letting agents and landlords can only charge for rent, deposits, and a few specific costs (like lost keys or early termination). Everything else is off-limits. Breach it, and you’re looking at fines up to £5,000.
What are the holding deposit retaining rules?
Most of the time, you must refund the holding deposit, unless the tenant:
- Pulls out of the application
- Fails the Right to Rent check
- Provides false or misleading info
- Ghosts the process and doesn’t take reasonable steps to sign the agreement
What is a Right to Rent check?
A right to rent check is a legal requirement for UK landlords to verify that their prospective tenants have permission to live in the country. This involves checking documents such as passports, visas, and residence permits before renting out their property.
How much can you charge as a holding deposit?
You can charge up to one week's rent. No more. It’s capped by law under the Tenant Fees Act 2019. The weekly rent is calculated as: Weekly rent = (Monthly rent X 12) / 52
How long do you have to refund the holding deposit?
You must refund the holding deposit within 7 days of the tenancy agreement being signed or within 7 days of deciding not to proceed.
This article is intended as a guide only and does not constitute legal advice. Visit gov.uk for more information.
