What are holding deposits?
Agencies usually charge what they often call ‘holding deposits’ in order for a property to be taken off the rental market. The tenant pays an amount of money, and in return, the agency stops advertising the property. A holding deposit cannot be any more than a total of one week's rent for the property. An agency should stop advertising a property once you've paid a holding deposit, and shouldn't take multiple holding deposits for a single property.
Paying a holding deposit does not mean that the property is now the tenant’s, but rather that the agency will begin the administrative process of setting up the tenancy. Holding deposits are governed by the Consumer Rights Act 2015, by the Tenant Fees Act 2019, and by guidance from the Competition and Markets Authority, which is a government department that issues information on the enforcement of legislation such as the Consumer Rights Act.
Before paying a holding deposit, an agency should give you a copy of the contract you will be expected to sign. They should also information about the check they will carry out on you, and explain the reasons why you might fail this check. This information should include ‘what criteria the check will assess, for example credit worthiness [and] unpaid judgements’, as well as ‘what data sources it will use, [and] what, if anything, it will cost’.
You should get the agency to state in writing the amount of deposit you have paid and the agreed rent for the property. They should also provide you with a 'deadline for agreement', at which point you will sign the contract. This is usually two weeks after paying the holding deposit, but you can ask for it to be longer or shorter.
An agency must refund your holding deposit within 7 days of you entering into the tenancy agreeement. They must also refund it within 7 days of them withdrawing from the agreement, and within 7 days of the 'deadline for agreement' passing, if no contract is signed.
Agencies can only retain your holding deposit if: you give them false or misleading information (and they can prove it); you fail a right to rent check; or if you withdraw from a property. If you withdraw from the property because the agency has behaved aggressively (e.g. by including unreasonable clauses in the contract), they have to refund your holding deposit.
Agencies must set out in writing why they are retaining your holding deposit within 7 days of informing you they will do so, or within 7 days of the 'deadline for agreement' passing. They must provide evidence of the costs they are claiming they have incurred. If they don't do this, they have to return your holding deposit.
You can find more information about the law around holding deposits here.
If you find yourself in a position where your agency is trying to keep your holding deposit, you can challenge the agency to return it. In the first instance, you may find the template letter in this link to be useful (click me!).
If the agency’s response to this letter is to insist on keeping your holding deposit, you might want to consider taking direct action. For more information on what that would mean, have a read of this article.