The new UK law on "Holding Deposits" paid

to reserve a rental home

 

Rental Holding Deposit in UKBecause you read my updates, you are, of course, well aware that the UK’s ban on tenant fees will become effective on 1 June.  The new law will ban almost all fees that agents and landlords have been imposing on renters at the start of their rental contracts as well as during them.  They often run into £1,000 and more!  We have always argued that these represent landlords’ costs for being in the business of renting out their properties and that there’s never been any justification for making tenants pay them.

There are a few exceptions and one of those will be so-called “holding deposits”.  They should not be confused with a “security deposit” which is paid in case the tenant causes damage to the landlord’s property.  These are paid when the renter chooses a property and wants it removed from the market while the application process is gone through and all the terms are agreed.

Routinely, these holding deposits have been two weeks' rent and often more.  Under the new law, they will be capped at one week’s rent.

There are essentially only 4 justifications under the new law for a landlord/agent refusing to refund a holding deposit.  They are:

  1. The tenant withdraws from the deal.  This is problematic because a renter might well decide to pull out due to being presented with an unreasonable rental contract.  For this reason, it’s important to negotiate terms that protect against that happening.  Don’t worry, we have long had this issue covered in our home finding methodology at Saunders 1865.
  2. The tenant fails the Right to Rent check.  Quite apart from any holding deposit, prospective tenants must make sure that they have all their ducks in a row on the immigration/work permit front before moving forward on a rental home.
  3. The tenant provides false or misleading information.  They can’t hold onto the money just because the renter failed the reference check though.
  4. 15 days since the holding deposit was paid over has expired and the tenant has not provided all the necessary information to the landlord/agent.

The first point to my mind represents a big loophole in the new law because it leaves room for landlords/agents to create circumstances where the tenant has no choice but to withdraw.  Therefore, renters should be advised to take suitable precautions before paying over a holding deposit unless they are prepared to lose that money.

Do use our contact form if you have any questions.

Of course, this is only one tiny part of the new legal ban on tenant fees. I will be talking about the most important issues that come up under the new law as they arise.