Call of the month: holding deposits
It has been almost 12 months since the end of the transitional year following the introduction of the Tenant Fees Act in England which has applied to all tenancies as of 1st June 2020. This has been a topic we have helped many of our members with, and in our call of the month we take a look at a recent question from a member around holding deposits.
The situation
Our member called us with a question relating to taking a holding deposit.
Specifically, they wanted to know how the tenant fee ban affected the taking of holding deposits.
Holding deposit forms
Our adviser began by explaining that there are different rules depending on where your properties are (England or Wales) and that the fees ban in England is slightly different to the fees ban in Wales.
In Wales, there is a set of prescribed information that legally must be provided to the tenant when taking a holding deposit from them. Members in Wales can utilise our holding deposit form to be compliant with this.
In England things are slightly and the holding deposit form does not have to include prescribed information. However it should set out the reasons why a landlord would be able to retain the holding deposit, and what will happen with the holding deposit if the application is successful. The NRLA's holding deposit form for England contains this sort of information.
Holding deposit cap
Holding deposits in England and Wales are capped at the equivalent of one week's rent. If you are taking rent monthly then you can work this amount out by multiplying the monthly rent by 12 and then dividing that total by 52.
Process
The landlord is only allowed to retain a holding deposit if certain conditions are met, most of which relate to misleading information from a tenant.
To ensure that landlords have all the information they need to make a decision, the tenant should complete a tenancy application form before the holding deposit is taken. This form asks questions regarding references, right to rent and (potentially) guarantors.
Following referencing, if the information on this form is incorrect and the landlord was misled, they are permitted to keep the holding deposit. This covers their costs for the time they have held the property for the applicant - time during which they could have continued to market and potentially let the property.
If the landlord has been misled, they need to notify the applicant of the reasons why they are retaining the holding deposit. The NRLA provides sample letters for this purpose on our holding deposit pages for England and Wales.
In these circumstances they should send a letter to the applicant confirming they will be keeping the holding deposit.
More information
Members can download the various forms and letters mentioned above by visiting our Tenant Fees Act toolkit.
