Difference Between Holding Deposits and Tenancy Deposits

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Renting a property often involves two types of deposits: a tenancy deposit, otherwise known as a dilapidations deposit, and a holding deposit. But what is the difference between them, and why do you need know the difference?

All about holding deposits

What is a holding deposit?

Holding deposits can be requested from prospective tenants, landlords or agents, and they ensure that the advertised property is removed from the market before tenancy contracts are signed. This type of deposit provides reassurance to the landlord that the tenant is genuinely considering the rental, and can legally only be a maximum amount of one week’s rent.

A holding deposit can only be held as a holding deposit for a maximum of 14 days if not otherwise agreed by the landlord and tenant.

When is a holding deposit taken?

When a prospective tenant has applied to rent a property, a holding deposit will be requested. The prospective tenant will then usually go through a screening process assessing certain details such as their annual income, credit history, and ability to provide references from previous rental properties.

What happens to a holding deposit if the tenancy does not go ahead?

There are two scenarios that affect the outcome of a holding deposit:

  1. If the landlord decides not to proceed with the tenancy
  2. If the prospective tenant is the reason behind the tenancy not going ahead

If a landlord decides not to rent out the property to the prospective tenant, the holding deposit must be returned in full. Landlords may be advertising a property in multiple places, but they cannot take multiple holding deposits for one property. Tenants should research whether the property is advertised in multiple places before paying a holding deposit.

If a prospective tenant decides not to rent the property or provides misleading information before signing a contractual agreement, the landlord or agent can keep some or all of the holding deposit. The amount kept by the landlord depends on the terms of the deposit, for example if it is non-refundable then the landlord would be entitled to keep the full holding deposit.

How do tenants get their holding deposit back?

If a landlord or agent keeps a holding deposit without legal reason, the prospective tenant can ask for their money back in full. The prospective tenant should first try and speak with the landlord or letting agent and go through their complaints procedure. If this isn’t successful they can also complain to trading standards and apply to a tribunal, or use a letting agent redress scheme if applicable to investigate the complaint.

Do holding deposits need to be protected?

For a letting agent to legally take a holding deposit, they must be a member of a client money protection scheme. Currently, there is no legal requirement to protect holding deposits when taken by private landlords, so the holding deposit is generally paid directly into the landlord’s bank account.

What happens to the holding deposit once a rental agreement has been signed?

Once a tenancy agreement has been signed, the holding deposit can be put towards the dilapidations deposit total that needs to be paid, or refunded at the beginning of the tenancy. In Scotland, landlords and letting agents are not legally allowed to collect holding deposits. They can only ask that a tenant pays a security deposit in addition to the first month’s rent.

All about tenancy deposits

What is a tenancy deposit?

A tenancy deposit, also known as a dilapidations deposit, is paid to a landlord to act as security against the tenant breaking any terms in the rental agreement, such as not paying rent or causing damages.

How much should a tenancy deposit be?

All tenancy deposit sizes are limited by the Tenant Fees Act, and the value of a tenancy deposit normally equates to 5 weeks’ rent.

In properties with an annual rent of less than £50,000, the tenancy deposit can legally be no more than 5 weeks’ rent. Where the annual rent is greater than this, landlords and agents can charge 6 weeks’ rent for a deposit.

In Scotland, tenancy deposits can be no more than 2 months’ rent, and in Wales the deposit generally equates to 1 months’ rent.

Does a tenancy deposit need to be protected?

A tenancy deposit must be protected by a government approved scheme, and a landlord or agent must do this within thirty days upon receipt of the deposit. The tenant must then receive prescribed information to tell them how exactly their deposit has been protected.

What happens to a tenancy deposit at the end of a tenancy?

Tenancy deposits are refunded at the end of a tenancy. If a tenant meets all the terms in the tenancy agreement, the deposit should be paid back in full. If a tenant breaks the agreement, the landlord can make deductions from the deposit to pay for repair of any damage to the property, unpaid rent arrears, or permitted fees included in the agreement such as replacing lost keys.

How long can landlords keep tenancy deposits after a tenancy ends?

A landlord must return a tenancy deposit within 10 days of both parties agreeing how much will be paid back to the tenant. If this cannot be agreed and the deposit is in dispute, it will remain protected in the chosen government approved scheme until a resolution is found.


We hope this helps you understand more about the difference between holding deposits and tenancy deposits, whether you are a tenant or a landlord.

If you are a landlord that’s ready to rent out your property, get in touch with us and we can rent out your property in no time. If you’re a tenant looking to rent a property and need some advice, you can also get in contact with us.

We look forward to hearing from you and being able to help.

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