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Tenancy and Holding Deposits: What’s The Difference?

2nd June 2023

Tenancy and Holding Deposits

Each and every private landlord in the United Kingdom has surely heard of holding deposits and tenancy deposits. Do you nonetheless recognise the distinctions among the two? Although these are all payments given by tenants to landlords as a condition of a tenancy agreement, there are some crucial differences that all landlords ought to become mindful of.

In the context of this article, we’re going to clarify the distinction between a holding deposit and a tenancy deposit, as well as offer tips on how to manage each.

What exactly is a holding deposit?

A holding deposit, unlike a tenancy deposit, is money given over the tenancy application procedure to assist protect the property until the occupant’s application is completed. This charge is paid to the landlord or letting agent by a potential renter to “secure” a property from the market pending referencing procedures have been carried out.

Whenever the tenant decides to rent the residence, the landlord will apply the holding deposit into the tenant’s tenancy deposit. Should they opt not to rent the home, the holding deposit will be held by the landlord or leasing agent to cover administration and marketing expenses involved in finding an applicant.

According to the Tenant Fees Act 2019, occupants must refrain from paying more than a full week’s rent as a holding charge. This amount must be included in the rental agreement.

Exactly What Is a Tenancy Deposit?

Once a tenant leases a residence in the United Kingdom, they provide a tenancy deposit towards their landlord at the start of their leasing contract. This deposit compensates any damages as well as violations with agreements that occur during the rental duration. The landlord may keep the security deposit through the termination of the tenancy or utilise it for fixing any damage created by the tenant(s).

Usually, the tenancy deposit is equal to one month’s rent in addition to a supplementary sum to cover repairs or other costs, such as late payments for rent. If there are no disagreements about damages or cleaning charges at the end of the tenancy, the deposit will be refunded in full to the tenant.

On the other hand, if there are difficulties with damages or cleaning that exceeds typical wear and tear, the landlord may keep a portion or all of the deposit. If such a dispute happens, it should be addressed by a neutral third party instead of between the tenant and landlord personally.

Are There Certain Legal Considerations for the Holding Deposit and Tenancy Deposit?

The regulations in the United Kingdom regarding holding deposits and tenancy deposits are quite tight. This clarifies that one of the most prevalent sources of distress for landlords is a lack of awareness of their legal obligations.

Holding deposit

The Tenant Fees Act 2019 governs holding deposits, which say that landlords are prohibited from charging in excess of one week’s rent for this sort of deposit. If the landlord fails to follow through with the tenancy agreement, the landlord has to replace the holding deposit before a period of fifteen days.

Tenancy deposit

Section 213 of the Housing Act of 2004 protects rental deposits. According to the legislation, landlords must preserve all tenancy deposits in an established scheme and show written proof to tenants within 30 days. If the yearly rent is less than £50,000, the maximum permitted tenancy deposit is five weeks’ rent, and six weeks if the amount is between £50,000 and £100,000.

It is critical that you follow these laws while dealing with holding and tenancy deposits. Alternatively, you may face substantial fines or additional charges imposed by officials. The positive aspect is that Seraph can make sure everything is tracked and done effortlessly. Contact our team to help you set up your accounts stress free!