What's the difference between holding deposits, security deposits and agents fees?

What's the difference between holding deposits, security deposits and agents fees?

Whether you're a private landlord or a tenant it's important to know the difference between the various pre-tenancy deposits and fees. There is often confusion around these fees and how much can be charged. But landlords also need to understand the difference between holding and security deposits. Equally, though tenants can be dismayed by being asked to pay fees. All before they can move into their new home.

To clear up any confusion we'll look at holding deposits, security deposits and agents fees. And how they affect both private landlord and tenant.

Holding deposit/fee

This is often the first financial transaction between landlord and tenant. The tenant will pay a holding deposit to 'reserve' the property. The deposit might be paid because:

  • The landlord has agreed to the tenancy pending final referencing checks.
  • The property is undergoing some redecoration and isn't ready to be occupied.
  • The current tenant has yet to move out.

The amount charged for the holding deposit varies. It could be an arbitrary figure or possibly a percentage of the rent. Certainly, it's not unusual to see holding deposits of £400 or more. But whatever the figure it's important for both landlord and tenant to realise it's normally refundable. Though the holding fee is rarely if ever returned to the tenant in cash.

A signed agreement should lay out the terms of the holding deposit. This contract would normally include agreed deductions in the event of either party changing their mind. Both private landlord and tenant should sign the agreement.

What happens to the holding deposit?

If the tenancy goes ahead the landlord will put the holding deposit towards the first month's rent. Or sometimes towards the security deposit.

However, the landlord will return the deposit in full if she decides to withdraw the offer of a tenancy. This can happen if the tenant fails referencing or a credit check for example. An exception to the full return of the deposit would be if referencing fees are deductible.

The landlord may not have to return the money at all should the tenant be the one to change their mind. However, for the landlord to retain the deposit there would have to be explicit terms stating this in the agreement both parties signed.

If should be noted however not all landlords, or their letting agents, charge holding fees.

Security deposit

All private landlords should charge a security deposit. There is no avoiding this for tenants. It's a large lump of cash to find. But it's a necessary expense. The security deposit is usually equivalent to four or six weeks rent.

Why to landlords charge a security deposit?

The deposit is a type of insurance against rent arrears or damage to the property or fittings. At the end of the tenancy, the landlord will make deductions from the security deposit to recover the costs of damage or rent arrears.

However, the landlord can only make deductions with the tenant's agreement. If the two parties don't agree an independent arbitrator will make a judgement. Alternatively, the landlord could take legal action.

When the security deposit is paid the landlord must lodge it with a deposit protection scheme. You can learn more about the deposit protection scheme here. If the landlord doesn't protect the deposit she could face financial penalties and will be unable to evict the tenant under a Section 21 notice.

Letting agents fees

These are fees paid by a tenant to an agent who is letting a property on behalf of a private landlord. There has been a lot of negative publicity recently about fees and rogue letting agents. Thankfully the government are planning to clamp down on the abhorrent behaviour of some agents who take advantage of tenants with outrageous charges dressed up as 'admin fees'.

However reputable letting agents do not charge excessive fees. MakeUrMove, for example, don't charge any admin fees. Most letting agents will, however, make a charge for carrying out referencing checks.

Private landlords can find tenants fast by listing their property with MakeUrMove the leading online letting agency.

 
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