Holding deposits and the Tenant Fees Act: what landlords can charge

A holding deposit is capped at one week's rent, and only one may be held on a property at a time. You get 15 days from taking it to reach agreement, unless you agree a different deadline in writing. After that it must be repaid within seven days, and if you intend to keep any of it you have to tell the tenant why in writing within seven days or the right to keep it is lost.

Holding deposits are small sums that cause disproportionate trouble. The money itself is rarely more than a few hundred pounds. The penalty for getting the process wrong is a great deal larger, and the mistake landlords make most often is not greed. It is silence. They keep the money for a reason that would have been perfectly lawful, and never put the reason in writing.

What a holding deposit is for

It takes a property off the market while referencing and right to rent checks are done and the paperwork is drawn up. It is not a fee, it is not a reservation charge, and it is not income. Under the Tenant Fees Act 2019, taking anything beyond the short list of permitted payments is a prohibited payment, and a holding deposit is one of the few things on that list.

The cap is one week's rent. That is one week per tenancy, not per person. Three sharers on one agreement pay one week's rent between them, not three. Work the figure out from the annual rent divided by 52, not from a month divided by four, because the second method quietly overcharges and an overcharge of any size is a breach.

The 15 day clock

Once the money is received you have 15 calendar days to enter into the tenancy. This is called the deadline for agreement. You and the tenant can agree a different date in writing, longer or shorter, and on a complicated let with a guarantor abroad that is often sensible. What you cannot do is let the 15 days quietly lapse and carry on as though nothing happened.

Only one holding deposit can be held on the same property at a time. If a second applicant is keen and you want to keep them warm, you cannot take their money as well until the first deposit has been repaid or lawfully retained. Agents under pressure to fill a void sometimes take two. It is a breach, and it is an easy one for a tenant to prove.

When you must repay it

Repayment is due within seven days of whichever of these happens first:

• the tenancy is entered into, in which case the money is repaid or, with the tenant's written agreement, applied to the first rent or the tenancy deposit;
• the landlord decides not to proceed;
• the deadline for agreement passes without a tenancy.

Note the middle one. If it is your side that drags, the referencing provider that goes quiet, the landlord who stops answering the phone, or a decision that takes three weeks, the money goes back. Delay caused by you is never a reason to keep it.

When you can keep it

The grounds are narrow and they are set out in the Act. In broad terms you may retain the deposit where the tenant provides false or misleading information that materially affects their suitability, where they fail the right to rent check in circumstances the landlord and agent could not reasonably have known about beforehand, where the tenant withdraws, or where the tenant fails to take all reasonable steps to enter into the tenancy while you are taking reasonable steps yourself.

That last ground is the one people misapply. It is not a catch-all for a deal that went cold. If a tenant is slow but still engaging, still sending documents, still asking questions, they have not stopped taking reasonable steps. And the false information ground means information that actually mattered. A misremembered previous postcode is not the same as concealing six months of arrears.

The written reasons rule

This is the bit that catches out otherwise careful agencies. Even where a ground applies, you must give the tenant your reasons in writing within seven days of the decision not to proceed or of the deadline for agreement passing. Miss that and the right to retain is forfeited. The money goes back regardless of how justified you were.

So write the letter. A short, plain email that names the ground and sets out the facts is enough, and it takes five minutes. Keep it on file with the dates, because if this ever reaches a redress scheme the file is the whole case.

What the Renters' Rights Act changed around it

Since 1 May 2026 the tenancy that follows the holding deposit is a different animal. There are no new assured shorthold tenancies and no fixed terms. Every new private tenancy is periodic from the first day, and section 21 is gone. That does not change the holding deposit rules themselves, but it changes the pressure around them, because a tenancy you were unsure about is no longer something you can quietly end in twelve months.

Two further changes matter at the point of taking money. You cannot ask for rent before the tenancy agreement is signed, and after signing you can ask for a maximum of one month's rent in advance before the tenancy starts. Rental bidding is also banned, so the advertised rent is the ceiling. If you are still building a pre-tenancy process around large advance payments, that needs rebuilding, and our note on the rental bidding ban covers the advertising side.

The tenancy deposit cap is unchanged. Five weeks' rent where the annual rent is below £50,000, and six weeks' rent at or above that. The holding deposit is separate from it and sits on top of nothing.

What it costs to get wrong

A first breach of the fees ban carries a financial penalty of up to £5,000, imposed by the local council. A further breach within five years can bring a penalty of up to £30,000 or prosecution, and it becomes a banning order offence. The tenant can also recover the payment.

Councils do not usually go looking. They act on complaints, and holding deposits generate complaints because the tenant has lost real money at the exact moment they also lost the flat. If you use an agent, the agent's handling of this is a fair proxy for how they handle everything else, and it is worth asking about before you instruct. You can compare agencies on AgentCheck, but the question to actually ask is a simple one: show me your standard holding deposit retention letter.

A short process that keeps you out of trouble

• Confirm the amount in writing when you take it, with the date received and the deadline for agreement stated.
• Diarise day 15 the moment the money lands.
• Never hold two deposits on one property.
• If you decide not to proceed, decide it clearly and date it.
• Send written reasons within seven days if you are retaining anything, and repay within seven days if you are not.
• Get written consent before applying the money to rent or to the deposit.

None of this is difficult. It is a diary entry and a template letter. The landlords who come unstuck are almost always the ones who handled a failed application by simply not replying, and then found out a year later what that silence was worth.

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