Holding Deposits: The Rules Every Landlord Must Know

A holding deposit is a payment made by a prospective tenant to reserve a property while referencing is completed and the tenancy agreement is prepared. Used correctly, it protects both parties — the tenant knows the property is off the market, and the landlord has some security if the applicant pulls out. Used incorrectly, it can expose a landlord to criminal liability.

The Legal Framework: Tenant Fees Act 2019

Holding deposits for assured tenancies (including the new assured periodic tenancies under the Renters' Rights Act 2026) are regulated by the Tenant Fees Act 2019. The Act sets out:

- The maximum amount you can take

- The maximum period you can hold it

- The circumstances in which you can keep it

- The circumstances in which you must return it

- The timeframe for returning it

Charging more than the permitted amount, or retaining a holding deposit for a reason not permitted by the Act, is a prohibited payment — and a criminal offence.

How Much Can You Take?

The maximum holding deposit is one week's rent. This is calculated as:

> Annual rent ÷ 52

For example, if the monthly rent is £1,200 (annual rent £14,400), the maximum holding deposit is £14,400 ÷ 52 = £276.92.

You cannot take more than this, even if the applicant offers it. Accepting more is a prohibited payment.

The Deadline for Agreement

When you take a holding deposit, you must provide the applicant with written terms that include a Deadline for Agreement — the date by which the tenancy agreement must be signed. The default Deadline for Agreement is 15 days from the date the holding deposit is received.

You and the applicant can agree a longer period in writing. There is no statutory maximum for an extended deadline — it is whatever you both agree. This flexibility is particularly important for student tenancies (see below).

The written terms you must provide include:

- The address of the property

- The amount of the holding deposit

- The Deadline for Agreement

- The proposed tenancy start date

- The proposed rent amount

- Any other key terms you intend to include in the tenancy agreement

When Can You Keep the Holding Deposit?

You can retain the holding deposit only in the following circumstances:

1. The applicant withdraws from the proposed tenancy before the Deadline for Agreement

2. The applicant fails a Right to Rent check — they do not have the right to rent in England

3. The applicant provides false or misleading information that materially affects their suitability as a tenant (for example, providing false references or misrepresenting their income)

4. The applicant fails to take all reasonable steps to enter into the tenancy agreement before the Deadline for Agreement — for example, failing to respond to referencing requests, failing to provide required documents, or simply going silent

If none of these apply, you cannot keep the holding deposit.

When Must You Return It?

You must return the holding deposit if:

- You decide not to proceed with the tenancy (for any reason other than the applicant's fault)

- You and the applicant cannot agree on the terms of the tenancy before the Deadline for Agreement (unless the applicant is at fault)

- The Deadline for Agreement passes without a tenancy being entered into and the applicant is not at fault

Return must be made within 7 days of the decision not to proceed or the Deadline for Agreement passing.

Applying the Holding Deposit to the First Payment

Once the tenancy agreement is signed, the holding deposit must be applied to the first month's rent or the tenancy deposit — it cannot be kept as a separate charge. Confirm in writing how it has been applied.

Student Tenancies and Ground 4A: The Extended Deadline

This is an area where many student landlords get caught out — and where the flexibility of the extended Deadline for Agreement becomes genuinely useful.

What is Ground 4A?

Ground 4A is a mandatory possession ground under the Renters' Rights Act 2026, available exclusively for student tenancies. It allows a landlord to recover possession at the end of the academic year without needing to prove any fault by the tenant. It is the replacement for the fixed-term mechanism that student landlords previously relied on.

For Ground 4A to be available, the tenancy must be an assured periodic tenancy where:

- The property is let to students in full-time higher education

- The tenancy was entered into in response to an advertisement stating that the property is let to students

- The landlord gives the required notice before the tenancy starts (a Ground 4A notice must be served before the tenancy begins)

The Timing Problem

Student tenancies are typically agreed many months before the academic year starts — often in January or February for a September start. The standard 15-day Deadline for Agreement creates a problem: if you take a holding deposit in February, the 15-day clock starts immediately. But the student may not be ready to sign a full tenancy agreement in February — they may be waiting for confirmation of their course, their housemates may not all be confirmed, or they may simply not have the deposit funds available yet.

If the Deadline for Agreement passes without a signed tenancy, you must return the holding deposit (unless the student is at fault) — and you lose your reservation.

The Solution: An Extended Deadline for Agreement

The Tenant Fees Act 2019 allows you and the applicant to agree a longer Deadline for Agreement in writing. For student tenancies, it is common practice to agree an extended deadline — for example, setting the Deadline for Agreement as 30 June, giving the student until the end of the academic year to sign the tenancy agreement for the following year.

This means:

- You take the holding deposit in February

- You agree in writing that the Deadline for Agreement is 30 June

- The student has until 30 June to sign the tenancy agreement

- If they sign before 30 June, the holding deposit is applied to their first payment

- If they withdraw before 30 June, you can retain the holding deposit

- If they simply fail to engage and the deadline passes, you can retain the holding deposit (they failed to take all reasonable steps)

Important: The extended deadline must be agreed in writing at the time the holding deposit is taken — you cannot extend it retrospectively.

Ground 4A Notice Timing

For Ground 4A to be available, the landlord must serve a Ground 4A notice on the tenant before the tenancy begins. This notice informs the tenant that possession may be sought under Ground 4A at the end of the academic year. It is a condition precedent — if you forget to serve it before the tenancy starts, Ground 4A is not available.

When using an extended Deadline for Agreement, make sure the Ground 4A notice is served before the tenancy start date (not before the holding deposit is taken — it is the tenancy start date that matters).

Practical Tips

- Always provide written terms when taking a holding deposit — verbal agreements are not sufficient and leave you exposed

- Calculate the cap correctly — annual rent ÷ 52, not monthly rent ÷ 4

- Keep a written record of the amount received, the date, the Deadline for Agreement, and the outcome

- If retaining the deposit, document the specific reason in writing and notify the applicant promptly — do not simply go silent

- For student tenancies, agree the extended Deadline for Agreement in writing at the outset and make sure the Ground 4A notice is served before the tenancy starts

- Do not confuse the holding deposit with the tenancy deposit — they are different payments with different rules. The holding deposit is capped at one week's rent; the tenancy deposit is capped at five weeks' rent (or six weeks' for higher-value properties)