If you’re intending to rent out a property, you may opt to take holding deposits from your prospective tenants to keep the properties while suitability checks are carried out. Here’s what you need to know about the process.
Holding deposits are a fee charged to a tenant in Wales to keep the property reserved (“on hold”) for them while the necessary checks are carried out by you or your agent. This is common practice, but certain rules and regulations apply and it’s important to know these so that you can comply with the law.
Holding deposits in Wales are subject to the laws put in place by The Renting Homes (Fees etc) (Wales) Act 2019, which came into effect on September 1 2019. It sets out the fees that landlords and agents can charge tenants, and makes it a criminal offence for a landlord or agent to charge tenants for anything not listed in the act.
A holding deposit is one of the permitted fees laid out by the act. It can be any amount up to the value of a week’s rent on the property; if you charge more, it’s classed as a prohibited payment. Before taking the payment you need to give the tenant certain information in writing – either in print, or electronically. You must specify the amount for the deposit, the address of the property it relates to, and the name and contact details of you as the landlord or the agent to whom the deposit is to be paid.
You must also set out the duration of a holding deposits contract and the proposed date when the tenant will move into the property. You need to specify the rental period and the amount of rent or any other consideration, along with any proposed additional contract terms, any proposed modifications to fundamental or supplementary terms, and terms that are proposed to be omitted from the contract.
You must specify the amount of any security deposit, whether a guarantor is required (and any relevant conditions for this) and any reference checks you or your agent will make. Finally, you or your agent must set out any information the prospective tenant is required to provide.
When do I pay back holding deposits?
You can hold the deposit for up to 15 calendar days from when the deposit was paid; however, you can extend the deadline if you and the prospective tenant agree this in writing. Alternatively, you can keep the deposit and deduct that amount from the first month’s rent or the tenant’s security deposit. If paying back the deposit (rather than deducting it from the rent or security deposit) you must return it within 7 days of the 15 calendar day deadline, or any extended deadline that you or your agent has agreed to in writing.
What if problems arise during the holding deposit period?
If you discover that the prospective tenant has provided false and misleading information, or if they fail to enter into a tenancy agreement with you, you are permitted to keep the holding deposit. If you’re intending to keep the deposit due to false and misleading information, you must be sure the tenant did this deliberately and not by mistake. If you’re intending to keep the deposit because the tenant failed to enter into the tenancy agreement, you need to be certain the tenant was clear about what they needed to do and failed to take the necessary steps. If you decide to keep the deposit, make sure you also keep evidence to support this decision.
We can help with the legality of holding deposits!
Need help? At Morgan Jones we have decades of experience in managing properties in Swansea. Get in touch today to discover how we can arrange the holding deposit and carry out any checks on your behalf.