How Letting Agents Handle Security Deposits and Holding Deposits

Published 1 March 2024

Embarking on a new rental journey is an exhilarating experience for all tenants, but one thing on the mind of all prospective tenants is deposits. Letting agents play a crucial role in handling both security and holding deposits, mitigating a fair and secure transaction between landlords and tenants. Dive into our blog as we unravel the layers of security and holding deposits and how letting agents can handle these with the tenant’s best interest at heart.

  • What is the Difference Between a Holding and a Security Deposit?
  • Letting Agents and Tenancy Deposit Protection
  • Tenancy Deposit Scheme
  • How Do I Get My Deposit Back From a Letting Agent?
  • What If My Letting Agent Makes Deductions to My Deposit?
  • Letting Agents and Deposits FAQs

What is the Difference Between a Holding and a Security Deposit?

Holding Deposit

A holding deposit is a reservation fee a prospective tenant places on a property to portray their interest in leasing it. Usually, the holding deposit is equivalent to one week’s rent. Tenants pay the holding deposit directly to the landlord or letting agent.

After receiving the deposit, the letting agent will conduct necessary tenant checks, from reviewing their bank statements and employee contracts to conducting credit checks and requesting references. Following this process, the tenant will either be approved or disapproved to move in.

Either way, the holding deposit will be returned to the tenant, although if approved, the letting agent may give them the option of putting it towards the first month’s rent. 

Security Deposit

A security deposit is also known as a damage deposit. A letting agent will request a security deposit once the lease agreement is signed to safeguard them against property damage or rent arrears. This deposit usually equals 5 weeks’ worth of rent and covers damage beyond general wear and tear during the tenancy. 

Typically, if the tenant adheres to the terms of the agreement and leaves the property in good condition, their deposit will be refunded at the end of the lease term. This incentivises most tenants to treat the property with care and pay their rent on time to receive their deposit back. 

Letting Agents and Tenancy Deposit Protection

Holding Deposits

A letting agent does not have to protect a holding deposit as the prospective tenant is yet to be approved for a tenancy agreement. Once a tenant is approved or disapproved, they will receive their deposit back.  If a tenant is approved, the holding deposit can be returned or put towards the first month’s rent or the security deposit. Unlike the holding deposit, letting agents must protect the security deposit. 

Security Deposits

A letting agent must put a security deposit in a government-approved tenancy deposit protection (TDP) scheme if the tenant rents a home on an assured shorthold tenancy agreement. New laws from the Tenant Fees Act have introduced mandatory deposit protection, ensuring tenants cannot have their deposits unlawfully withheld. Letting agents must put a security deposit in a scheme within 30 days of receiving it. 

Tenancy Deposit Scheme

A letting agent must provide tenants with information regarding the deposit protection scheme they have used within 30 days of receiving the deposit. This information includes contact details, how a deposit is returned, why deductions can occur, and how to use the scheme resolution service if a dispute arises.

A security deposit will be protected in one of two tenancy deposit protection schemes as chosen by the letting agent:

Custodial Scheme

A custodial scheme holds the deposit in a secure bank account for free on behalf of the letting agent until the end of a tenancy agreement. 

Insured Scheme

An insured scheme allows a letting agent to hold the deposit for a small fee during the tenancy. In the event of a dispute with the tenant regarding potential deductions, the deposit must be handed over to the scheme. This scheme is insured as it ensures that either way, the tenant will receive the money they are entitled to at the end of the agreement.

How Do I Get My Deposit Back From a Letting Agency?

Once a tenancy agreement has ended, the tenant will be keen to have their deposit returned promptly. Letting agents must return the deposit within 10 days of agreeing on the amount that will be returned. 

When the deposit is protected in an insurance scheme, your letting agent is responsible for returning it as it resides in their possession. Once the deposit has been requested for repayment, the letting agent will either repay the deposit or detail any deductions, such as damage or outstanding rent.

If a deposit is secure in a custodial scheme, a tenant can request the repayment directly through a scheme contact at the end of their lease. Upon the request, the letting agent will be informed. If the letting agent agrees, the repayment will be processed, and the tenant will receive the money within 5 working days.

What If My Letting Agent Makes Deductions to My Deposit?

Once a tenancy agreement has ended, your letting agent will determine whether to repay the whole deposit or make deductions if there are any damages to the property or outstanding rent payments. The letting agent should write a letter informing the tenant of the amount they wish to deduct and the reason for this; for clarity, a tenant should contact their letting agent to discuss it further. 

A tenant may disagree with the deductions and can present evidence, for example, if they take photos of existing damage to the property before moving in. The matter should be discussed between the landlord and tenant first, as clear communication is critical.

If the letting agent and tenant cannot agree on a figure, a self-resolution model can be used, allowing both parties to negotiate to reach a middle ground. However, if an agreement cannot be met, the tenancy deposit scheme that protects the deposit can offer a free-of-charge dispute resolution service. 

An adjudicator of the TDP will review the evidence both parties provide and hold the deposit until a decision is reached. The decision made by the TDP is final, although the letting agent or tenant may wish to take the matter further by going to court. Taking matters to court should be an absolute last resort, as open communication can resolve most disputes.

Letting Agents and Deposits FAQs

Are letting agents allowed to make deposit deductions for cleaning?

Letting agents can make deductions from a deposit for cleaning under certain circumstances. Although cleaning standards can be subjective, cleaning is the most common cause of deductions from a deposit in the UK.

What is general wear and tear?

Landlords and tenants tend to disagree on what counts as general wear and tear. Wear and tear can be defined as unavoidable changes in a property over time caused by everyday living, such as minor wall scuffs, faded furniture, and worn flooring. A deposit cannot be deducted due to general wear and tear.

Can I get my deposit back if I leave my tenancy agreement early?

The terms and conditions for your security deposit will be detailed in your tenancy agreement. If you leave a fixed-term tenancy early, your letting agent may keep your deposit as a penalty for breaking your lease agreement. 

Explore Letting Agent Responsibilities with LevelUP

At LevelUp, we offer an unrivalled letting agent service. From handling holding and security deposits to organising routine maintenance checks, our team is fully equipped to manage your rental property needs to maximise your investment. You are guaranteed a bespoke property management experience dedicated to bridging the gap between landlords and tenants through transparent and open communication channels throughout the entire rental process. Contact our team today to discuss your property needs, and we will gladly assist.

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