The Legal Significance of Holding Deposits

  • The agreement to, and payment of, a holding deposit creates a legally binding contract between the landlord (or his agent) and the prospective tenant.
  • The contract is commonly called a holding deposit agreement, sometimes referred to as a HDA.
  • A HDA is a conditional contract, which grants the prospective tenant both the right and obligation to enter into the proposed tenancy provided the landlord (or his agent) can verify the information provided by the prospective tenant is correct.
  • The conditions of the contract can be oral or written, or both. If written, the conditions will be in a document typically referred to as a holding deposit agreement, reservation agreement or proposal to let.
  • The conditions of the contract should stipulate the key terms of the tenancy such as the type of tenancy, names of landlord(s) and tenant(s), address of property to be let, initial period of the tenancy including commencement date, amount of rent, amount of tenancy deposit (sometimes referred to as core terms) and specially negotiated terms such as a break clause (sometimes referred to as special conditions).
  • Neither party to the contract may insist on the conditions of the contract or the terms of the proposed tenancy being  varied or ‘renegotiated.’ An attempt to do so would ordinarily amount to repudiation of the contract, entitling the innocent party to remedies under contract law. The contract marks the conclusion of negotiations not the starting point. Even if a prospective tenant accepts and signs the landlord’s variations to the tenancy agreement, the new terms contrary to the HDA may not be enforceable for lack of consideration.
  • A holding deposit is not a tenancy deposit and is not subject to the statutory tenancy deposit protection scheme, although it will typically be paid towards the first payment of rent under the tenancy, or towards the payment of the tenancy deposit in respect of the tenancy.
  • A HDA is not a tenancy it is an agreement for tenancy – a conditional contract, which grants the applicant the right (and obligation) to enter into the proposed tenancy, subject to conditions, and it satisfies the requirements of the offer, acceptance, and consideration in the form of the holding deposit payment. HDAs are thus governed by contract law, not by residential tenancy legislation.
  • HDAs should be more significant to the parties’ interests than the final tenancy agreement and they record the key terms and are the basis for entering into the tenancy. Detailed standard form tenancy terms are subject to statutory restrictions and regulatory oversight.
  • The tenancy agreement should not deviate from the agreed HDA terms.
  • At any one time a tenant should only pay one holding deposit in respect of one property and should decline other proposals in the interim. Conversely at any one time a landlord (or his agent) should only accept one holding deposit in respect of one property and should decline other proposals in the interim.
  • The Property Ombudsman, Code of Practice for Residential Letting Agents requires agents provide both parties with a draft or specimen tenancy agreement prior to the prospective tenant becoming liable for a holding deposit associated with the rental of the property except where such opportunity is declined or where the agent holds an instruction to the contrary.
  • The HDA can only be cancelled if the landlord is prohibited by section 22 of the Immigration Act 2014 (persons disqualified by immigration status) from granting a tenancy of the housing to the prospective tenant or the prospective tenant provides false or misleading information to the landlord.
  • The legal significance of a HDA needs to be emphasised to landlords and prospective tenants and that both parties at the outset that payment of a holding deposit creates a legally binding contract. Tenancy applicants should be provided a draft copy of the tenancy agreement before any HDA is created. Landlords need to be made aware that if the conditions of the contract are satisfied, they cannot “renegotiate” the terms of the lease after a HDA has been agreed.
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