Landlords: a one-week holding deposit is not a referencing fee
A prospective tenant fails a credit check. Can you keep their holding deposit to cover the cost of referencing? No—not simply because they failed.
The correct term is holding deposit, not “holding fee”. For lettings covered by the Tenant Fees Act in England, it is capped at one week’s rent for the property, not per applicant. It reserves the property while the application progresses and is normally refundable.
You cannot use it to cover credit checks
A holding deposit is not a fund for credit checks, referencing or administration.
If an applicant provides accurate information but fails your affordability or credit criteria, that alone does not entitle you to retain their deposit. Calling it an “application charge” or “processing fee” does not change the rules.
Failed referencing and misleading information are different
An applicant may honestly disclose their income and adverse credit history and still fail referencing. That does not automatically justify keeping their money.
However, if they provide materially false or misleading information—for example, denying a County Court Judgment when directly asked—and this reasonably affects their suitability, retention may be lawful.
The ground for retention is the relevant misleading information, not the cost of the check. Minor mistakes that do not affect suitability are insufficient.
When can you retain a holding deposit?
Subject to the statutory conditions, grounds can include:
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The applicant withdrawing from the proposed tenancy.
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Relevant false or misleading information.
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The applicant failing to take all reasonable steps to enter the tenancy by the deadline, despite the landlord or agent doing so.
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Failure to meet the Right to Rent requirement.
Retention is not automatic merely because a tenancy does not proceed. The circumstances and supporting evidence matter.
Make your rental application form clear
Before taking payment, clearly explain that it is a refundable holding deposit to reserve the property while the application progresses.
Your application form should state:
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The amount being paid and its purpose.
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The deadline for entering into the tenancy agreement.
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When the deposit will be refunded.
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The lawful circumstances in which it may be retained.
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That it can be credited towards rent or the tenancy deposit with the applicant’s consent if the tenancy proceeds.
Avoid wording such as “non-refundable referencing fee” or “deposit forfeited if credit checks fail”.
An applicant signing your form does not make an unlawful charge or deduction legal. Your terms must reflect the law.
Watch the deadlines
The usual deadline for agreement is 15 days after receiving the holding deposit, unless a different period is agreed in writing.
Where repayment is required, the applicable seven-day deadline must be met. If you retain the deposit, you must give written reasons within the relevant seven-day period. Missing that notice deadline can require a refund even where you otherwise had grounds to retain it.
A small deduction can become a bigger complaint
An unlawful deduction can lead to a repayment claim and council enforcement. Where a letting agent is involved, the applicant may also complain to the agent’s redress scheme, including Property Redress (PRS) or The Property Ombudsman.
MyEstate’s advice to landlords: ask clear questions, explain the payment properly, keep evidence and check the legal grounds before retaining any holding deposit.
Paying for a credit check does not entitle you to recover that expense from the applicant’s holding deposit.
MyEstate Luton Limited
Sales • Lettings • Property Management • Block Management • Land & Development
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