Published: 27 Apr 2018 by Rhea Newman

We recently shared Emily’s story which highlights just how easily holding deposits can be abused. Emily was forced to take a letting agent to court because they refused to refund a £700 holding deposit. And even though Emily won the case, the letting agent still hasn’t paid up.

The good news is that the government is now planning to cap holding deposits at one week’s rent – this is one of the proposals in the draft Tenant Fees Bill, which will also ban letting fees and cap security deposits.

Given the average weekly private rent is £192, this is still a significant amount of money for tenants to handover and risk not getting back.[1] That’s why we’ve always argued holding deposits should be capped at two days’ rent.

So if the government is going to stick with a one-week cap, they must make sure there are clear rules to prevent agents unfairly holding on to holding deposits.

The proposed rules on refunds

The Government is proposing that there are only three circumstances when a holding deposit won’t be returned to the tenant (assuming a tenancy is not going ahead).

a) If a tenant withdraws from the tenancy

The government has included this scenario because letting agents are worried about tenants expressing an interest in multiple properties at the same time and then withdrawing. We’re not convinced this happens in practice and in our experience tenants only withdraw from a tenancy due to an unforeseen change in their circumstances (e.g. a new job).

But in these circumstances, we accept it’s fair to ask tenants to cover some costs incurred by the landlord or agent, such as paying to re-advertise the property (although these costs could easily be covered by a lower holding deposit).

b) If a tenant fails a right to rent check

The government is proposing agents should be allowed to retain a holding deposit if a tenant does not have the right to rent a property in the UK. This is provided that the agent could not have reasonably been expected to know this, before accepting the deposit.

Setting aside whether we agree with right to rent checks, we’re worried about this scenario because a tenant may not know if they have the right to rent or may fail because they do not have their documents in order. We think it’s unfair for a tenant to lose hundreds of pounds in these circumstances and again this would support our argument for a lower cap.

c) If a tenant provides false or misleading information that materially affects their suitability to rent the property

We think this scenario is the one that’s most open to exploitation. It makes it too easy for an agent to withhold a holding deposit by claiming a tenant has provided false or misleading information.

The Association of Residential Letting Agents, have previously suggested this is the same as failing a reference check, which is a clear distortion of the intent and shows the potential for abuse. A tenant can still fail a reference check, even if all the information they provide is accurate – for example if their previous landlord gives them a poor reference.

There’s a risk that those who can least afford to lose one week’s worth of rent, will be those most likely to lose out. For example, someone on a zero-hour contract may struggle to provide their income in the exact format required by the agent and could easily be accused of providing false information, even if they had no intention of doing so.

More protections needed

If the government insists on going ahead with a one-week cap, they need to make sure the rules on refunds cannot be abused. They’ve said they plan to issue guidance but we think more protections are needed.

The HCLG Committee have recommended changes to the terms on holding deposits to make them fairer. They suggested a tenant should only lose their holding deposit if they have ‘knowingly’ provided false or misleading information, otherwise they should only pay the cost of the reference check.

The government has not yet published its response to the Committee’s recommendations. Whether they accept this recommendation or not, we also think there should be further safeguards in the bill, to prevent agents abusing the rules. We’ve identified two change which would have particular impact:

• When accepting a holding deposit, agents should be required to set out in writing the circumstances in which it will be returned and share a link to the government’s guidance on holding deposits.
• When not refunding the holding deposit, the agent should set out in writing the specific reasons for this, including any information they believe was false or misleading. This correspondence should again include a link to the government’s guidance so tenants can check if the decision is fair.

We tend to be sceptical about how well government guidance works in practice. But by making agents responsible for sharing the guidance, we hope this will deter agents from trying to bend the rules and make it easier for tenants, like Emily, to challenge if their holding deposits are withheld unfairly.

[1] English Housing Survey, Headline Report, 2016-17