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A holding deposit by definition is a certain amount that is paid to the letting agent or the landlord to reserve or book a rental property before the lease actually begins. It sort of operates as a token, which indicates that the tenant is ready to enter into a contract but has to sort out a few formalities. This holding deposit ensures that the landlord or letting agent does not offer the property to another buyer until a certain time frame. This time frame is determined according to the landlord’s discretion and the holding deposit amount.

At the same time, many people often confuse security deposits with holding deposits. These two transactions are completely different from each other, a security or tenancy deposit is a prenuptial agreement that is used as a contingency in case anything goes wrong after entering into a contract. On the other hand, a holding deposit is merely an incentive given to letting agents and landlords so that they do not show the property to other potential parties.

Benefits Of A Holding Deposit

Now that it is clear what exactly a holding deposit is and how it differs from other prenuptial transactions it is imperative that we take into consideration the different benefits of such deposits. These benefits are as follows,

  • Ensures that the property is not displayed to other potential buyers
  • Is a sign of a good will that indicates that a contractual agreement is in the pipeline
  • If a holding deposit is paid according to the prescribed price, then this price will not change until the transaction is completed.

Drawbacks Of A Holding Deposit

However, like everything else in this world a holding deposit does have its own pair of drawbacks that should be taken into perspective. These drawbacks are mentioned below,

  • No generic amount allotted for holding deposits
  • If there are multiple agents displaying the property, then the property might be shown to other potential tenants even though the holding deposit has been made
  • Most cases this amount is nonrefundable, so if things go sour before the contact is initiated then the landlord may withhold this amount
  • Holding deposits are not governed by the tenancy deposit scheme; this means that legislation has not stated the rules that govern such transactions. This will make it difficult to enforce such transactions in court

Points To Consider

Although in comparison the disadvantages seem to outweigh the benefits, this does not mean people should shy away from considering a holding deposit as if these disadvantages can be alleviated if a proper contractual agreement is signed. We would recommend speaking to a lawyer and drafting a formal contract that would include the following clauses,

  1. Property should not be displayed to another potential buyer
  2. Amount of rent should be included
  3. Contact should encompass guidance on unfair terms in deposit schemes
  4. A refund clause that states the amount or a percentage should be returned

By including these four aspects in your contract while completing such a transaction will safeguard your future interests and will ensure that the property is not displayed to other potential buyers.