Landlords are allowed to hold a deposit paid by a tenant for 15 days. Unless both parties agree on another deadline in writing, this will hold.
However, if the landlord fails to accept or reject the rental application when the deadline passes, he will have to pay back the money to the tenant in full.
What Is A Holding Deposit?
A holding deposit is a fee that a potential tenant pays as part of the application to rent a property.
It secures the place for the tenant and must go to the landlord or a letting agent recognized by both parties.
The payable amount should not be up to a month’s rent. It is up to the landlord to invite the tenant to pay a holding fee.
However, if you do not rent the apartment eventually, the landlord can retain most, if not all, of the deposit.
One situation where the landlord can do this is when the tenant fails the background or credit check. Another situation is when the potential tenant does not have enough money to pay the initial rent and the security deposit.
The laws of the state determine how much of the money a landlord can keep. However, it will base this on certain factors.
One factor is the amount of time before the landlord could rent the apartment to another person.
It can also depend on the additional costs that the landlord had to bear. States laws are partial to the landlord in many cases.
Drafting a Holding Deposit Agreement
In many states, the landlord has the right of way when it comes to holding deposits, which is why you must draw a clearly written and carefully worded agreement with your prospective landlord.
Such agreements will provide the percentage of the money the landlord can keep if the tenant fails to rent.
It should also cover the deposit amount and the duration for which the landlord can hold the property.
You should ask your prospective landlord for a written statement that applies your holding deposit to your first month’s rent.
Also, you should make all other arrangements for applying for the deposit in writing.
You will have a strong case under the law if the landlord violates any of these agreements. However, they must be written and carefully worded to remove ambiguity.
What is the Difference Between a Holding Deposit and a Security Deposit?
Many people do not know what a holding deposit is and end up in scams.
It causes a lot of confusion, primarily because most people think it is the same as a security deposit.
However, they are two different things, and you should know the difference between both of them.
A holding deposit is one that the landlord requests from a tenant to keep the apartment reserved.
The landlord will agree to hold the apartment until the tenant moves into it, pays the required rental fee and the security deposit.
Most landlords enter into a written agreement that specifies the holding deposit fee.
Such documents also specify the period that the landlord holds the apartment.
A well-detailed agreement will also discuss how the deposit affects you as to whether the tenant moves in or not.
A landlord can keep the entire holding deposit or a part of it if the tenant reneges on the terms.
However, the landlord must prove incurred damages to retain the deposit. You will only pay damages for unpaid rent in the case of a security deposit.
On the other hand, a security deposit is the amount you must pay before moving into an apartment.
It is usually equivalent to a whole month’s rent. Landlords collect security deposits to protect their buildings in case of damage.
Such damages must be by the tenant and must be beyond the normal wear and tear. It is also used as an alternative to rental fees if the tenant does not pay for any reason.
If you damage a part of the property, your landlord will repair it from your security deposit rather than charge you a new fee.
How Does a Security Deposit Work?
You will have to submit your security deposit alongside the signing of the lease before you move into the apartment.
Your deposit can take the form of a check or a cashier’s check. Security deposits favor the tenants in many states.
You pay your security deposit into an escrow account or an account separate from your landlord’s account or anyone related to him.
The landlord must provide a receipt showing proof of the payment.
Paying into a separate account will prevent the landlord from spending the money before the apartment needs a repair.
Some states require the landlord to pay back the interest on this deposit to the tenant.
No one can spend the security deposit unless:
- The tenant causes damage to the apartment
- The tenant refuses to pay rent
If none of the above happens, the tenant will receive the security deposit at a set time after moving out.
You have to pay the security deposit before you move in, alongside the rental fee. The payable amount is usually equal to a month’s rent.
However, this amount can vary depending on the state, the type of property, and your credit score.
With a high credit score, you may pay less for your security deposit. A high score implies that you have made timely payments of all your debt.
It tells the landlord how responsible you are with finances. Some landlords have a minimum credit score for potential renters.
If your credit score is low, you might want to improve on it so that you can strengthen your chances of renting the property.
What Happens to the Holding Deposit?
The legislation that regulates the holding fee falls under the Tenant Fees Act of 2019.
It defines the holding deposit as a refundable payment that the tenant makes to the landlord or an agent representing the landlord’s interests.
You should only pay a holding fee once you and the landlord have agreed on:
- The date you will move into the apartment
- The terms set in the tenancy agreement
- The rental fee
- The number of tenants allowable
- The rental period
- The holding length period
It is in your right to accept or refuse any changes made by the landlord after paying the deposit.
If you refuse and the other party breaches your tenancy agreement, you will get your deposit back in full.
Once you have paid the deposit, the landlord cannot proceed with other tenants and must not accept other holding deposits.
The landlord or his agent can verify your references and background after you have paid the deposit fee.
Under the Tenant Fees Act, all holding deposits should be placed at one week’s rent at the maximum.
If your landlord charges you above that, you can report him to the authorities. Once you have paid the holding deposit, one of these two things happens:
The Tenancy Goes Ahead
Once the landlord is satisfied with the referencing report and pays all other move-in costs, you can rent the apartment without any problems.
Also, you will get back the holding deposit. However, the landlord will not pay the money back to your account.
Instead, they can divert it to cater for other move-in costs.
The Tenancy Does Not Go Ahead
The tenancy might not go on because of two reasons:
- The landlord pulls out of the deal
- The tenant pulls out of the deal
If the landlord pulls out, he has to refund the holding deposit in full. He cannot also deduct any amount for referencing from it.
On the other hand, the landlord can claim the holding deposit if the tenant pulls out of the deal. It will cover the losses they incurred on time and money.
It is best to have any agreement you all make in writing. Such an agreement will also specify what happens to the deposit if any of the scenarios above happens.
Should Your Landlord Claim a Finder’s Fee?
No, your landlord should not claim a finder’s fee for renting out a unit. While landlords can ask for a holding deposit, they cannot ask for a finder’s fee.
You should pay a finder’s fee to a real estate broker if they helped you find a home.
Another reason you pay them is that they perform other services for you that go beyond renting a unit.
Some landlords ask for a finder’s fee, but this is an illegal act you can challenge in court. With a good lawyer, you can argue that it is a form of security deposit.
If the courts agree with you that security deposits are refundable in your state, you can get your money back.
You can also sue the landlord for fraud or report them for misconduct if this happens.
Holding deposits are crucial payments you should make. However, it does not guarantee you the apartment.
You must endeavor to redeem the payment within the set time.
Also, make sure to put down all the agreements you make with your potential landlord in writing. It will safeguard you during the entire process.
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