Few areas of letting law and practice are as misunderstood as holding deposits.

These are the deposits - usually of one or two weeks rent taken by a landlord or an agent to keep a property off the market for an applicant whilst getting references and processing the tenancy. What should actually happen when a deal falls through? The key to this is that every property is offered to let and any offer that an applicant makes to rent a property is "subject to contract". This means that there is no legally binding contract between landlord and tenant until the agreement is signed by both parties and executed by dating on the first day of the tenancy. Until this date there is no contract between landlord and tenant and the landlord cannot make a claim on the applicant's money. Ironically, there should be a contract made between applicant and agent, usually in the form of an offer letter and terms and conditions.

This means that the agent can claim against the holding deposits for a reasonable amount to cover administration for setting up and referencing. The only way that you can effectively claim from your tenant is to set up a "pre-tenancy agreement", an arcane bit of tenancy law and practice that very few agents will have heard of. This will entitle you to claim reasonable costs if an applicant pulls out. Such an agreement has to be fair and it would also entitle the applicants to reasonable costs if the landlord does not proceed with the tenancy without good reason (for example failing referencing). We have a copy of such an agreement and if you are interested we would be happy to send it to you