What is a tenancy deposit and how much is it?
A tenancy deposit, typically one to two months' rent, is paid by a tenant to a landlord to cover potential damages or unpaid rent during the lease
Before deposit protection legislation came into force in England and Wales on 6 April 2007, tenants had very few rights when it came to getting their deposit back.
Most landlords have always been decent and only made deposit deductions when they truly felt the tenant should be responsible for the cost of repairing damage.
But there were too many stories about landlords holding onto all their tenant’s deposits and either overcharging for things like cleaning or simply refusing to give a reason for not returning the deposit at the end of the tenancy.
As it now stands, if a private residential tenant anywhere in the UK pays a security deposit, it has to be protected in a government-approved scheme, and if a landlord wishes to withhold any of that money, they have to prove that their claim is valid and reasonable.
A tenancy deposit is an amount of money paid to a landlord or agent by a tenant before they move into a property, also known as a ‘security deposit’. It is protected by a landlord or their agent for the duration of the tenancy and then the balance is returned to the tenant after they have left, less any reasonable deductions made by the landlord in respect of damage to the property or rent owed.
There’s no legal requirement to take a deposit, but it is a good idea, for two key reasons:
It gives the tenant an incentive to look after the property
It’s a financial safety net for the landlord, in case the tenant causes damage to the property or does not pay their rent
What’s the different between a holding deposit and a tenancy security deposit?
A holding deposit is a payment made by a tenant to ‘reserve’ a rental property while pre-tenancy checks are carried out. It cannot be more than the equivalent of one week’s rent and should be refunded in full if the tenancy does not go ahead, unless any of the following apply:
The tenant decides not to rent the property
The tenant gives wrong or misleading information
The tenant cannot pass a 'right to rent' check
If the tenancy goes ahead, the holding deposit should either be returned to the tenant within seven days or deducted from the security deposit or first month’s rent.
Unlike a security deposit, a holding deposit does not have to be protected. You can find out more about holding deposits in our partner, the Property Redress Scheme’s (PRS) guide to holding deposits, which you’ll find in the resources section of the PRS’s website.
Since the Tenant Fees Act came into force - on 1 June 2019 for new tenancies and 1 June 2020 for all tenancies - landlords and letting agents have been banned from charging certain letting fees to tenants.
Under the Act, there is also a cap on the amount that can be taken as a security or holding deposit:
No more than five weeks’ rent where the total annual rent is less than £50,000
No more than six weeks’ rent where the total annual rent is £50,000 or more
No more than one week’s rent as a refundable holding deposit to reserve a property
Landlords or agents who breach the Tenant Fees Act by charging a ‘prohibited payment’ could be fined £5,000 for a first offence and risk an unlimited fine if they break the rules again within five years.
Also, no Section 21 notice can be served until the prohibited payment has been refunded to the tenants. Local authorities have enforcement powers to deal with offences and have discretions on whether to prosecute or impose a fine only.
Although it’s common for landlords to ask for a month’s rent as a deposit, you can take more. If your tenant’s total annual rent is less than £50,000, you can take a deposit of up to five weeks’ rent, increasing to six weeks’ rent if the annual rent is £50,000 or above.
To calculate a week’s rent, multiply the monthly rent by 12 and divide by 52. And for a quick way to find out the maximum rent you can charge, mydeposits has a handy online calculator.