Holding Deposit Agreements: Pre-Tenancy Obligations and Rights

Abstract

There is confusion in the rental market over the legal significance of holding deposits, which are routinely paid by prospective tenants prior to signing a lease document. The purpose of this article is to clarify the legal position of holding deposit agreements (HDAs) entered into in the pre-tenancy period. In particular, to emphasise that, in the usual course:

• The agreement to, and payment of, a holding deposit creates a binding contract between the prospective tenant and the landlord. • A HDA is a conditional contract, which grants the applicant both the right and obligation to enter into the proposed lease provided conditions, such as passing reference checks, are met. • Neither party may insist on the terms of the lease being “renegotiated” contrary to an agreed HDA. An attempt to do so would ordinarily amount to repudiation of the contract, entitling the innocent party to remedies under contract law.

Aggrieved tenants are not without legal remedies when presented with a lease document that disregards the HDA terms, although practical vindication of their rights will invariably be a difficult road. In a demand-driven rental market, prospective tenants can too easily be taken advantage of and forced into unreasonable compromises. It is hoped that clarity over the legal position of the pre-tenancy period will help also to improve the position in practice.

Keywords: deposits, landlords’ duties, leases, residential tenancies, tenants’ rights, Landlord and Tenant Act, rental agent, conditional contract, agreement for lease, Property Ombudsman