Yes, a landlord or letting agent is entitled to take a holding deposit from tenants to secure a property until they have completed the credit checks and referencing or until they move in.
However, landlords and agents are not allowed to state that the holding deposit is non-refundable.
I know this because I once wrote an article in the Evening Standard stating that I asked tenants for a small non-refundable holding deposit and Trading Standards slapped my wrist.
In fact, many landlords and letting agents ask for holding deposits or fees and get tenants to sign a document to say that the money won’t be refunded if they don’t take the property. While this is wrong, according to trading standards, it is a fact that tenants who change their minds about a property do risk losing some if not all of their holding deposit.
This is because landlords or their agents can legitimately deduct certain costs from the holding deposit if the tenant backs out of the deal and in many cases this will mean that the tenant will actually forfeit 100% of the sum, so you shouldn’t hand over a fee unless you’re sure you want to take the property.
Costs that the landlord can deduct include fees for credit checks and references, cleaning the property or buying items specifically requested by the tenant. If a tenant backs out of the contract at the last minute and the landlord is left with a void, they can also deduct the cost of the rent for the time the property is empty from the holding deposit.
In reality, a tenant might only be entitled to demand a full refund of their holding deposit if they changed their minds a few hours after agreeing to take a property before the landlord or agent has incurred any costs.
If you do change your mind and you’re refused a refund of your holding deposit, ask the landlord or their letting agent to provide proof of their expenditure or loss of rent and ask for a refund of the remainder.
Unlike the 4 to 6 week deposit your landlord will ask for you when you move in to a property, holding deposits don’t have to be protected by the landlord.