On Friday afternoon, an approved applicant pays a holding deposit on a two-bedroom unit. You take the listing down and turn away two other enquiries.

On Tuesday, the applicant emails to say they've found somewhere else.

Can you keep the deposit?

Most teams go and look up the law at this point. But the answer usually depends less on the law than on something that happened on Friday: whether anyone wrote down what the money was for, how long the unit would be held, and what would happen if the deal fell through.

A holding deposit is paid before there's a signed lease. Unlike an application fee, it isn't meant to be spent: it's meant to come back or to become rent or a deposit. So nearly every dispute about one comes down to the same thing: what was agreed when it was paid.

This blog is operational guidance for property management teams, not legal advice. Holding deposit rules vary by country, state, province and city. Check the current rules where each property is located.

The short answer

A holding deposit is money a prospective tenant pays to take a unit off the market while the tenancy agreement is prepared and signed. It isn't rent and it isn't a security deposit. Once the lease is signed, the applicable law decides whether it's credited toward rent or the security deposit, or refunded.

• In some places the law sets a cap: one week's rent in England and NSW, and 25% of the first month's rent in Washington State.

• Whether you can keep it depends on why the deal didn't happen and what the written terms said when you took it.

• Until it's applied, refunded or lawfully kept, it's money you owe back or owe as a credit, not income.

Every holding deposit ends one of three ways

Deposits get mishandled when teams treat them as one type of payment. It helps to think of a holding deposit by how it ends, because each ending has a different rule, record and deadline.

The third ending causes the disputes. The first causes the accounting mistakes, and we'll come back to that.

Five questions every jurisdiction answers differently

Every set of holding deposit rules answers the same five questions. What differs from place to place is the answers.

Sources: Tenant Fees Act 2019 statutory guidance (England); NSW Government, costs at the start of a residential tenancy; Residential Tenancies Act, 2006, ss. 105–107 (Ontario); RCW 59.18.253 (Washington); Minn. Stat. 504B.175 (Minnesota).

A few details matter more than the table can show.

• England has the most prescriptive rules. The default deadline for agreement is 15 days after the deposit is received, unless you agree a different date in writing. The deposit must be refunded within 7 days if the tenancy is signed (unless it's applied to rent or the deposit with consent), if you decide not to go ahead, or if the deadline passes. You can keep it only if the applicant gave false or misleading information you were entitled to rely on, failed a Right to Rent check, withdrew, or didn't take all reasonable steps to sign before the deadline when you had. You must give your reasons in writing within 7 days. The guidance also says you can't take a second holding deposit for the same property while the first is held, and that landlords can't require rent before the tenancy agreement is signed. Our article on guarantors in England after rent in advance was capped covers the wider changes to pre-tenancy payments.

• In NSW, the holding fee comes after approval, not before. Once it's paid, you can't sign a tenancy agreement with anyone else for 7 days, or longer if agreed. It's refunded if you decline to go ahead, or if the applicant pulls out because you made a false or misleading statement. The NSW compliance guide covers the bond rules that apply once the tenancy starts.

• Ontario doesn't create a separate category called a holding deposit. Section 105 of the Act says the only security deposit a landlord may collect is a rent deposit, and section 107 requires a rent deposit to be repaid if the prospective tenant isn't given vacant possession. Review any pre-lease payment against these provisions and the specific circumstances. Our comparison of security deposits in Canada explains how the other provinces differ.

• Washington and Minnesota both run on paperwork. In Washington, whether you can keep the money depends on the written statement of conditions you had to give when it was paid. You also can't charge a fee to put someone on a waiting list, and a violation can cost up to twice the deposit plus court costs and attorney's fees. In Minnesota, the written agreement must be conspicuous and state when the deposit will be returned, and the refund is due within 7 days of those circumstances. A violation costs the full deposit plus half again.

• Elsewhere, many US states have no statute written specifically for holding deposits. In that case, your agreement, the security deposit cap and any fee disclosure laws do the work. Our guide to rental fee transparency laws by state covers the disclosure side. Before you set a policy, check whether local rules count a pre-lease payment toward the security deposit cap.

The holding agreement: what to write down before you take the money

In every jurisdiction above, the written terms either decide the outcome or determine whether you can rely on the statute. The agreement should answer these questions before any money moves:

1. Which unit is being held, and for which applicant or applicants.

2. The amount and how it was calculated. Where the cap is expressed in weekly rent, show the conversion from monthly rent.

3. The hold period: the date by which the lease must be signed, and what happens if either side causes a delay.

4. The conditions for keeping it, in the terms the local law allows, and no broader.

5. The conditions for refunding it, including the refund deadline and method.

6. What happens when the lease is signed: whether the deposit is refunded, or credited to rent or the security deposit, and, in England, the applicant's consent to any credit.

7. Where the money is held, if your jurisdiction's trust account rules apply to it.

8. A receipt, dated, showing who paid, how much and for which unit.

Use the same terms and the same calculation for every applicant. An inconsistent holding policy is hard to defend, and a written standard is what lets your staff apply it the same way each time.

One boundary: the holding agreement governs the period after an application is approved or accepted for processing. How fast your team gets to that decision is a separate problem, covered in what "fast" means for application-to-approval. If the unit is still occupied, pre-leasing an occupied unit covers the promises you're making about the move-in date.

When the lease is signed, the holding deposit has to become something else

This is where the first ending, the happy one, goes wrong.

A holding deposit is received before there's a tenant account or a lease, so it's often recorded somewhere temporary: against the applicant, in a suspense account, or in a note on the listing. When the lease is signed, it has to move. If it doesn't, the new resident is billed the full first month's rent and the deposit sits unapplied, or it's refunded on top of being credited.

It helps to treat each state of the money as a separate record.

The security deposit side of this is covered in managing security deposit accounting from intake to reconciliation. A holding deposit is the step before that one, and the record is supposed to carry across when the lease is signed.

Four ways a holding deposit goes wrong

1. Two deposits, one unit. Taking a deposit from a second applicant "in case the first falls through" means one of them will be refunded under conditions that were never agreed. In England, the statutory guidance prohibits it while the first deposit is held.

2. No written conditions. In Washington, the written statement of conditions sets what you can keep. In Minnesota, the written agreement sets when you must return it. Without the writing, your options narrow quickly.

3. A hold with no end date. An open-ended hold keeps the unit empty while the applicant decides. A dated hold period protects both sides, and in England a default deadline applies if you don't set one.

4. A deposit that loses its link to the application. If the payment isn't tied to the applicant and the unit, nobody can tell at signing whether it was credited, and nobody can answer a refund request with evidence. The break usually happens where leasing hands over to accounting, one of the joins covered in who owns the lead.

Before you take the next holding deposit

• The application has been approved (required in NSW, and good practice everywhere)

• The amount is within the local cap, and the calculation is shown

• No other holding deposit is held for this unit

• The written agreement names the unit, the hold period, and the conditions for refund and retention

• A dated receipt has been issued

• The payment is recorded as a liability, linked to the applicant and the unit

• Someone owns the deadline for crediting, refunding or giving written reasons

A holding deposit is small, usually a week's rent or less, and the hold is often shorter than the time the unit takes to turn. That's why it tends to be handled informally, and why it causes disputes out of proportion to its size.

In practice, managing one comes down to two things. Agree the terms before any money moves. Then keep the payment tied to the applicant and the unit until it becomes rent, becomes a deposit, or goes back.

RIOO keeps the pieces that record depends on on one platform, built on NetSuite. Inquiries are captured and tracked through leads management. Tenant acquisition and screening shows each application's stage, whether pending, approved or needing attention, and keeps the applicant's documents in one place. Contracts and renewals provides customizable lease templates and electronic signature. With leasing and property accounting on the same platform, the agreement, the application and the payment can sit together rather than in three systems that have to be reconciled at signing.

Before your next busy leasing weekend, pull the last five holding deposits your team took. For each one, check that you can show the written terms, the receipt, and whether the money was credited, refunded or kept, and why. Any you can't account for show where your process needs fixing.

Frequently asked questions

Q1. What is a holding deposit?
A payment from a prospective tenant to take a rental unit off the market while the tenancy agreement is finalized. It's separate from rent and from the security deposit. Once the lease is signed, local law decides whether it's credited toward rent or the security deposit, or refunded.

Q2. Is a holding deposit refundable?
Usually it's refundable if the landlord decides not to go ahead or the hold period ends without a lease. Whether it's refundable when the applicant backs out depends on local law and the written terms agreed when it was paid.

Q3. How much can a landlord charge as a holding deposit?
It depends on the jurisdiction. England and NSW cap it at one week's rent. Washington caps it at 25% of the first month's rent. In Ontario, the only security deposit a landlord may collect is a rent deposit of up to one month's rent or one rent period, whichever is less. Many places have no specific cap, so check local rules.

Q4. Can a landlord keep a holding deposit if the applicant changes their mind?
In some jurisdictions, yes. England allows it when the applicant withdraws or gave false or misleading information, provided written reasons are given within 7 days. NSW generally allows it when the applicant decides not to proceed, unless the landlord made a false or misleading statement. Washington allows it if the written statement of conditions said so.

Q5. What is the difference between a holding deposit and a security deposit?
A holding deposit secures the unit before the lease is signed. A security deposit protects the landlord during the tenancy against unpaid rent and damage. When the lease is signed, the holding deposit is either credited toward the security deposit or first rent or refunded, depending on local law. In England, it's refunded unless the tenant agrees to have it applied.

Q6. How long can a landlord hold a unit on a holding deposit?
In England, the default is 15 days unless a different deadline is agreed in writing. In NSW, the landlord can't sign with anyone else for 7 days, or longer if agreed. Elsewhere, the hold period is whatever the written agreement says, so it should always have an end date.

Q7. Should a holding deposit be recorded as income?
Not when it's received. Until it's applied, refunded or lawfully kept, it's a liability. Agree the treatment of kept deposits with your accountant.