Every rental market has different requirements for apartment applications, so it can be a little confusing to figure what’s normal and what’s a red flag when you’re moving to a new city. In this article, we’ll try to alleviate some of that confusion by breaking down some state laws around holding deposits.
What is a holding deposit?
When you sign a lease agreement on a rental unit, it’s customary to pay first and last month’s rent and a security deposit. However, in many cities, there are fees that you can be charged way before then. This includes application fees, admin fees, credit report or background check fees, and, yes, holding deposits.
A holding deposit is a fee — typically equal to a few hundred dollars — charged by landlords to tenants to “hold” an apartment before a lease is signed. The holding deposit is a tenant’s way of committing to an apartment while the details of the lease and move-in date are figured out. Once a holding deposit is paid to a landlord, it means that an apartment will be taken off the market for a certain amount of time (usually two weeks, at most).
Holding deposits are more common in highly competitive rental markets where apartment inventory moves quickly and in professionally managed apartment complexes and buildings than in smaller properties managed by independent landlords.
In some markets, you can submit a holding deposit along with your application — while in others, you will only pay a holding deposit to a landlord or property manager once your tenancy has been accepted.
A holding deposit is not binding like a signed lease in; meaning, you will not be required to move in to an apartment just because you paid a holding deposit.
What is a holding deposit agreement?
Before you are charged a holding deposit, you should be given a holding deposit agreement to be signed by yourself and your potential landlord. This written agreement will outline the deposit amount, how long an apartment will be held off the market, and what happens with this deposit once you decide how to proceed with the apartment. This is separate from your lease or rental agreement.
Do holding deposits get returned?
In most cases, a holding deposit will either be returned or credited towards a future rent payment or security deposit — even if a tenant does not move into the property. This is up to the individual landlord, though. If a signed holding deposit agreement clearly states that a tenant will not receive a refund if they are approved but don’t ultimately sign the lease and move in, then it is legal for the landlord to keep the holding deposit.
If a tenant believes their holding deposit was unfairly kept, then they can file a claim in small claims court to attempt to recoup the funds.
Are holding deposits legal?
In most states, holding deposits are legal, but there aren’t many consistent and clear landlord-tenant laws around them. In many cases, it’ll come down to what was agreed upon in the written statement we mentioned earlier.
However, there are a few important things to know. For one, only one prospective tenant can put down a holding deposit for a particular unit at a time. It is illegal for a landlord to accept multiple holding deposits for one apartment from multiple potential tenants. Landlords can’t spend holding deposits, either; they must keep them until a tenant either chooses to sign or not sign a lease, and return the funds or credit them to the tenant’s account from there.
In Boston, where ApartmentAdvisor is based, landlords cannot charge holding deposits. They can only charge first and last month’s rent, security deposits, and lock fees — and their broker can charge a broker fee. In this market, it’s more likely that a landlord or broker will ask for a first month’s rent check with an application — which is either returned in full upon rejection or taken as a rent payment upon signing the lease.
Are holding deposits signs of a scam?
With so many rental scams out there and very few clear federal and state laws on holding deposits, it’s important as a tenant to protect yourself before any money changes hands. There are a few ways you can ensure that you are not falling victim to a scam when paying a holding fee:
Luckily for renters located in Boston and New York (coming soon to other markets!), ApartmentAdvisor is here to help you avoid any rental scams. When you submit a lead on one of our Verified Listings, you get paired with one of our in-house advisors, who will help you through every step of the renting process.
The Bottom Line
Holding deposits are a fairly common fee that come with apartment renting, especially in competitive markets. They provide tenants with a way to commit to an apartment before they are able to sign a lease, as they allow landlords to take properties off the market temporarily. In most cases, they are returned regardless of whether a tenant ultimately moves into the rental property. However, this will depend on your specific holding deposit agreement that a tenant signed with their prospective landlord. Always make sure to read the fine print of the agreement before signing on the dotted line.
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