Is A Rental Holding Deposit Refundable?

​When an applicant is interested in securing a rental property and moving ahead with tenancy, the real estate agent will often request payment of a holding deposit. 

The holding deposit removes the ability for the landlord or agent to enter into a lease agreement for that property with any other person within 7 days of the holding deposit being paid (or for a further period as may be agreed with the tenant). 

However, there are some circumstances in which an applicant may have paid a holding deposit but after paying the deposit, finds that they are no longer able to or willing to proceed with tenancy. The applicant may have had a relationship breakdown with a potential co-tenant, an alternative property may have become available which is more preferable to them, etc. 

In these cases the question arises - is the rental holding deposit refundable?

When Is A Holding Deposit Refundable To A Tenant?

​The Residential Tenancies Act 2010 is very clear on the treatment of holding deposits (holding fees). In particular, Part 3 Division 1 Section 24 of the Act states:

• If a tenant has paid a holding fee, the landlord must not enter into a residential tenancy agreement for the residential premises with any other person within 7 days of payment of the fee (or within such further period as may be agreed with the tenant) unless the tenant notifies the landlord that the tenant no longer wishes to enter into the residential tenancy agreement.

So, once a holding fee has been paid, the landlord or agent cannot enter into a lease agreement with another applicant within the applicable timeframe after the payment has been made. 

• A holding fee may be retained by the landlord only if the tenant enters into the residential tenancy agreement or refuses to enter into the residential tenancy agreement.

This is the key. The holding deposit can only be retained by the landlord or their agent if the tenant signs the lease agreement, or having paid the holding deposit chooses not to sign the lease. 

In short, if the tenant pays a deposit then chooses not to proceed with signing the lease, the holding deposit is not refundable. However, there is one exception to this.

• The holding deposit cannot be retained by the landlord or agent if the tenant refuses to enter into the residential tenancy agreement because of a misrepresentation or failure to disclose a material fact by the landlord or landlord’s agent.

So, if the landlord or agent misrepresented the property or details of the agreement, or failed to disclose a material fact, the holding deposit must be returned to the tenant. (A material fact is defined as a fact that would be important to a reasonable person in deciding whether or not to proceed with a particular transaction).

Do you have a question about the management of your rental property? Contact us today.