An application or holding deposit is money a property owner can ask a renter to pay to take a rental off the market until you move in later. This usually occurs when you see a rental you like but you can’t move in immediately.
Paying an application deposit enables you to secure the unit and the property owner agrees not to rent it to any other potential renter. Beware that a holding deposit isn’t similar to a security deposit, which serves as a security measure in the event that things go wrong once you’ve signed the lease. Here’s what you should know about an application deposit.
How Application Deposit Works
Landlords will typically not hold a property unless they have some assurance that a prospective renter is serious about renting it. That’s why this deposit exists. Application deposits don’t qualify as a security deposit since there’s no lease agreement signed by both parties.
If the landlord accepts you and you sign a lease agreement between you two, the landlord should convert the application deposit into some or all of the security deposit. Nevertheless, this is dependent on the particular facts of the agreement between you and the landlord.
On the other hand, if the proprietor declines your application, they have a legal obligation to refund the entire value of the application/holding deposit. In order for the landlord to take an application deposit from you, he or she should provide:
- A receipt to the renter upon payment of the deposit
- A written statement of the conditions in which the landlord might retain the deposit.
Before you pay this amount, consider the following:
- Have you passed the background check and screening criteria?
- Is the deposit supposed to put you on a waiting list until the rental becomes available? The law states that the property owner can’t accept a fee for that purpose.
- Is the landlord offering the rental only to you and seeking a deposit to secure the rental for you alone?
- Have you evaluated the terms of the rental agreement and are you certain you’ll move into the unit?
These questions can help you establish whether you should pay the application deposit or if you’d rather reconsider. For instance, if you haven’t obtained approval after completing a credit and background check, there’s no guarantee that the landlord will accept and offer you the unit.
If the proprietor is seeking an application deposit at this stage, it might be a red flag that they’re not following the law.
Do You Require a Deposit Agreement?
Just because you like a property and wish to rent it, doesn’t mean you simply hand over your cash and walk away knowing the place will certainly be yours in the near future. At times, more than one estate agent markets a property despite you paying for the reservation. Therefore, you must be wary before you hand over your money.
Paying any type of deposit enters you into a contractual agreement. However, you must establish the precise conditions under which the agent or landlord will hold the unit for you. For instance, you must determine what would happen if either party opts to back out.
The agreement should comprise details of any administrative charges and whether the landlord will retain part of it. You should expect to obtain the entire deposit back if the potential landlord or agent decides not to move forward with the tenancy.
If you’re unable t move into the rental because of exceptional circumstances such as hospitalization, or if the unit became uninhabitable before entering into an agreement, you’ll probably get the deposit back. In the event that you can’t reach an amicable agreement with your potential landlord, a court can help settle the dispute.
If you’ve just spotted your perfect rental, it might be tempting to issue an application deposit to secure it. While this might seem like a good idea at the time, it’s important you exercise caution and know your rights.
For more information on application deposit, contact us at Apartment Agents or leave a comment.