A holding deposit is an amount of money (usually the equivalent of one week's rent) that is paid by the applicant whilst their application is being assessed, or between the time they are approved and the time the lease is signed. Holding deposits are not compulsory, but can be a very useful tool giving some peace of mind to all parties during the leasing process.
Blogger: Diane Bukowski, Managing Director, Eezirent Pty Ltd
From a landlord's perspective a holding deposit will give some compensation should the applicant not proceed with the lease. This is particularly helpful in a market with high vacancy rates and less competition between tenants. For applicants, the payment of a holding deposit will help them secure a lease without being 'gazumped'. This can be beneficial in a tight rental market with strong competition between tenants.
Eezirent recommends the use of a holding deposit if there is a delay of more than a couple of days between the time an applicant verbally accepts a property and the signing of the lease.
As always, there are slight differences between states; these are the basics rule for holding deposits
ACT - Not permissible. The Act states that "A lessor must not require or accept a holding deposit."
NSW - The tenant's application must be approved. The deposit can be no more than 1 week's rent. A receipt must be issued. The holding deposit is applicable for 7 days (or a longer period agreed by both parties). The lessor cannot offer the property to any other applicant during this time and is obliged to proceed with the lease. The tenant will forfeit the deposit if they do not proceed with the lease. The holding deposit must be applied as rent if the lease does proceed.
NT - There are no legislative guidelines relating to holding deposits.
Qld - A copy of the lease with any special terms and conditions as well as applicable by-laws must be given to the tenant before a holding deposit can be accepted. The ‘cooling off’ time period for the holding deposit is 48 hours unless agreed by the parties and must be recorded on the receipt. No other application can be accepted during the holding period. The deposit is refunded in full if the tenant withdraws during the holding period, and must be refunded within 3 days. If the lease proceeds, the deposit is to be applied as bond, with any surplus funds to be applied as rent in advance.
SA - The lessor can require payment for an 'option' to lease the property. The details of the option are to be agreed by both parties. If the option proceeds, the funds must be applied as rent.
Tas - A holding fee can be entered into if the tenant needs to hold the property for more than 7 days
Vic - The lessor can ask for a holding fee. It must be refunded when the agreement is signed. If no lease agreement is entered into after 14 days the fee must be refunded by the next business day.
WA - An 'option fee' can be asked for at the time the tenant lodges their application. The fee must be refunded in full if the lessor does not approve the application. The fee can be applied as rent if the lease does proceed.
A key deposit is a refundable charge paid by a prospective tenant that enables them to take the keys to a property and inspect it independently. A receipt for the deposit must be issued and the funds refunded as soon as the keys are returned.
We at Eezirent strongly discourage the practice of key deposits and tenant doing independent inspections. They are simply too risky in terms of security and liability issues. What if the applicant damages the property? What if they injure themselves, or claim to injure themselves during the inspection? What if the keys are copied? If your property is with an agent that allows independent inspections then that agent is not protecting your interests.
Accompanying an applicant during the inspection provides an excellent opportunity to begin assessing their suitability as a tenant. It also gives the landlord the chance to 'sell' the merits of the property and to communicate their expectations as the lessor.
About Diane Bukowski
From school teacher to website entrepreneur, Diane Bukowski is the managing director of Eezirent – an online service delivering professional tools to self-managing landlords.
After many years running an award winning real estate office, Diane took up the challenge offered by her business partner to set up a service that would level the playing field for self-managing landlords. The result is Eezirent which allows these investors to advertise their property on www.realestate.com.au, verify their applicants with the National Tenancy Database, and access the documentation and knowledge needed to efficiently manage a lease.
Diane’s blogs aim to provide practical advice to the self-managing landlord.