What Are Holding Deposits? + When to Charge Them

Are you thinking about charging a holding deposit but aren’t sure when to charge them or when they’re refundable? Holding deposits can protect you, especially if a tenant backs out after applying for an apartment and giving a verbal commitment. After all, every day a rental isn't occupied, money is lost.

But what does the landlord-tenant law say and how should you handle the ins and outs of charging one? We'll cover everything you need to know about holding deposits, from what they are to how to draft a holding deposit agreement.

What Are Holding Deposits?

A holding deposit is a sum of money-- typically a few hundred dollars-- given by a rental applicant to a landlord in exchange for reserving a rental property.

If an applicant applies with you but can't immediately move in, you can offer to accept a holding deposit to hold onto that rental for the applicant and take it off the market.

With a holding deposit in place:

• The applicant can rest easy knowing they won't lose the rental to another applicant while they prepare to move
• And the landlord has insurance covering the lost rental income in the event that the applicant backs out

Imagine: For days, you've held the property for them with the plan being that they'd move in soon.

However, they suddenly change their mind and you're now out of several days of rental income.

Maybe you've even experienced this first-hand.

A holding deposit protects you on exactly this occasion, when an applicant changes their mind and decides to rent somewhere else.

Difference Between Holding and Security Deposits

Before we talk about how much you should charge for a holding deposit, let's talk about holding deposits vs. security deposits.

A holding deposit's purpose is to reserve a rental property and protect the landlord in the event that an applicant backs out.

A security deposit protects the landlord in the event that the renter damages the property while occupying it (beyond the normal wear and tear).

Both deposits act as a form of insurance to protect you against potential losses. However, one protects you on the front end before the renter signs a lease, while the other protects you during the lease.

What Is the Difference Between a Holding Deposit and a Tenancy Deposit?

If you have a tenant from England or the U.K., they may know holding deposits as “tenancy deposits.” The tenancy deposit is more or less the same thing as a security deposit in the United States. In the UK, the term "tenancy deposit" is the more commonly used phrase and is regulated under the Tenancy Deposit Protection (TDP) schemes for assured shorthold tenancies.

As you know, the term "security deposit" is standard in the U.S. However, the landlord-tenant laws vary by state regarding how it must be handled, how much can be charged, and when it must be returned.

When Should You Charge Holding Deposits?

You can choose to charge a holding deposit when an applicant is serious about renting your property but can't immediately move.

Typically, this time period is no more than a few days, as anything beyond that and you'll start incurring a heavy cost in the form of lost rent that a few hundred dollar holding deposit can't recoup.

However, it's important to note that you're not required to charge a holding deposit.

Whether you charge a holding deposit or not depends on the situation as well as your preference. It's also important to determine how much you should charge for your holding deposit.

How Much Should You Charge for a Holding Deposit?

Now, let's talk about how much to charge.

The average holding deposit is between $100 to $500, typically closer to the $200 to 300 range.

However, as we touched on earlier, how much you charge for your holding deposit is completely up to you.

When deciding how much to charge for a holding deposit, consider:

• How many days does the applicant need before they can move in? (i.e. how many days must the property or unit sit unoccupied)
• How much is that going to cost you?
• How much will it cost you to remarket the property?

With these two points in mind, you can figure out how much you need to recoup your losses by dividing the amount you're charging per month by 30 (average number of days in a month), then multiplying it by the number of days the property is being held and adding your marketing cost.

For example, if you're renting a unit out for $1,500 per month, you're making roughly $50 per day (1500 / 30 = 50).

If the applicant is asking you to hold the property for 3 days, $150 will cover the lost rent. However, if you factor in the remarketing cost and the time to do another showing + rental application, you may want to charge $200 or more for the holding deposit.

How to Draft a Holding Deposit Agreement

Since landlord-tenant laws around holding deposits can differ significantly depending on your state, it’s important to protect your rental business with a clear, written agreement before accepting any funds from a prospective tenant. A well-crafted holding deposit agreement outlines the amount collected, how long you’ll take the unit off the market, and under what conditions the deposit is refundable or nonrefundable.

For example, if the tenant chooses not to move forward with the lease, the agreement should state whether you’ll retain part—or all—of the deposit for lost marketing time or missed rental income. In many cases, once the lease is signed, the holding deposit is credited toward the first month’s rent or security deposit. Regardless of the arrangement; always provide a written receipt specifying how the deposit will be used.

A clear agreement helps reduce legal issues and shows that you followed proper procedure. Tenants can take disputes to small claims court, so having thorough documentation in place from the start can make all the difference.

What to Include in Your Holding Deposit Agreement:

• Full names of the prospective tenant(s) and your name as the landlord or property manager
• The full address of the unit being reserved
• The agreed deposit amount
• Start and end dates for how long the unit will be held
• Detailed refund terms and conditions
• How much of the deposit you may keep if the applicant backs out
• Whether the deposit will be applied to the first month’s rent or the security deposit once the lease is signed

Taking these steps upfront helps protect your time, rental income, and reputation—all while providing transparency to potential renters.

Are Holding Deposits Refundable?

What happens with a prospective tenant's holding deposit depends on whether they end up moving into the unit or not.

To make it simple:

• If they move in, you'll either refund the deposit or put it towards their first month's rent.
• If they don't move in, you'll either keep the deposit or return it (more on why below).

Let's talk about both scenarios for a sec:

If the Tenant Moves In

In the best-case scenario, the prospective tenant moves in.

When that happens, the money is refunded back to the tenant or contributed towards the security deposit or first month's rent.

If you're allowing the deposit to be applied toward either the security deposit or the first month's rent, make sure to specify this in the agreement and explain it to your applicants when signing the deposit agreement.

Landlord-tenant laws are not consistent regarding holding deposits across states, so it's vital to have everything outlined clearly in your agreement and to make sure your applicant has a clear understanding upfront.

If the Tenant Does Not Moves In

If the tenant does not move in, you have two choices:

• Keep the security deposit, or
• Return it

Why would you return it? After all, you need to recoup the lost rental income and cost of putting the property back on the market to find new renters.

The truth is, many states require you to prove the damages that were incurred by way of you holding the property or unit for the prospective tenant.

Typically, this whole process is a paperwork-filled headache and a few hundred dollars. Because of this, in most cases, the holding deposit is simply returned.

Red Flags to Watch for in Applicants

Before accepting a holding deposit, take a moment to evaluate the applicant’s behavior and communication. Red flags include:

• Reluctance to sign a written agreement
• Vague or inconsistent move-in date
• Requests to hold the unit for an unusually long time without firm commitments

Be cautious with applicants who avoid background checks, fail to provide complete application details, or pressure you into rushing the process. A holding deposit should signal that they’re serious about moving into your unit—not a way to stall while they shop around. Always trust your instincts and screen thoroughly before pulling your listing or accepting money.

Pros and Cons of Charging Holding Deposits

Collecting a holding deposit can be a smart way to protect your rental income and reduce no-shows, but it also comes with a few risks. Here’s a quick breakdown to help you make an informed decision:

Pros

• Shows tenant commitment: Helps confirm that the applicant is serious about renting your unit
• Covers lost income: Offers some compensation if the tenant backs out after you’ve paused marketing.
• Reduces vacancy stress: Allows you to temporarily stop showings while the applicant finalizes details.
• Streamlines next steps: Moves the leasing process forward with a clearer timeline and expectations.
• Filters out uncertain applicants: Tenants willing to put money down are usually more prepared to move in.

Cons

• Legal gray areas: State landlord-tenant laws on holding deposits can be vague or nonexistent. increasing your liability if disputes arise.
• Potential refund issues: If the tenant backs out or disagrees with your terms, you could face refund challenges or even small claims court.
• Added administrative work: Requires tracking deadlines, providing receipts, and drafting agreements to stay compliant.
• Could discourage good tenants: Some well-qualified renters may be hesitant to pay upfront without a clear refund policy.
• Room for miscommunication: Without a written agreement, misunderstandings can easily happen.

Charging a holding deposit can be a useful safeguard when used correctly—but it’s not one-size-fits-all. Make sure to have a written agreement, clearly explain the terms to applicants, and be familiar with your local laws.

State Laws and Holding Deposits

We touched on state holding deposit laws earlier, but let's dive in a little deeper here.

Here's what you need to know:

Most states do not have a clear holding deposit law. If you decide to hold onto an application's holding deposit, be careful.

Holding deposit laws are not consistent or clear across state lines like other landlord-tenant laws.

Even finding out what your state's policies are on holding deposits can be tough, which makes getting in trouble for the wrong holding deposit practices even easier. In most states it's easy for tenants to file a small claim to recoup their holding deposit. It's entirely possible that a (once) prospective tenant may request a refund of their holding deposit even if they backed out of their agreement.

In most states, filing a claim in small claims court doesn't cost them anything. However, handling the disagreement—even if you're right and have documentation to prove it—may not be worth it.

Instead, it's common for landlords who choose to use holding deposits to refund them in most cases even if the applicant decides to back out.

Ready to Protect Your Rental Business with Holding Deposits

Determining whether to charge a holding deposit—and how much you charge—is entirely up to you.

However, it's important to take steps to protect yourself—and your investment—as a landlord.

One of the best ways to protect yourself from lost rental income is to take advantage of Apartment List's massive community of renters.

Find qualified renters faster by listing your portfolio on our AI-powered marketplace, allowing you to reduce your vacancy rates as well as the time it takes to find new tenants.

Discover the benefits of listing your property with Apartment List today.