Holding deposit with no paperwork and now prospective tenant is making a claim?

Everything will depend on exactly what was said at the time the tenant gave you the money, and who a judge believes at a small claim. I assume you agreed not to let the property to anyone else for a certain period in return for the £200, in which case your forbearance in letting the property was part of a contract between you, and you have performed your side of it. I assume also that you might have let the property to another tenant during that period too. Although this person would have no good claim against you in these circumstances, the hassle of a defending a small claim means that it is sometimes worth writing off a relatively small amount for avoiding the aggravation and uncertainty of court - although this advice does unfortunately go against principles of justice, which is sometimes in short supply in our court system

Does he have a receipt?

You could have a case to counter claim if this went to court. You were asked to take the property off the market. Check out my profile to contact me and a chat

I'm afraid I have to disagree with the comments of others on this thread.

The real question is, was the tenant aware of the these terms prior to paying the deposit?

Whilst I appreciate that your terms were fairly standard and the tenant was probably niave in thinking you would agree to any others, imagine if you'd put something in the tenancy agreement that was truly unreasonable: say an agreement for a whole year's rent in advance, or that he'd cut the lawns of all 26 properties in the landlord's portfolio as part of the rent. You could go around signing people up to pay the holding deposit, only to retain each time they "dropped out". You'd have yourself a nice little earner, which would be totally unfair.

There are some major issues with holdings contracts in that they bind the tenant to 'terms unseen'. This is referenced to in the (now defunct OFT's) advice from 2005.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/284440/oft356.pdf

It is critical that all the terms (and arguably the entire tenancy agreement) are agreed to prior to the exchange of a holding deposit if you are to defend against this argument, but I appreciate that this may render the holding deposit pointless.

However, where the tenant has just dropped out and doesn't object to any terms in his justification and hasn't attempted to negotiate, you'd have a valid case for retaining the holding deposit.

Reply to the comment left by "Luke P" at "29/10/2015 - 12:09":

No receipt but he transferred through BACS

Reply to the comment left by "Richard York" at "29/10/2015 - 18:43":

If agreement is already agreed and signed then i doubt holding deposit will be required at all. And only agreement won't help in court it has to be signed also

Is it mandatory for tenant to pay advance rent and deposit before signing of tenancy agreement by both parties?

Reply to the comment left by "Anna Ag" at "30/10/2015 - 07:56":

Absolutely - which is why the holding deposit really is a bit of a grey area. In the majority of cases a tenant dropping out will not be aware of this and I imagine will forfeit the deposit.

If the tenant is properly represented or knows what he is doing and presents this argument, I'd say you will probably not be successful.

I should probably state my part in all this - I objected to some, in my opinion unreasonable terms, in a (very large) London letting agents contract and actually won my holding deposit - £500 - back with the argument that I was told the tenancy agreement was non-negotiable, but I only saw it after paying. I'm not a lawyer, but I spend a lot of time hammering out commercial contracts between organisations in my day job and see a lot of contracts.

The clue is in the name: "agreement" (though actually it is a contract). The terms of an agreement cannot be dictated by one side to the other, or it is not an agreement.

If this seems unfair, think about it like the exchanging of contracts on a house purchase. A holding deposit is only - normally - exchanged at this point. Some take deposits before this, but many believe this to be unnecesssary, legally unenforcable and it is not common practice. As a result, gazundering and gazumping are distinct possibilities.

The analog of this is the signing of the tenancy agreement. If you want to guarantee someone moves in, get them referenced and signing the tenancy agreement ASAP and take monies after it has been done. There are risks to this too - for example, the incumbent tenant could not move out and you would have to pay for the costs of the incoming tenant.

You could probably commit them to pay for the costs of referencing in lieu of a holding deposit and this would provide some financial commitment, but be aware that they (and you) should be confident that they will pass the process to your satisfaction - provided that they have been honest about their status. (See referencing as a verification service, not a fact finding one)

I'm sorry to disagree with Richard on this - nothing personal! - it certainly seems he has has some success in persuading a letting agent to pay back such a 'holding deposit'. There are, it is true, many grey areas in the law. My own experience of dealing with holding deposits, in court, as a lawyer, is that a holding deposit is treated as a separate agreement (i.e., independent from the terms of the principal contract, in this case the tenancy agreement) between prospective vendor and and prospective purchaser. In a landlord and tenant context the holding deposit agreement provides that money is paid in return for not letting the property to anybody else. It does not mean that the property will be let to the deposit payer on any particular terms, just that it will not be let to anybody else. Of course the agreement is best expressed in writing, but, in the absence of writing, this is how it will be interpreted. The receiver of the deposit fulfils the contract by not granting a tenancy to a third party within a stipluated period or otherwise within a reasonable time. For the payer of the deposit to show the agreement to be unenforceable in some way s/he would have to overcome caveat emptor. The OFT guidance does not ban holding deposits: in fact it refers to them specifically. Of course it may be possible to persuade a county court judge that other principles apply, but this is undoubtedly the most likely result: the deposit is non-refundable. Having said this, and to avoid argument, it may be practical and expedient to do a deal rather than spend months arguing about £200

Reply to the comment left by "Charles King - Barrister-At-Law" at "30/10/2015 - 11:58":

I have had and acted on cases similar and agree totally with what you say Charles.

One issue in this case, I think, is the absence of any written document, so a court would not know on what basis that sum was paid.

It may save a lot of aggravation to just refund the money, and to learn from the experience by having a properly drafted agreement in the future.