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When did you pay the money?
Unfortunately, they have the right to do so under Tenant Fees Act 2019 as you are not entering into the tenancy agreement now.
See below guidance on the above Act:
Q. What is a holding deposit?A landlord or agent can take a holding deposit from you to reserve a property whilst reference checks and preparation for a tenancy agreement are undertaken. A landlord or agent cannot ask you for more than one week’s rent as a holding deposit (this cap is based on the total agreed rent for the property).For example, if there are three tenants who are jointly liable for the agreed total weekly rent of £240, the landlord or agent cannot charge each tenant a £240 holding deposit. The maximum this group of tenants could be asked to pay as a holding deposit between them would be £240. They may then choose to split this equally so that each person would pay £80.A landlord or agent should stop advertising a property once a holding deposit has been paid. Landlords and agents can only accept one holding deposit for one property at any one time. They are not permitted to take multiple holding deposits for the same property. The cap of one week’s rent on holding deposits is an upper limit and not a recommendation. A landlord or agent is not obliged to take a holding deposit. Landlords and agents should consider on a case by case basis whether it is appropriate to take a holding deposit and the appropriate level of deposit to take. Q. What are my responsibilities? You should not waste a landlord or agent’s time if you know that you will not be able to afford a property. You should read any tenancy agreement and be aware of the obligations under the tenancy before you pay a holding deposit When you pay a holding deposit, this creates a binding conditional contract between you and the landlord. Under this contract, it is usual for you to agree and be bound to provide honest representations as to your income, tenancy history and references, and to enter into the tenancy under the terms agreed with the landlord. You must not provide any false or misleading information to try and obtain the tenancy – this could risk losing your holding deposit. You must carry out any reasonable requests made by the landlord or agent to progress the tenancy. Any information required to support your tenancy application must be provided in a timely manner.Page 45 of 81 If you are aware of any potential issues that may affect your tenancy application (i.e. previous County Court judgements), you should make the landlord or agent aware at the earliest opportunity.
The above is from pages 44 and 45 of the guidance https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/791280/TFA_Guidance_for_Tenants.pdf
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