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Must I refund an apt Holding Deposit???

In NH I collected what I called an 'application deposit' on her receipt, a Holding Deposit, at the time the applicant was approved. When the lease is signed that money would become the Security Deposit, then governed by the lease and NH state RSA. The tenant is backed out from signing a lease, canceling her desire to move. She demanded her "security deposit' back. The question is whether the State of NH labels the fund taken as a sec dep before a lease is signed. And whether I must refund it as per those RSA's? Any precedents in NH on this? I consider it a 'holding deposit' for the exact scenario that played out - to protect me from people who back out at the last minute.

Was anything signed, stating it was a holding deposit? Is there documentation of any receipt of these funds or just verbal? The prospective tenant could argue it was a security deposit, in which was never used because they didnt move in. Nor, was a lease signed.
The issue is:  I gave her a receipt for her check that stated the received Application Deposit / Holding Fee is non refundable, and that the full amount shall be credited to the security deposit when the lease is signed. Lease was never signed.  The check she gave me had a note in the memo section "security deposit". So she claims it as a sec dep.  Which one over rides the other??
I am not sure, but next time... you should add a clause (double check on legality) that if the person does not move in, the funds are non refundable. You may want to ask your attorney though, as some states like CA dont allow for anything nonreundable, all must be a refundable option.
Don't even call it a deposit.  Deposits are escrowed for the specific PURPOSE of eventual refund under certain conditions.   Why not state in writing that a Holding Fee is collected in exchange for granting the applicant a waiting period between application acceptance and the actual lease signing.  This documents that consideration is exchanged (not a one-sided benefit).  You may also put in writing or convey orally that the fee will be refunded to the applicant in the event the lease is signed.  The applicant will figure out that he/she may then apply those funds to the security deposit (or first or last month's rent as necessary), but that should have no bearing in the discussion of the holding fee.  This method separates the two to eliminate confusion.  I also separate the Application Fee, which I collect first, and the application states clearly that is not refundable once the screening process has begun (since I pay an agency to do the screening for me).
Thank you Lori D.  Since my original post I have already adopted this procedure. Much better.
Thank you for asking the question and getting a clear answer for me! Lezli
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