As far as I understand a contract can still be void if it is deemed illegal, or at the very least will not be upheld in court. In terms of a charge of £400, regardless of the terms of the contract I believe the folling to be true: "if the sum specified in the contract is not a genuine pre-estimate of the loss that will be incurred but is excessive and is inserted in terrorem (from Latin, as a warning or deterrent, basically to frighten the other party) the courts call this a “penalty” and will not enforce it." (taken from http://www.bankchargeshell.co.uk/charges.html) whilst this excerpt is not specific I believe it applies to contract law in general. I think a gumtree posting will be made to inform people of these agents.

Hi there, My girlfriend has recently been looking for a flat with two others and found one over a week ago. On the same day as viewing they signed a precontract agreement for the offer they were making of £280 per week, furnished prior to moving in. They also paid £400 'holding deposit'. The offer was put to the landlord and he did not accept it, (as other agents were still showing people round the property!) and apparently a price of £310 per week UNFURNISHED was agreed VERBALLY with the letting agent and my one of my girlfriends flatmates. The landlord has obviosuly received other offers on the property and is now suggesting even more changes and increases in price. Sensibly they have decided to cut loose and find somewhere else. As the holding deposit was given on the agreement that was signed it should surely be returned but the letting agent is now claiming that they will not have it returned and have lost it due to pulling out! My understanding of the law is that a PENALTY charge cannot be legally upheld if it is not representative of the costs incurred, which £400 is obviosuly not. However, my legal knowledge pretty much stops there. I have suggested to her that they should inform the letting agent they will filing a case at the small claims court, in writing, and allow them 7 days to return the payment and then file on moneyclaim. If there is anyone who knows the LEGAL standpoint of this situation I would be most grateful. Any similar experiences and results would also be useful. Cheers