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How to take a Security Deposit (bond) for your Commercial Premises

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A Security Deposit is a sum of money paid by the tenant to the Landlord to secure their obligations under the lease.

The following information applies to commercial premises such as offices, warehouses, factories and so forth. It does not apply to Retail premises.

What is a security deposit (or bond)?

A Security Deposit is a sum of money paid by the tenant to secure the tenant’s obligations under the lease.

Why should I take a security deposit?

If your tenant fails to pay the rent or breaches the lease in another way (such as by damaging the premises), then you will be able (under the terms of your lease) to draw on the security deposit to cover any loss or damage caused by the tenant as a result of the tenant’s breach. 

You also have the right to ask the tenant to top up the bond to the original amount.Buy commercial Lease Kit

When do you need to collect/lodge?

Collect the bond before you allow the tenant access to the premises.  If you give the tenant possession without first collecting the security deposit, they will quickly lose motivation to pay it to you.

Your lease gives you the right to ask the tenant to ‘top up’ the bond amount, should you draw on the bond at any time throughout the tenancy.

How do you do it?

In commercial lease transactions, the landlord may hold the security deposit in a separate interest-bearing trust account.  The landlord should open a separate interest bearing account in which to hold the bond.

The terms of your lease will govern how and when a landlord may draw on the security deposit, and other rules relating to the use and management of the security deposit.

Under the lease terms, the tenant is entitled to the interest earned on the bond amount. However, the landlord may use the interest as part of the deposit.

There is no requirement to lodge the bond with a solicitor or government stakeholder.

What can I collect instead of a security deposit?

You can accept a bank guarantee, which allows the tenant to free up some of their capital.

Alternatively, you can take a personal guarantee, but take it in addition to a security deposit if possible.

Related Articles

How to break a Commercial Lease

Key provisions of a Commercial lease Agreement

Handling a breach of Commercial Lease

 

 

 

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