What is a Rent Deposit Deed?
A rent deposit is a sum of money provided by a tenant to a landlord prior to entering into a commercial lease as a form of security. A Rent Deposit Deed is then the legal document that governs the terms and conditions under which a landlord holds (and returns) the tenant’s deposit.
What is the purpose of a Rent Deposit Deed?
This deposit is typically held as a form of security for the landlord against any financial loss resulting out of potential damage to the property, unpaid rent, the insolvency of the tenant, or any other liabilities that might arise during the tenancy as a result of the tenant. The Rent Deposit Deed itself however allows for clarity and transparency between the landlord and tenant as it clearly outlines both parties’ responsibilities, accordingly preventing any potential disputes as to the terms.
What is covered in a Rent Deposit Deed?
A Rent Deposit Deed typically includes the following elements:
- Amount of Deposit: The deed will specify the amount the tenant is required to pay as a deposit. This amount is usually a fixed sum or may be based on the equivalent to a number of months’ annual rent payable under the lease. There will often also be a minimum sum to be held by the landlord as the deposit which will require the tenant to ‘top-up’ the deposit if and when it has been drawn on.
- Deposit Management: The Rent Deposit Deed may specify how the deposit is to be managed, including what type of bank account it is to be held in as well as the timeframe for the landlord to arrange as such.
- Interest on the Deposit: The Rent Deposit Deed may include a clause specifying whether the deposit will earn interest over time, who gets the benefit of any such interest and how such interest is to be credited to the benefitting party.
- Conditions for Using the Deposit: The circumstances under which the deposit may be drawn down upon by the Landlord will be explicitly stated in the document. For example, the landlord may be allowed to use the deposit monies at any time if the tenant breaches any terms of the lease or fails to pay rents. Often a tenant will want to build in a ‘grace period’ to the Rent Deposit Deed, allowing it a short time in which to remedy any notified breach prior to the landlord being able to draw down on the deposit monies.
- Return of the Deposit: The deed will outline the process and timeline for returning the deposit once the tenant has vacated the property. Sometimes it will also provide for the deposit to be returned to the tenant during the life of the lease, for example if and when the tenant is able to provide three years’ satisfactory trading accounts to the landlord.
- Forfeit: Often there is a clause that links the forfeiture provisions in the Lease to any breach of the Rent Deposit Deed – so that the landlord is able to terminate the lease itself where there has been a breach of the Rent Deposit Deed terms.
There are lots of different provisions contained within a Rent Deposit Deed and these can be negotiated in different ways in favour of either party. Whether you are a commercial tenant required to pay a rent deposit in relation to your lease or a commercial Landlord requesting such a rent deposit from a tenant please contact our Real Estate Team for more advice on the terms of a Rent Deposit Deed or for any other Real Estate matters.
