The rent deposit is a sum of money a commercial Landlord may request a Tenant pay them at the start of a lease. This sum will protect the Landlord and act as a form of security should the Tenant fail to uphold any lease provision, such as non-payment of rent, or not meeting lease clause obligations.
When the tenancy is terminated, the Landlord is obligated to repay the Rent Deposit to the Tenant, though sometimes this is minus the cost to the Landlord of unfulfilled dilapidations being made, or to cover damage to the property that was not repaired. The Rent Deposit is an insurance for the Landlord to get paid for remedial works to be carried out to get the premises back up to scratch so that a new Tenant will be interested in renting it out.
The level of Rent Deposit is often the equivalent of the first quarter’s rent (three months’ rent) but it can vary depending on the length of the Lease, amount of rent and also other factors. The Rent Deposit is usually paid immediately before the Lease completes. If the Landlord has to make a withdrawal, the Tenant will have to top-up so that the Rent Deposit remains at the agreed level.
Typically, the Landlord will hold the Rent Deposit until the Lease ends. If the Tenant assigns [see Licence to Assign] the Lease (with consent), the new Tenant will most likely be required to enter into a replacement Rent Deposit.
Few Landlords will agree to an early release from a Rent Deposit Deed.
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At Lawson West, we are seeing a large number of requests for new commercial leases and the Landlord (or Agent) will usually require a rent deposit from the new Tenant, but we regularly get asked the same questions. Our Commercial Property Team provide the answers.
