When a tenant enters into a new lease or takes an assignment of an existing lease of commercial premises, a landlord will often want some additional security that the tenant will be able to make the rent when it falls due.
This will sometimes take the form of a guarantor to the lease, but more frequently a landlord will request that the tenant provides a rent deposit. This is particularly common when the tenant is a newly incorporated company or cannot provide evidence of a previous successful trading history.
What is a Commercial Rent Deposit?
A rent deposit is a sum of money generally equivalent to either 3 or 6 months worth of rent which is paid upfront to the landlord. The landlord then holds the deposit in a stand alone account in accordance with the terms of the rent deposit deed. A rent deposit deed is a legal document which sets out the terms which the rent deposit must be held and the various obligations that both the landlord and the tenant have in respect of it.
If the tenant then defaults on the rent or doesn’t comply with the terms of the lease, for instance in regards to the condition and repair of the property, the landlord can then dip into the deposit to make good any default. In such circumstances, the tenant would then have to top the deposit back up the original amount within a set amount of days.
When the lease comes to an end, or is assigned to a new tenant, the landlord is usually not obliged to return the rent deposit to the tenant immediately. Rent deposit deeds will normally allow a landlord around 4 weeks to return the deposit to the tenant. This gives the landlord time to inspect the property and ensure that the tenant has not caused any damage which needs to be repaired. If there was any such damage, the landlord could then take the cost of the repairs from the deposit.
If you are looking for advice on commercial leases as a landlord or a tenant, Farleys’ Commercial Property team can help. Contact us today on 0845 287 0939 or submit your enquiry online.
