Commercial rent deposits – Landlords know your rights and obligations

Landlords frequently require new tenants to provide a rent deposit.  Once the deal is done landlords seldom pay much attention to the terms of the rent deposit deed. Landlords who know their rights and obligations will gain maximum benefit from the arrangement.

In every case landlords’ rights and obligations are governed by the terms of the rent deposit deed.

Landlords’ obligations are not usually onerous. Typically the landlord must place the deposit in an account of the type specified, perhaps at a particular bank.  There may be an obligation to remit interest to the tenant periodically or on closure of the account.  The landlord must return the deposit at the agreed time.  This could be a fixed date, when the tenant assigns the lease with consent, or at the end of the lease term.

Landlords know that they can draw on the deposit if the tenant fails to pay sums due under the terms of the lease.  Landlords sometimes overlook similar rights where they suffer any loss/damage or incur expenses/costs resulting from breach of the tenant’s covenants in the lease or any supplemental documents.

When landlords draw on the deposit, typically they can require the tenant to top up the deposit.  Topping up can often be required in other cases, for instance following rent review or where the rate of VAT changes (if the property is opted to tax).

Some rent deposit deeds allow landlords to deduct legal and administrative costs incurred in administering and closing the deposit account.

When returning the deposit, landlords usually have the right to set off sums in settlement (or reduction) of rent arrears or in partial or total satisfaction of breaches of covenant. The effect may be to entirely extinguish the deposit.

Landlords should remember the terms of the rent deposit deed, to comply with obligations and to gain maximum benefit from the rights conferred.