What Is Your Landlord Doing With Your Rent Deposit?

Posted on October 31st, 2008 | by John Glenn |

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What is a rent deposit?
A rent deposit should be a sum of finance passed by a tenant to a landlord at the beginning of a lease as security for payment of rent.

Rent deposits for residential premises are now secured by regulations. A landlord must connect with a Tenancy Deposit Scheme and failure to obey with the regulations entitles the tenant to sue for compensation equal to three times the value of the rent deposit.
However, for commercial premises there is no such security. Frequently, landlords attempt to use rent deposits for a entire range of purposes. If you are under pressure about what your landlord might do with the deposit once you have passed it over then you should make sure that the landlord’s rights and obligations in respect of the rent deposit are documented either in the lease or a separate rent deposit deed. If there is nothing in writing dealing with the rent deposit then the landlord can deposit it directly into the bank and use it.

Having established that the rules regarding the use of the rent deposit must be in writing, what things should be covered in the lease or rent deposit deed?

• Who holds the deposit? The landlord should not hold the deposit, in an ideal world. It should preferably be held in an account operated by the landlord’s solicitor to make sure the finances are not misappropriated. If the landlord is announced bankrupt, suing for the return of the deposit will be a waste of time if the funds have already been used. It can be tough to motivate a landlord to accept this. However, if the landlord is to grip the deposit it should be paid into a separate designated deposit account.

• Who is at liberty to interest on the deposit? This should always be the tenant as the finance is related to the tenant’s. The rent deposit deed should specify that the landlord should lay the money into an account that pays interest and that the interest should be paid to the tenant. The interest should not just be permitted to place in the deposit account.

• In what situations the landlord can extract money from the deposit account? Landlord’s solicitors will normally draft the documentation to allow the landlord to deduct money whenever the tenant violates the lease to wrap all losses and expenses incurred by the landlord.

• When should the deposit be repaid to the tenant? The principle behind the rent deposit is that a landlord is allowed to expect a protection where a tenant cannot reveal its capability to pay the rent. That being the case, the tenant should be allowed to get the return of the rent deposit if a point is returned during the term that facilitates it to display its monetary power. The rent deposit should also be given to the tenant if it sells the lease and also at the end of the term. Again, the landlord should not have the right to subtract from the deposit any amounts at the end of the term, if it sees well to cover a prospective dilapidations claim.