Home » Lawyer » When Do You Need A Security Deposit for A Commercial Lease?

A security deposit, a bond, for a commercial property is a sum that is paid by a tenant to a landlord. It’s used to secure all obligations of the lease. Although it applies to a wide range of commercial properties, such as offices and factories and warehouses, it does not apply to retail properties.

It is possible to get a security deposit from a firm like RP Emery & Associates who can supply businesses with a professionally drafted contract template.

Why Ask for A Security Deposit?

A landlord may wonder if it is even necessary to ask for a security deposit. This question may be asked if your property happens to be one that is hard to find tenants for. In that case, you might be tempted to make it make it as easy as possible for people to say “yes.” After all, a rented commercial premise is better than an empty one.

However, a security deposit provides you, the landlord, with protection. It safeguards you if your tenant is unable to pay the rent or breaks the lease agreement in some way. Based on the terms of the lease agreement, you are eligible to use the security deposit to cover any expenses.

Alternatives to a Security Deposit

Still, a security deposit is not the only way to make sure that you receive protection if the tenant defaults on the rent, damage the property, or breaks the lease agreement.

Besides the use of a bond, there are two other ways that a landlord can get financial security from a tenant.

One option is to agree to a bank guarantee, and the advantage of this is that it lets tenants free up their money.

The other option is to accept a personal guarantee. However, this is only viable if it’s in addition to the bond.

Topping Off the Security Deposit

Should the security deposit be used to cover an expense and the tenancy continues, the landlord has the legal right to ask that the tenant renew the bond by providing the original amount of the lease deposit.

When to Collect a Security Deposit

The best time to ask for and collect the security deposit is before the tenant moves into the property. If you ask them later, it may be more difficult for you to collect the bond. They may find ways of procrastinating and make empty promises to pay later.

How to Protect a Security Deposit

After the tenant pays a security deposit for a commercial lease transaction, it is your responsibility to hold the deposit. Since it is an amount that the tenant has the legal right to get back after they complete the lease, it is not wise to spend the money, hoping to replenish the funds when the time comes to return the deposit.
Consequently, the most sensible option is to deposit the money in an interest-bearing trust account, one separate from your other business accounts.

It’s important to bear in mind that the landlord is not able to use the deposit to earn extra money by keeping the interest the deposit earns. However, although tenants, under the terms of the lease, are entitled to the interest that is earned on the security deposit, a landlord can consider the interest as a share of the deposit.

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