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Are you looking after your commercial tenants' rent deposits?

View profile for Charlotte Strutt
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Are you looking after your commercial tenants' rent deposits?

In recent years it has become standard practice for a landlord to ask a tenant to pay a rent deposit when taking on a new lease and this is only set to continue as COVID-19 continues to have an effect on the leasehold market. A rent deposit acts as security for the landlord in the event that the tenant misses rent payments or defaults on its obligations under the lease in other ways by enabling the landlord to withdraw funds from that deposit, and then require the tenant to top it back up again. The question is, are you looking after your rent deposits properly?

Most standard rent deposit deeds require the landlord to pay the rent deposit into a separate bank account. In any event, our advice would be to have at least one separate account for each rent deposit if you are a landlord of multiple properties. This account should ideally be noted as only containing the rent deposit related to a particular lease and no other day to day funds should be mixed with the deposit. The Lease Code 2020 also advises that rent deposit agreements should provide that landlords will hold rent deposit funds in bank accounts designated for holding only rent deposits and that any bank interest will accrue for the tenant.

If you are currently a landlord, it might be sensible to check the provisions of any rent deposit deeds that you have already entered into to ensure that you are meeting with your obligations and are not in breach. This is particularly the case if the tenant had their own solicitor acting in the taking of the lease as they would likely have required the deed to state that the deposit would be kept in a completely separate interest bearing account (i.e. with no other rent deposits) as this provides the tenant with the best protection. The deed can also state that the tenant is to be named on the account.

One of the common ways the deed is structured is to create a trust so that the deposit is held by the landlord on trust for the tenant and the landlord is therefore also under duties and responsibilities as a trustee such as to earn reasonable interest (although it is noted that the rates are currently very low!) and not to misappropriate the funds. 

If you are a landlord of residential properties there are different rules. You should consult a specialist residential solicitor if you require further information in this regard. 

Our Commercial Property team is well equipped to assist you in all lease related matters. If you have a query or require some guidance please do not hesitate to get in touch with us on 01245 228138.

This is not legal advice; it is intended to provide information of general interest about current legal issues.