A rent deposit is a form of security for a landlord which provides the landlord with immediate access to money in the event that the tenant is in breach of the lease. The tenant provides an agreed sum of money, usually a number of months’ worth of rent, and the landlord is able to draw on this in specified circumstances and require top-up by the tenant.
- The tenant has a weak financial standing;
- The tenant has minimal or no UK assets, as in the case of a foreign or new company; or
- The tenant is a new business and so has no track record of settling its debts or generating the funds necessary to pay the rents and other amounts due under a lease.
The main concern for a tenant is that that it gets the money back at the end of the term or when the lease is assigned to a third party. Another concern for both parties is that in the event of the other’s insolvency, the money needs to be safe from the insolvency practitioner.
Where the tenant does not want to tie up the capital required to fund a rent deposit, it can suggest one of the following options:
- A bank guarantee or bond.
- A parent company guarantee.
- A personal guarantee from a director.
- A letter of credit.
Note that if the rent is subject to VAT, the landlord may require VAT (currently 20%) on the rent deposit to be deposited as well.
Please contact us for further information.