Commercial Property – The Importance of a Rent Deposit Deed!

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It is usual for Landlords of Commercial Property to request a new Tenant to provide a rent deposit at the start of a new lease. When the rent deposit comes to an end, the Landlord will return the balance to the Tenant. However, if at any time during the term the Tenant has not complied with the conditions of the Rent Deposit Deed and the Lease (for example, payment of all rent due), the Landlord is able to immediately withdraw from the funds to cover these breaches/ associated expenses. This makes a Rent Deposit Deed attractive for Landlords.

Landlords requiring the protection of a rent deposit should be careful to ensure that they have a well drafted Rent Deposit Deed drawn up which deals with the rent deposit in detail.

It is advisable to provide for the rent deposit in a separate Rent Deposit Deed in particular because:

  • If the Tenant becomes insolvent the liquidator is likely to disclaim the lease, therefore if the rent deposit arrangements are contained in the lease itself they will automatically be included in the disclaimer and the Tenant will be released from liability in respect of the rent deposit. To avoid this situation the Rent Deposit Deed should be held by the Landlord on trust for the Tenant in a separate deposit account and the provisions of the Rent Deposit Deed should provide that on an event of insolvency of the Tenant, the rent deposit is forfeited and there is no obligation on the Landlord to repay the rent deposit back to the Tenant.
  • The Rent Deposit Deed will make it clear how and when withdrawals can be made if the Tenant defaults under the terms of the lease, and then the Tenant is obliged to reinstate the deposit account to the full amount. Similarly, since the amount of deposit at the onset would normally be related to the initial or passing rent payable, (such as 3 or 6 months’ rent) there is often a requirement for the Tenant to top up the amount of deposit within a specified period to take account of any increase in rent at review so as to maintain that rental relationship.

If you wish to discuss this article or require any advice or assistance in relation to commercial leases then please do not hesitate to contact a Solicitor in the Commercial Property department on 0800 037 4628 or use the contact form.

Stacey Lakeland

About Stacey Lakeland

Stacey Lakeland is a Trainee Solicitor within the Property department at Forbes Solicitors. Stacey’s blogs cover general property matters relating to both residential and commercial property matters such as updates to legislation affecting the property sector, landlord and tenant matters, topics which relate to the construction and development sector and also issues relating to property disposals and acquisitions, to name a few.
This entry was posted in Commercial Property.

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