Security Deposits

It is always a concern to a landlord to be able to recover from the tenant the rent or other payments which the tenant has agreed to pay under the terms of the lease. It is not only the rent that may be due but other payments may have to be made - for example, if the tenant breaches its repairing obligations then the landlord may have to carry out the work itself and recover the cost from the Tenant. Plainly the landlord will have a right to enforce payment through the courts but this is time consuming and costly - and will achieve no satisfactory result if the tenant does not have the ability to pay.

There are two options to consider to assist with this problem. The first is taking a deposit from the tenant as security and the other is to get a guarantee from a third party. These options are particularly important to consider if the tenant is a newly formed limited company.
 

Security Deposit
The document we provide envisages that the tenant will pay to the landlord a sum of money which the landlord holds in a separate deposit account. The interest that accrues on the account will form part of the deposit and will be returned to the tenant at the end of the lease (subject to the landlord having no claim). The landlord will be entitled to draw against the deposit account in the event of there being a default on the part of the tenant under the terms of the lease. If this happens the tenant would then be obliged to reinstate the deposit account to the full amount.

We provide different versions of the deposit deed depending on whether the lease which it relates to is assignable - if it is then the landlord would want the ability to withhold returning the deposit to the tenant until the new tenant (the assignee) has signed up to a similar document.

We also provide different versions depending on whether the deposit is to be a fixed amount or an amount linked to the amount of the rent. For example it can be phrased as being an amount equivalent to say six months rent from time to time - then if there is a rent review and the rent goes up then so would the amount of the deposit.

One formality that you must observe where the tenant is a limited company is that you have to register the rent deposit deed with Companies House within 21 days, see Useful links. To do this you fill in Companies Form MG01 which can be downloaded for free from Companies House. You then have to send this along with the Rent Deposit Deed and a cheque for £13 to Companies House (the address is included in the form). They will note this against the company and then return it to you. This formality only applies where the tenant is a company.

Rent Deposit Deed
Suitable for use where the lease is assignable and the deposit is a fixed sum
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£20.00
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Rent Deposit Deed
Suitable for use where the lease is not assignable and the deposit is a fixed sum
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£20.00
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Rent Deposit Deed
Suitable for use where the lease is assignable and the deposit is a sum linked to a proportion of the annual rent
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£20.00
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Rent Deposit Deed
Suitable for use where the lease is not assignable and the deposit is a sum linked to a proportion of the annual rent
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£20.00
Buy now

Third Party Guarantee
Generally speaking when a lease is granted provisions about a guarantor are included as part of the wording of the document if that is what has been agreed. If during the course of the lease it is assigned then it may be at that point that a guarantee is sought dependant on the financial strength of the ingoing tenant. This may take the form of either an Authorised Guarantee Agreement given by the outgoing tenant and/or a separate guarantee from some third party - in this case the third party would normally join in the Licence to Assign. For further information about a Licence to Assign see Useful links.

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The documents available on this site have been prepared for use in England & Wales. They may not be valid if used in other areas.