Rent Deposit Deeds in Commercial Leases
Written by Scott Jones, founder of CommercialPropertyKiln · Last updated
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A rent deposit gives a landlord a pot of money to draw on if the tenant defaults. To work properly it needs to be held under a well-drafted rent deposit deed.
What it is
The tenant pays a sum, often a few months' rent, which the landlord holds as security. If the tenant fails to pay rent or breaches the lease, the landlord can draw down from the deposit, and the tenant tops it back up.
The deed matters
A rent deposit deed sets out the key terms: how much is held, what it can be drawn for, when it must be topped up, whether interest accrues, how it is held, and when it is returned. Getting these right is what makes the deposit useful, especially if the tenant becomes insolvent.
Insolvency point
How the deposit is held affects what happens on the tenant's insolvency. A properly structured deposit lets you draw on it as security rather than joining the queue of unsecured creditors, so the drafting is important. Drawing down promptly when trouble appears is often wise.
Get it drafted properly
A rent deposit deed is a legal document that should be prepared alongside the lease. Set the amount to reflect the tenant's covenant and the re-letting risk, and take legal advice on the drafting.
What is a rent deposit deed?
The document setting out how a rent deposit is held: the amount, what it can be drawn for, top-up, interest, and return.
Why does the rent deposit deed matter on insolvency?
A properly structured deposit lets you draw on it as security rather than joining the queue of unsecured creditors.