Q&As

A rent deposit paid under a commercial lease is to be held on trust and the deposit entitles but does not require the landlord to withdraw from it in the event of default. Can the landlord elect to forfeit and then use the rent deposit to settle rent arrears after forfeiture?

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Produced in partnership with Christopher Snell of New Square Chambers
Last updated on 29/06/2018

The following Property Disputes Q&A produced in partnership with Christopher Snell of New Square Chambers provides comprehensive and up to date legal information covering:

  • A rent deposit paid under a commercial lease is to be held on trust and the deposit entitles but does not require the landlord to withdraw from it in the event of default. Can the landlord elect to forfeit and then use the rent deposit to settle rent arrears after forfeiture?
  • Background
  • Trust structure
  • Can the landlord forfeit rather than rent deposit drawdown?
  • Can the landlord drawdown on the rent deposit deed after forfeiting?

A rent deposit paid under a commercial lease is to be held on trust and the deposit entitles but does not require the landlord to withdraw from it in the event of default. Can the landlord elect to forfeit and then use the rent deposit to settle rent arrears after forfeiture?

Background

A rent deposit is a sum of money provided by a tenant to its landlord by way of security for: (i) payment of the rent; and (ii) performance of the covenants found in the lease.

The rent deposit deed itself will, in the usual circumstances, set out in detail when a landlord can draw down against the rent deposit and the conditions that the tenant must meet before the rent deposit is repaid to it.

The primary benefit of a rent deposit to commercial landlords is that it allows them to have access to an immediate source of funds that can be withdrawn when a tenant acts in a manner which amounts to a breach of covenant, including, for the avoidance of doubt, the covenant as to payment of rent. This has the added benefit of enabling the landlord to access funds without needing to take legal proceedings in order to recover the debt or to secure performance of any other contractual obligation.

Trust structure

It is possible for a rent deposit to be structured in such a way

Related documents:
Key definition:
Event of default definition
What does Event of default mean?

An event which is specified as such under the terms of a loan agreement, the occurrence of which typically entitles the lender to call for the immediate repayment of the loan and to enforce any security it may hold.

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