Q&As

Does a rent deposit have to be held in an interest-bearing account or can the landlord decide to hold the rent deposit money in a non-interest bank account? If so, are there any tax implications for the landlord?

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Produced in partnership with Chris Bryden of 4 King’s Bench Walk
Published on LexisPSL on 17/06/2019

The following Property Q&A produced in partnership with Chris Bryden of 4 King’s Bench Walk provides comprehensive and up to date legal information covering:

  • Does a rent deposit have to be held in an interest-bearing account or can the landlord decide to hold the rent deposit money in a non-interest bank account? If so, are there any tax implications for the landlord?

Does a rent deposit have to be held in an interest-bearing account or can the landlord decide to hold the rent deposit money in a non-interest bank account? If so, are there any tax implications for the landlord?

It is standard for a commercial tenancy agreement to contain provision as to a deposit, as security for the landlord against any breaches of covenant (often, in particular, dilapidations). Parties will often enter into a rent deposit deed which will govern how the deposit is to be held, what deductions can be made from it and often make provision as to any interest earned on the deposit. Alternatively these provisions may be contained in the lease itself, though a separate rent deed facilitates assignment of the lease.

There are no specific statutory provisions governing the taking and holding of a commercial rent deposit and the parties are free within the bounds of ordinary contract law to agree such terms as they wish in the rent deposit deed as to interest. A well-drafted rent deposit deed will ordinarily provide that the deposit is held by the landlord on behalf of the tenant in a defined account or an escrow account (so as to protect it from forming part of the assets of the landlord should an insolvency event occur) and will make provision as to interest—commonly the landlord agrees

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