What are the key provisions of a rent deposit deed?
What are the key provisions of a rent deposit deed?

The following Property guidance note provides comprehensive and up to date legal information covering:

  • What are the key provisions of a rent deposit deed?
  • The deposit
  • Withdrawals from the deposit
  • Where is the money to be deposited?
  • Repayment of the deposit
  • Charging the deposit
  • Trust provision
  • VAT and rent deposits

When drafting and agreeing a rent deposit deed, consider the following issues. They will not be applicable to every situation and often, due to the financial status of the incoming tenant, the landlord will have the upper hand in any negotiations.

The deposit

The initial deposit is for an agreed sum that can be drafted as a specified figure or by reference to a number of months’ rent. It should also include any further amounts paid in at any time to top it up when, eg:

  1. the landlord has had made a withdrawal from the deposit

  2. following a review, the rent is increased and the deposit is defined by reference to a number of months’ rent, or

  3. where the landlord has elected to opt to tax or the rate of VAT increases

Withdrawals from the deposit

The deed must state exactly when the landlord is entitled to draw on the deposit. Authorised deductions usually include:

  1. where the annual rent, insurance, service charge or any other sums payable under the lease (including any VAT) remain unpaid

  2. any bank charges relating to the operation of the rent deposit account

  3. any sums needed to pay for losses, expenses and costs relating to the tenant’s breach of any of the covenants under the lease or the rent deposit deed

  4. any tax liability arising