What is a rent deposit and how is it structured?
What is a rent deposit and how is it structured?

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

  • What is a rent deposit and how is it structured?
  • What is a rent deposit?
  • How are rent deposits structured?
  • Main considerations for landlord and tenant
  • What are the main differences, benefits and drawbacks of the various structures?
  • VAT and rent deposits

What is a rent deposit?

A rent deposit is a sum of money that is deposited by a tenant when it takes a lease of premises as security against the non-payment of rent and other breaches of the lease.

The money is held on the terms of the rent deposit deed. Rent deposit deeds provide landlords with immediate access to funds in the event that the tenant is in breach of the lease. In many cases (eg the City of London Law Society (CLLS) form) the definition of liabilities under the deed extends to the costs of enforcement.

Rent deposits are often given where a lease is either assigned or granted and the incoming tenant cannot supply the landlord with sufficient evidence of its financial worth. They may be offered in place of or in addition to guarantors to augment the tenant's covenant strength.

How are rent deposits structured?

The methods of structuring rent deposits are:

  1. the landlord holds the money in a separate account on behalf of the tenant who owns it and charges it in favour of the landlord

  2. the tenant holds and owns the money in a separate account and charges it to the landlord

  3. the landlord holds the money on trust for the tenant

  4. the landlord holds and owns the money in its general account

  5. the