Security for Leases

When renting a property, landlords often ask for some form of security to protect themselves in case the tenant doesn’t pay rent or damages the property.

This lease security can come in different forms, such as bank guarantees, cash bonds, and personal guarantees.

Bank Guarantees

A bank guarantee is a promise from a bank to pay an amount of money to the landlord if the landlord demands it.

You can order a bank guarantee through your bank. They will often require that you keep funds locked up in term deposit with the bank for as long as the guarantee is in effect, and will normally charge you a service fee to provide the guarantee.

If your landlord calls on the bank guarantee, they may ask you to provide them with an updated bank guarantee.

Cash Bonds

A cash bond is a sum of money that the tenant gives directly to the landlord as security. The landlord has the right to draw on the bond if there is a breach of the lease.

Any interest which the cash bond earns accrues to the cash bond. The way the cash bond is held will depend on where you are. In the ACT the landlord will generally hold the bank guarantee in a separate interest-bearing bank account. For some NSW leases, it is mandatory for any cash bond to be lodged with NSW fair trading.

Personal Guarantees

A personal guarantee is a promise from someone other than the landlord or the tenant that they will perform the lease if the tenant does not. This could include paying rent or outgoings, or remedying non-financial breaches (like damage to the property).

Normally, the landlord has the right to demand that the guarantor pay money or do anything that the tenant has to do, even without first asking the tenant to do it. The landlord can also sue the guarantor if there is a breach of the lease by the tenant.

Claiming and Returning Lease Security

Landlords need to be very careful before claiming lease security. If there is no right to claim the security, the landlord may be in breach of the lease. This is especially the case when the landlord holds a bank guarantee or directly holds a cash bond, and has the ability to take the security without the tenant’s knowledge or consent.

Landlords also need to be aware that there are legal time frames for returning security when a lease ends (or is transferred). Failing to comply with these time periods may be a breach of the lease, or a breach of State or Territory law.

Conclusion regarding Lease Security

Sometimes, you may have a choice about the types of security you can accept or give.

As part of our leasing services for tenants, our commercial lease lawyers can advise you on your rights and obligations to provide security under your lease. We can also help you recover your security at the end of your lease.

If you are a landlord and you are considering claiming a bond or enforcing a personal guarantee, you should contact our commercial lease lawyers for tailored advice before taking any action.