Understanding commercial lease security deposits

A commercial lease is a contract between a landlord and a business owner for renting property owned by the landlord. It is quite normal that a tenant will be required to provide security regarding their performance under the lease. This security requirement is normally provided by way of a bank guarantee or cash.

In NSW, an exception is if the lease is a retail lease under the Retail Leases Act 1994. In this case, a cash bond must be deposited with the Government’s Retail Bond Scheme.

Which is preferable security for a commercial lease: a bank guarantee or cash?

Under a guarantee arrangement, the bank will provide an undertaking to the landlord to pay if the tenant breaks the lease terms. The bank will charge fees for issuing the guarantee, and there may be delays to the lease while it is set up. However, if a landlord makes a claim, the bank will inform the tenant, giving them a chance to intervene if they believe the claim is not valid.

Alternatively, a cash deposit can be provided and held by either the landlord or their managing agent either until termination or a tenant’s failure to meet their obligations. While this avoids bank fees, if a landlord misuses the deposit, it may be necessary for the tenant to commence proceedings for recovery.

Contact our Commercial Lease Lawyers in Sydney, NSW 

Before entering a commercial lease, seeking legal advice as to which type of security is in your best interests can be important. Please contact the commercial property experts at Szabo & Associates Solicitors on 02 9281 5088 or complete the online contact form.