A glance on security deposits in commercial leases

A glance on security deposits in commercial leasesImage Credit: Supplied

A security deposit is money paid to and held by an individual or company in trust either as an earnest payment/initial part-payment in a purchasing process or as part of a rental agreement to ensure guarantee if a tenant fails to make payments noted under the lease.

Tenants need to understand that the security deposit is not an advance payment for rental. They must also make sure that it is stated in the tenancy contract, or else they may end up losing the money in case of unexpected termination.

Most commercial areas and office premises in the UAE ask for a refundable security deposit equal to five per cent of the annual rent. Some emirates, like Sharjah, demand a five per cent municipal tax.

The general rule is that landlords should refund the security deposit when the tenants decide to leave the property at the expiry of the contract.

Some landlords deduct a certain amount from the deposit if there are damages to the property. They may give tenants an invoice of the expenses deducted but it is not compulsory. But tenants must keep in mind that maintenance costs for which the landlord is responsible for should not be deducted from the deposit. Furthermore, tenants always have the choice of having minor repairs and repainting done on the property for them to get their full security deposit. But, they must remember to define the line between minor and major damages, in terms of cost or extent.

If the landlord is selling the business or the premises, he can transfer the security deposit to the purchaser. Upon any such transfer, the previous landlord will be relieved of all liabilities. The responsibility to return the security deposit will fall on the new property owner.

Tenants must, therefore, be clear about the terms and conditions surrounding security deposits and the lease of the commercial property in general before signing any contract.

Handy Hints:

• A security deposit is not an advance payment for property rental

• Property owners mostly ask for deposits equal to 5% of the rent

• Ensure that the security deposit is stated in tenancy contract

Get the factors when looking for a business location

Source: Asha Das, Special to Properties

The writer is a freelancer

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