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How Security Deposits are Used in Commercial Real Estate

Posted on: May 26, 2018

Commercial Real Estate Security Deposits: What You Need To Know

It is standard procedure for commercial real estate landlords to request a security deposit to protect themselves from unpaid expenses or property damage.

The security deposit can be used for any number of reasons that are outlined in the lease agreement such as repairing damages caused by the tenant, failure to pay for operating services and utilities, covering costs associated with an early lease termination, or covering unpaid rent balances.

No Restrictions on the Amount

The legal restrictions that limit the amount of the security deposit for residential tenants don’t apply for a commercial real estate.

Therefore, the landlord gets a great deal of flexibility with choosing the amount of the security deposit and the terms that govern its return.

This flexibility is appropriate considering the variety of different circumstances and risks that may be encountered in a commercial real estate.

Most of the time, security deposits are a reasonable cost which usually adds up to around one to two months of rent.

In any case, it is helpful to meet with a commercial real estate lawyer in South Florida to ensure that the security deposit is an appropriate amount, whether you are a tenant or landlord.

Where is the Security Deposit Kept?

There is also no law that requires the security deposit to be held in a bank with interest, however, this is often a point of negotiation.

Tenants may request that the deposit is held in a bank account and that it is returned with any accrued interest after the lease is up, as long as the conditions for return are met.

Specified Deposits

It may be in the best interests of the tenant, landlord or both to have separately specified deposits, such as one for repairs, one to cover rent, and one to cover operating service costs.

In this way, if a deposit has to be used for one purpose such as an unpaid utility bill, the other deposits will remain unused, and the tenant would typically replace any deposits that needed to be used.

This prevents the landlord from using a whole deposit for one reason. It would also allow for each deposit to be reimbursed at the appropriate time once the lease comes to an end, such as the repair deposit being reimbursed after the inspection of the property.

The terms of this type of agreement can be outlined in a commercial lease with the assistance of a South Florida commercial real estate lawyer.

If you have any specific questions about commercial real estate security deposits or other aspects of commercial lease agreements, contact Schecter Law at (954) 779-7009.