How Safe is your Deposit?

Monday 28th September, 2020

Marriott Harrison’s Mark Lavers has a timely reminder about the safety of rental deposits in serviced offices and shares what any business can do to protect itself.

Ever wondered how safe your rental deposit is?

As everyone knows, it is common for landlords to take a rent deposit from their tenants to protect the landlord against the tenant not paying the rent or defaulting under its repairing/decorating/reinstatement obligations at the end of its lease.

Such a deposit is to be returned to the tenant at the end of the lease assuming there are no outstanding liabilities but often, in practice, the landlord nets off any arrears/dilapidations and then returns the deposit.

Similarly, with serviced offices it is common to pay a deposit (although often this has a different name) which is to be returned after the agreement with the serviced office provider has ended and the customer has no outstanding obligations.

Generally, a tenant under a lease charges its interest in the deposit to the landlord or the landlord agrees to hold it on trust and the rent deposit monies are placed in a designated account.  These demonstrate that the deposit is held for a specific purpose and is not part of the landlord’s general funds.  If the deposit is just paid to and held by the landlord in its general account, then should the landlord become insolvent the tenant will most likely “lose” the deposit as the tenant will just have a claim for the deposit as an unsecured creditor in the landlord’s insolvency.

It is pretty standard for serviced office providers to simply hold their customers’ deposits in their general accounts.  Indeed, some serviced office providers terms expressly provide this will happen whilst others are silent on the point, which means that most probably this is exactly what does happen. So, if the serviced office provider becomes insolvent the customer will most likely not receive back its deposit.

Historically, not many landlords or serviced office providers have gone into insolvency but the harsh realities of COVID 19 are changing this.

Part of the attraction of a serviced office is the ease of signing up, but does such ease come at a price?

A point therefore for anyone considering taking space in a serviced office must be to insist that its deposit is not at risk should the serviced office provider become insolvent.

Articles by Mark Lavers