Security Deposit is an important component of a lease agreement and landlords should pay special attention to this aspect of lease agreement and not go with a standard template that the broker may come up with. There are various associated procedures and landlords must look at the security deposit component from all sides before deciding with the tenant. Here are some of the important aspects of it:
1 Time Period: At the time of executing a lease agreement, you as a landlord of a commercial premises will have to decide and agree to a certain time period by which you will have to return the security deposit after the tenant has vacated the premises. The tenant would want the lowest possible time period. You will have to see what is the right time period for the building type and the market dynamics. You should account for some time period that you will take to inspect the property and see if there are damages for which you should deduct the repair charges from the security deposit. This will depend on the size and nature of property. If the property is an industrial one and there are large storehouses in it, then the inspection will take reasonable duration.
2 Inspection: At the time of signing a lease deed, it should be mentioned clearly as to who will carry out the inspection to ascertain damages, whether it will be you or the tenant. It makes sense for you to carry out the inspection yourself than let it be done by the tenant. However, you may show leniency and settle for the tenant to do inspection at the time of vacating the property if the rent being offered by the tenant is really good or if the tenant is a reputed corporate and its presence in your building will increase the asking rents in other parts of your building.
3 Fixing The Damages: It should be decided at the time of signing the lease deed as to who will carry out the repairs of the damages, if any. It is best that you the landlord takes the responsibility of carrying out the repair since the tenant cannot be relied upon in such matters. If it is decided that you as a landlord will carry put the repair work, then you will have to give an itemised bill of the repair costs immediately after carrying out the repairs. However, if the tenant is a reliable company, you can let the tenant carry out the repair work. Whoever is responsible for the task of doing the repair work must be mentioned clearly in the lease deed.
4 Interest: Lately, there is a trend in the lease deeds for the landlord to return the security deposit with interest. However, many landlords still don’t include that clause in lease deeds. If your lease deed with a particular client includes that then you will have to return the security deposit with that interest. The interest rate that you may agree to at the time of signing the deed depends of several factors like the prevailing interest rate of the central bank, cost of borrowing, etc. Whatever is the interest rate agreed, it must be clearly mentioned in the deed.