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A security deposit is a deposit a landlord holds as security for the tenant occupying the property under a lease. For example, if you default on the lease or damage the premises, the landlord can use the deposit to satisfy the necessary payments or make good the damage. In Australia, retail leases are governed by different legislation in each state and territory. This article discusses how landlords should handle your retail lease security deposit in Australian states and territories.

When Can Your Landlord Use the Security Deposit?

When you and your landlord enter into a lease, you both agree to meet your rental obligations under the lease. There is a default clause in the lease allowing a landlord to terminate the agreement if you breach the lease or default on payments. The landlord may also use your deposit to pay rental arrears or make good any damage you cause.

As a tenant, you should review your lease before signing it. There may be terms requiring you to ‘top up’ the deposit as the landlord uses it, or top up annually as the rent increases. Furthermore, you should know how to leave the premises and when your landlord can use your security deposit. Often, disputes arise at the end of a lease. This is because tenants may not have complied with their obligation to maintain the condition of the premises. 

Security Deposit Requirements

Victoria

The landlord can set any amount as the value of the security deposit. However, it is more common that the value is equivalent to a period of rent. The legislation does not regulate this so the parties may negotiate the security deposit.

The landlord or landlord’s agent needs to hold a security deposit in an interest-bearing account. Any interest accrued on the security deposit becomes part of the deposit. This means the landlord must return the interest to you, along with the security deposit, provided you have complied with your obligations. If you have not complied, the landlord may use the interest as part of the security deposit.

Your landlord should return the security deposit to you as soon as possible after the lease ends. Additionally, they must not unreasonably refuse to accept a bank guarantee instead of a security deposit.

New South Wales

The landlord must deposit the security deposit with the New South Wales Government’s Retail Bond Scheme within 20 business days of receiving it. The Scheme holds the money in trust and invests it. At the completion of the lease, the landlord must return the deposit to you with interest. However, this is only if you have met all of your obligations under the lease. 

When negotiating the lease, the landlord may ask for security in the form of a cash bond, third-party guarantee or bank guarantee.

Queensland

The Queensland Retail Leases Act has no provisions regarding security deposits. Non-refundable security deposits are unlawful as they are considered ‘key money’. Key money is a benefit a tenant provides with no real consideration for the benefit.

Tasmania

A security deposit must not be more than the equivalent of three months’ rent. The landlord must hold it in an interest-bearing account on trust for you. The interest must also be accounted to you. 

Furthermore, the landlord may retain the interest and treat it as part of the security deposit. This means the landlord must return the interest, along with the deposit, on completion of the lease. Alternatively, they may use it as part of the deposit if you breach your obligations under the lease.

Your landlord must not unreasonably refuse to accept a bank guarantee instead of a security deposit.

South Australia

The landlord can take only one security bond and it must not be more than four weeks’ rent under the lease. The security bond must be paid to the Small Business Commissioner within 28 days of receipt by a registered agent, or within seven days in any other case.

Australian Capital Territory

A security deposit must not be more than three months’ rent. The landlord must hold it in an interest-bearing account on trust for you. The interest must also be accounted to you. The landlord may keep the interest and deal with it as part of the security deposit.

The landlord must return the security deposit within 30 days of the end of the lease or upon you vacating the premises, whichever comes later. They may keep any deductions of amounts owed to them. 

Your landlord must not reasonably refuse to accept a bank guarantee instead of a security deposit.

Northern Territory

The landlord must hold the security deposit in an interest-bearing account on trust for you. The interest must also be accounted to you. They may keep the interest and deal with it as part of the security deposit.

Furthermore, your landlord must return the security deposit to you within 30 days of the end of the lease or upon you vacating the premises, whichever comes later. They may keep any deductions of amounts owed to them. 

The landlord must not reasonably refuse to accept a bank guarantee instead of a security deposit.

Western Australia

The Western Australia Retail Leases Act has no provisions regarding security deposits.

Key Takeaways

Security deposits are a common form of security in retail leases. The landlord can rely on your retail lease security deposit in the event you breach the lease or default on payments. It is important landlords comply with the retail lease legislation in their state or territory. These Acts cover:

  • the maximum amount a landlord can collect as a security deposit;
  • where the landlord should hold the deposit; and
  • when the landlord should return the deposit.

As a tenant, you should understand your obligations under the retail lease. If you have questions, contact LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.

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