The Commercial Real Estate Lease Security Deposit

Often a tenant with a strong covenant which means you have an excellent credit record and have been in business for a long time may be able to get it reduced or waived.

Many landlords just deposit these funds into their general fund and use it to pay for broker’s commissions and leasehold improvements as there is nothing preventing him or her from doing so.

Since this is your money, you may want lease language that ensures that your security deposit is not deposited into the landlord’s general accounts and that interest is paid to you on your deposit.

Rather than waiting until the end of the term to get your security deposit back, negotiate to get the deposit returned if you have demonstrated that you pay your rent on time or that any deposit taken by the landlord to cover leasehold allowances advanced to you by the landlord or tenant work done by the landlord for you has been paid back has been paid down through rent paid.

You can also negotiate how the landlord will deduct monies from your security deposit to “cure” a default. For example, if you do not pay your rent you will typically have a set period to bring it up to date before the landlord uses your deposit to “cure” this default.

Be careful that the landlord is not able to both liquidate your deposit and terminate your tenancy. You want to negotiate that if the deposit is large enough to cover your missed rental payment that the lease will not be terminated. You will also want to negotiate that you have some time to replenish your deposit upon default as the landlord will want the lease to state that it be replenished immediately.

In addition, you want the right to be notified before the landlord uses your deposit to “cure” and that you will have a few days to come up with the money you owe.

Make sure that the lease has a time requirement for return of your deposit at the end of the term and don’t assume that you can just use the deposit as your last months rent. The lease may have conditions that relate to the condition of the space when you move out that may impact upon your deposit. This too should be negotiated before a lease is signed.

In addition, your Toronto Commercial Real Estate lease should be negotiated so that your security deposit is protected in the event that the building is sold.

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