You are going to rent an office or office building for your company and the landlord asks for a security deposit of three months' rent. But what exactly is a security deposit? What is the difference with a bank guarantee? Is it possible to negotiate about the deposit with a landlord? What if the landlord goes bankrupt? In this blog we will go deeper into the subject of security deposits and what it involves.
What is the difference between a security deposit and a bank guarantee when renting an office?
In general, the rental agreement includes the obligation to provide security. This can be done in different ways. The most common ways to do this are the security deposit and the bank guarantee.
The most common guarantee is a security deposit. In the case of a security deposit, the tenant pays a sum to the landlord. This sum is entered in the landlord's account as long as the tenant rents the office. The landlord reserves this amount if the tenant, for example, does not meet his obligation to pay the rent on time.
In the case of a bank guarantee, the security is provided by a third party, in this case the bank. A bank guarantee is an agreement in which the bank unconditionally guarantees to pay an amount to the beneficiary, in this case the landlord. As a tenant, you put several months' rent into a blocked bank account (the bank guarantee). The bank guarantee runs for the duration of the entire rental agreement and will in most cases be released immediately after the termination of the rental agreement. You pay a fee to the bank for this bank guarantee. The fee consists of a one-time handling fee, and an annual, half-yearly or quarterly fee. These costs will continue as long as the guarantee has not yet been terminated.
In short, with a security deposit, the landlord has the money himself and with a bank guarantee the bank has the money. You can discuss this during a negotiation with your potential new landlord.
Advantages of a security deposit and a bank guarantee during office rent
For the landlord a security deposit has the clear advantage; he has already received the money. In the event of a disagreement, he does not have to take any action in order to be able to call upon an amount. For a landlord to obtain the amount of a bank guarantee, an action is required. The landlord must submit a request for the payout to the bank. The bank may not refuse this request. It is up to the tenant to discuss whether the landlord was entitled to receive the payment.
In addition, a bank guarantee generally states that it also applies to the legal successors of landlords. In general, therefore, there are little problems with the sale of the rented property in this context. This is different for a security deposit. It does not pass automatically. This will have to be included in the purchase price.
The big advantage of a security deposit compared to a bank guarantee is that as a tenant you do not incur any costs at the bank. The landlord does not owe any interest on the blocked deposit.
What is the usual amount for a bank guarantee or security deposit?
The law allows you to ask for a security deposit, unless the amount is unreasonably high. There is no rule as to how high a deposit for rent may be. The judge considers a deposit of a maximum of 3 months basic rent as reasonable. The amount of a deposit can vary, and it depends on many different rental conditions. Discuss the amount of the security deposit or bank guarantee with your potential landlord and record the agreement of the amount properly.
When can the landlord claim the security deposit or bank guarantee?
In several cases, the landlord can claim the bank guarantee or deposit. If the landlord decides to claim the bank guarantee from the bank or to use the security deposit, one of the following situations has occurred:
- The tenant has arrears at the end of the tenancy agreement;
- Upon termination of the tenancy agreement, the tenant has not delivered the office space to us in accordance with the guidelines. As a result, work must be carried out that involves costs. These costs are on account of the tenant;
- During the rental agreement there is an encashment procedure and you have agreed with the collection agency and/or the debt manager that in view of the backlog the bank guarantee can be claimed, or the deposit can be used. You must always supplement the amount used to the original sum of the bank guarantee or deposit.
VAT on the security deposit and a security deposit on the balance sheet
A security deposit invoice cannot be charged as a cost. You will have to place the security deposit on a suspense account on your balance sheet. You can see that there is no VAT charged by the landlord, because it is not a delivered service or product and no VAT can be charged on the deposit.
On your balance sheet you create a ledger account with for example "suretyship", this is a suspense account on your balance sheet. If you ever leave your office, the owner will refund the amount and you can deduct it from your balance sheet.
Questions about a security deposit or an office you are going to rent? Call one of our office space specialists.