A security deposit (bond) is an amount of money paid by a tenant as surety to a landlord.
Under section 24 of the Retail Leases Act 2003, a landlord, or an estate agent acting on behalf of a landlord, is required to hold a security deposit in an interest-bearing account.
A security deposit provides the landlord with some level of protection as it covers a landlord for performance of a tenant’s obligations.
Landlords do not have to ask tenants for security deposits (bonds). Some landlords will seek surety for a tenant’s performance by way of a bank guarantee. It is common, however, for leases to require a security deposit before a tenant is given access to the premises.
At the end of a retail premises lease, if a tenant has performed all of their obligations under the lease, the landlord must return the security deposit to the tenant (including interest earned) as soon as practicable after the lease ends.
Negotiating a security deposit
The security deposit requested by a landlord is usually equivalent to one or two months’ rent. The dollar amount of a security deposit is not regulated by retail leases legislation, and landlords and tenants should negotiate a mutually agreeable amount.
The landlord must account to the tenant for interest earned on the deposit, but the landlord is entitled to keep the interest and deal with it as money paid by the tenant to the landlord to form part of the security deposit.
Bank or credit union accounts
There is no special type of bank account required to hold a tenant’s security deposit.
Some banks may have special products for the purposes of holding security deposits; however, most banks can usually accommodate the landlord’s requirement under section 24 of the Retail Leases Act 2003.
Most banks are aware of this landlord obligation and landlords should discuss their needs with their bank or credit union.
The Victorian Civil and Administrative Tribunal (VCAT) has handed down a decision relevant to security deposits:
- Cafe Dansk Pty Ltd v Shiel & Ors (Retail Tenancies)  VCAT 36 (14 January 2009)
- Market Ring Write Services Pty Ltd v Dudson (Retail Tenancies)  VCAT 546 (16 April 2013)
- Versus (Aus) Pty Ltd v A.N.H. Nominees Pty Ltd  VSC 515 (1 October 2015)
Other decisions can be found on the Australian Legal Information Institute (AustLII) website.