Security Deposits – landlord obligations under the Retail Leases Act 2003
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 is an amount of money paid by a tenant as surety to a landlord. A security deposit provides the landlord with some level of protection as it covers a landlord for performance of a tenant’s obligations. 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.

A landlord does not have to ask a tenant for a security deposit. Some landlords will seek surety for a tenant’s performance by way of asking for increased rent in advance as a bank guarantee. It is common, however, for leases to require a security deposit before a tenant is given access to the premises. 
 
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.

Dealing with banks or credit unions
There is no special type of bank account required to hold a tenant's security deposit. Some banks are developing or have developed 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.

What happens at the end of the lease?
At the end of a retail premises lease, if a tenant has performed all of their obligations under the lease, the tenant is entitled to the return of the security deposit.

What can the security deposit be used for?
The lease should specify what the security deposit can be used for (e.g. cleaning or repairs at the end of the lease).

For more information, contact the VSBC on (03) 9651 9316.