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Rent Deposit Changes for Commercial Leases

March 2013
Commercial landlords often require a tenant to pay a Rent Deposit equivalent to, for example, 3 or 6 months’ rent. A rent deposit may be required where the landlord is unwilling to rely solely on the tenant’s covenant to pay the rent and observe the terms of the lease; perhaps because the tenant’s financial standing does not meet the landlord’s usual criteria.

A Rent Deposit Deed sets out how much has been paid by way of a rent deposit and the circumstances in which the landlord may use the deposit. It records (amongst other things) where the deposit will be placed, the procedure for the landlord to withdraw money and the grant by the tenant of a charge over the deposit.

A charge created by a tenant which is a company or a limited liability partnership (LLP) currently needs to be registered at Companies House within 21 days. If the landlord does not register the charge, the charge will be void against any liquidator or administrator of the tenant. This means that the rent deposit sum may be claimed by the liquidator or administrator if the tenant becomes insolvent.

This is changing with effect from 6 April 2013. Registration at Companies House will not be required (and will not be possible) in respect of charges created in Rent Deposit Deeds on or after that date. Administrators and liquidators will be bound by the charge even though it is not registered. This will make things easier for landlords when a rent deposit charge is created but may lead to confusion for liquidators, administrators and creditors if a tenant becomes insolvent, as there will no longer be a public record of rent deposit charges.

We have amended the explanatory notes that accompany our Rent Deposit Deed for Commercial Property to reflect the changes.

The contents of this Newsletter are for reference purposes only and do not constitute legal advice. Independent legal advice should be sought in relation to any specific legal matter.

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