Do all tenants need to pay a bond? This is a simple question. However, to properly explore the issue of commercial bonds, we need more than a yes / no answer.

Types of Commercial Bonds

A commercial bonds, also known as a security deposit, will usually take one of two forms. Either cash or bank guarantee. The former is straightforward; a cash payment made by the tenant to the landlord before the lease starts. A bank guarantee, on the other hand, is an unconditional guarantee from the tenant’s bank that the bank will pay the landlord the amount reserved on demand. The benefit of doing it this way is that the tenant does not have to use their own working capital to provide a guarantee of payment.

Why Do You Need a Bond in the First Place?

A security deposit is an important protection mechanism for a landlord. Your lease will allow you to use the deposit to reimburse yourself in a few unfortunate scenarios:

  1. Your tenant abandons their lease.
  2. Your tenant damages the property.
  3. Your tenant ends the lease with unpaid rent.

If you end up in any of these situations, you will be thankful that your property manager negotiated a substantial bond from the outset.

A Bond is Not Rent

Having a sizeable bond can cover rent at the end of a tenancy, for example, if the tenant comes up short. But! It’s important to know that a bond cannot be used in lieu of rent during the tenancy. This is a very basic rule that all property managers will know. If a tenant is late on their rent and asks us, however politely, if we can just “take it out of the bond”, the answer is a firm “NO”. By starting down that slippery slope, a property manager can inadvertently leave the landlord with no protection in case of serious damage to the property.

So let’s get to the crux of the article…

Do Tenants Have to Pay a Bond?

By law, tenants do not need to pay a bond. There is nothing requiring you to take a bond from the tenant. But why wouldn’t you? Think of a bond as your insurance policy. Would a car dealer let you take a new BMW for a spin without an insurance policy on the car? No way! So why would you let someone borrow your most valuable asset without security?

This might seem obvious to some of you, but you would be surprised how often we come across leases without bonds.

Property Management in Sydney’s Inner West

At the end of the day, having a good property manager who knows the ins and outs of your lease is the best way to protect yourself as a landlord. Nutshell’s Property Managers cover Marrickville, the Inner West, South Sydney and all surrounding suburbs. If you would like to discuss your property, get in touch here.

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