Welcome to this short post addressing a simple question: What is a Bank Guarantee vs. a Cash Bond?

Security Deposits and Commercial Leases

First a quick note on bonds in general. A bond, sometimes called a security deposit, is a form of protection for the landlord. It is a sum of money that is set aside in case anything goes wrong. For example, in case a tenant damages the property or leaves with rent outstanding. Read more about how landlords are protected here.

What is a Cash Bond?

A cash bond is simply a payment from the tenant to the landlord. This lump sum is usually equivalent to a certain amount of rent. Three months is pretty standard for a commercial lease in Sydney. This payment is made at the start of the lease and refunded at the end, in full, unless the landlord has a right under the lease to withhold some of the cash.

What is a Bank Guarantee?

A bank guarantee is a good alternative to a cash security deposit. In layman’s terms, a bank guarantee is a letter from the tenant’s bank to the landlord that says “Dear Mr Landlord, this tenant is good for at least $10,000 and we will give you the money at your request.”

Bank Guarantees have a few advantages over cash bonds:

  1. The landlord is still guaranteed the same level of protection as compared to cash.
  2. No cash has to be handled. Even online transfers carry a small risk.
  3. The landlord doesn’t have to worry about what to do with the money during the tenancy.
  4. The tenant has the comfort of the cash never leaving their bank.

One disadvantage to using a bank guarantee is that the landlord, or landlord’s agent, must keep an eye on the expiry date.

Using a Property Manager

Alternatively, you could get your property manager or real estate agent to handle all of this for you. Nutshell specialise in commercial property and we manage security deposits for landlord’s all over Sydney. To view our pricing, click here.

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