Should a New Tenant Pay a Rent Deposit?


Landlords – should I ask a new tenant for a rent deposit?

A rent deposit is simply a sum of money paid by a tenant upfront as security for the landlord for any defaults under the lease.

A landlord will usually consider requesting a rent deposit in circumstances such as:

  • the financial status of the tenant is weak
  • the assets of the tenant are limited or non-existent
  • the tenant is a new business and has no trading history

Are there any alternatives to a rent deposit if a tenant is unwilling to provide one?

  • bank guarantee or bond
  • a guarantee from a parent company
  • a personal guarantee from a director of the company or parent company
  • a letter of credit.

Should I charge VAT on the rent deposit?

If you have opted  the property for VAT and you therefore charge VAT on the rent then you should add an amount equivalent to VAT to ensure that you are not out of pocket if the tenant fails to pay rent. VAT is not payable on the rent deposit as no supply has been made when the initial deposit is taken. When the landlord makes a deduction from the rent deposit it is making a taxable supply which is potentially liable to VAT. No additional VAT receipt is required.

If you need advice on whether or not to request a rent deposit and how to structure this then please contact Charlotte Gooch on 01274 037076 for further advice.

16 July 2018