Deposit for the Office - What to Consider

However, it is common practice for landlords to request a rental deposit as security for potential claims, such as rent arrears and repairs for damages.

In commercial lease agreements, the amount of the deposit is not legally regulated, unlike residential rentals, so the amount of the deposit is freely negotiable. Especially for "younger" companies that can demonstrate little creditworthiness, landlords often require a higher deposit because they perceive the rental risk to be higher.

Alternative Guarantees

Cash deposits can often strain liquidity for tenants and are particularly burdensome in the early stages of a startup. As an alternative to a cash deposit, a guarantee can help. Here are the following options:

• Bank guarantee, also known as an aval, is a legal payment promise to a third party. The bank acts as a guarantor. This indirectly burdens the liquidity of a company since the guarantee reduces the credit line at the bank. A bank guarantee works only if the bank confirms the company's creditworthiness.
• Deposit insurance works by paying a monthly premium to an insurance company, which acts as a guarantor to the landlord. Deposit insurance costs about five percent of the deposit amount per year. At the end of the lease agreement, the tenant does not receive these payments back, unlike with cash deposits. Therefore, it is important to weigh whether to accept the costs of insurance or restrict liquidity with a cash deposit.

In principle, it is up to the landlord to accept the deposit in the form of a cash deposit or a guarantee. The advantage for the landlord with a cash deposit is that they can access the deposit account directly in case of any claims. Our tip is therefore to try to negotiate a combination of a cash deposit and a guarantee that does not overly burden liquidity but provides the landlord with sufficient security.

Cash Deposit in Case of Insolvent Landlords

Unlike residential tenancy law, commercial landlords are not required to secure the deposit against insolvency and seizure. It is therefore highly recommended to explicitly state in the lease agreement that the cash deposit should be managed in trust and not mixed with the landlord's own assets. This protects the rental deposit from being included in the landlord's insolvency estate and having to queue as a creditor with the insolvency administrator.