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What is a security deposit?



Each owner who rents his properties hopes that the tenants will pay their rent on time, take good care of the property, and return it in not deteriorated condition. In order to have a guarantee for all these to happen, the owner may require the payment of a security deposit.


General information

Security deposit is a specified by the parties to the agreement amount (usually equals one or more rents), payable by the tenant to the landlord. The purpose of this payment is to give the landlord the possibility to cover any arrears in rent payments and to cover all costs of repair of any damage the tenant caused in the rented property.


All the arrangements connected with the security deposit – its amount, payment deadline, return – should be described in details in the tenancy contract. Payment of the deposit upon the delivery of the premises is a common practice. The return of it – in its full amount if there are no arrears and damages in the premises, or after the deduction of amount due – should be made after the termination of the tenancy period. Deadline of the return of the deposit payment should be agreed on by the parties.


However, it is important for the landlord to have some time to perform all the necessary repairs first, in order to establish their full cost.


Security deposit in a housing premises

There are certain differences concerning the security deposit payment in residential and commercial premises.


In case of the residential property, there provisions of Polish law governs the management of a deposit payment. In other words, the parties cannot formulate this particular element of a tenancy agreement freely. In accordance with the Polish law, the amount of a safety deposit should not be higher than 12 rents paid for a particular apartment in its amount on the day of the conclusion of the tenancy contract.


The provisions of law define also the deadline of safety deposit's return – up to a month from the day of the return of the premises, or its purchase by the tenant. The deposit should be returned in the amount calculated after the deduction of any due costs. Security deposit is the subject to adjustment – valorization. The valorized deposit is returned in the amount equal to the product of monthly rent at the date of the return and the rent times adopted at the collection of the deposit, but not less than the deposit taken.


The charges which can be secured by the deposit should include rent and other fees connected with renting, as well as the compensation for any damage to the premises caused by the tenant. During the tenancy period, the landlord cannot cover current payments by the deposit – it can be done only after the termination of the tenancy contract.


Of course, the security deposit does not serve as a prerequisite to the conclusion of the contract (although its conclusion may be conditional on the payment of the security deposit by the tenant in order to cover due charges that the landlord is entitled to after the return of the premises). The landlord may not require a security deposit. In this case, however, the landlord assumes the risk of having a possible dishonest tenant. What is more, the law stipulates that the security deposit cannot be charged if the tenancy contract is concluded in connection with a substitute or communal premises, or if the contact is concluded in connection with the conversion of the premises, and the tenant obtained the return of the unvalorized deposit.


Security deposit in commercial premises

As for premises other than residential, which are the subject to the same laws – such as , for example, commercial spaces – the principle of freedom of contract is applicable. Therefore, a close attention should be paid to the contractual provisions. Upon the inclusion of a security deposit in the contract, there should be a clear description of what kind of landlord claims can be satisfied with it. If the contract states that the landlord may deduct from the security deposit only rent arrears, for example, he will not be able to satisfy his claims for the damage to property.


Of course, in the case of commercial premises, the deposit is returnable at the end of the lease period. However, parties are to specify the date of return freely. Throughout the duration of the contract, the security deposit should remain intact. However, if the contract states that the landlord may cover the delay in payment of rent (or other charges) by the deposit, the provision that the tenant should repay the consumed amount of deposit within the specified period, should be also included. In the case of commercial premises the valorization of the security deposit may be also agreed on.


From the landlord's perspective, it is worth to include the provisions of the security deposit payment into the tenancy contract. The amount can be established freely – it is just a matter of negotiations. It should not exceed twelve amounts of the monthly rent of housing premises. In practice, however, no one gets such a high deposits.


This is usually a one-or two amounts of the rent in the case of residential properties, and from one to three rent amounts – in the case of commercial properties.  It all depends of course on the market and on the kind of a real property we are dealing with. The tenant, on the other hand, should pay close attention to the conditions of the return of the deposit and its valorization.


Jakub Jastrzębski





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