• September 13, 2020

Lesson: Security Deposits from a Tenant’s Perspective

Lesson: Security Deposits from a Tenant’s Perspective

Tenants, your job is to be prepared to provide your landlord with authoritative financial documentation that will allow the landlord to know if it’s wise to enter into a financial relationship with you for a term of years. Put another way, you need to give the landlord the financial “warm and fuzzies.” Tenants also need to remember that there are both costs to securing the deposit and thereafter, the cost of having the money tied up. Right now, you’re not even getting one percent if your money is in the bank, so some tenants will look at it as it’s not the end of the world that I’m giving the money to the landlord. However, cash is king and you like to have as much of that cash as possible.

Let’s talk about the instance where the landlord is insisting that you put up a larger amount of security deposit than you’re comfortable with. Whether or not you’re a fan of hip hop artist Kid Cudi or The Trammps 1999 version of the song “Burn Baby Burn,” tenants should attempt to include a security deposit burndown clause. That means that if you’ve been fighting with a landlord over whether you’re going to give six (6) or nine (9) months of security – if you end up losing the battle and you have to go to nine (9) months – what you need to do is negotiate that after the first few years of the lease, if you are not in default as a tenant beyond any applicable notice and cure period, that the landlord will adopt your burn baby burn mantra and reduce your security deposit after the third (3rd) year if you’re not then in default – from nine (9) months to six (6) months – either by getting the money back or having it credited towards your rent. No one says that you only have to have this burn baby burn mantra once. You can sit there and say to the landlord, ok, I already got the first burn down, but after I’ve been an upstanding tenant for five (5) years or six (6) years, there’s simply no reason that the landlord needs to have six (6) months of security deposit. So you can ask again, that if you’re not in default after a certain time period, let’s say five (5) or six (6) years, beyond the expiration of any applicable notice and cure period, that landlord will further reduce your security deposit from six (6) months down to four (4) months.

Remember that after a certain date, the landlord has recouped its initial upfront costs. So, along with the fact that the tenant is in good standing accordingly, the initial larger security deposit that was required of you as a tenant back at the start of the term is not really necessary. The logic is sound; the tenant just needs to charm its future landlord into believing in it.

As an aside: I represent a number of non-profits and trade associates, and there are landlords that actually ask if an employee who works for such an entity will sign a good guy guaranty (“GGG”). How can they, when the people who work for these entities are really just employees that don’t control the entity? If you can’t control the entity from moving out of the space, if you’re no longer a rent-paying tenant, you can’t sign a GGG. As a consequence, if the landlord is not secure with the financials of that non-profit or trade association, there’s going to be a trade-off and the tenant will have to give more in the way of security deposit.

Terms of Use, Refund Policy & Privacy Policy