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Commercial Rent Deposits Held in Solicitors’ Client Accounts

Mar 01, 2019

The Solicitors Regulation Authority (SRA) has recently updated its advice to law firms in relation to commercial rent deposits held in client accounts.

It says that by offering to hold a rent deposit on behalf of a landlord client, solicitors are, in fact, acting as a bank. As cautious beings, you can imagine the can of worms this opens!

We are now hastily sending rent deposits to our landlord clients with a useful explanatory note. 

  • The funds remain the property of the tenant at all times UNLESS there has been a breach of the lease terms, or the terms of the rent deposit deed, if any. The landlord is therefore advised to keep the funds separate from their trading accounts, although they can be kept in an account with other rent deposits if several properties are owned by the same landlord. 
  • If there is a breach, the landlord can give notice to the tenant, then withdraw the necessary funds from the deposit account. These funds could include legal and other associated costs.
  • Usually, the tenant will then be required to top up the deposit account to replace the withdrawn sum and return the balance to the quoted ‘minimum amount’ (usually a figure of between three to six months’ worth of rent plus the equivalent of VAT).
  • If the lease comes to an end without any breaches, or if the tenant wishes to transfer (assign) their lease to another entity, the rent deposit should be returned to the tenant within a certain amount of time.
  • Interest accrues to the tenant at all times, no matter how small. 

We are always happy to assist landlords with any issues with their commercial tenants. As indicated above, costs for our assistance can usually be covered by the rent deposit funds held by you.

Alison Hare

About the author

Alison Hare

Alison joined Nockolds in 2010 and is a Senior Associate in our Commercial Property Team.

Before joining the firm, Alison studied law at Aberystwyth University ...

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