Use of security deposit funds held in landlord's bank account

[JIT]

Hi there,

If I sign a tenant up on a lease with a 6 month security deposit held in my bank account, and I also offered a 6 month rent-free period, can I use the security deposit funds in my bank account to help pay my loan interest costs during the first 6 months of the lease (ie. during the rent-free period) and later on top-up the security deposit back to the original amount held in my bank account?

Thanks.

 

[Terry_w]

If residential then it would be a requirement to lodge with the rental bond board, or similar, in Vic.

 

[JIT]

If residential then it would be a requirement to lodge with the rental bond board, or similar, in Vic.

Thanks Terry, I am referring to commercial property here.

 

[Aaron_C]

It depends if it is a retail lease or not. If it is, then you cannot use the money for other purposes but you can use the interest for yourself. If it is not, then you can do whatever the lease stipulates. See: http://www.austlii.edu.au/au/legis/vic/consol_act/rla2003135/s24.html

 

[John M]

Does the lease say anything about this at all?

In most cases, agents can't even take their commission out of the bond when leasing a premises - the bond usually has to stay as a whole and must remain in a trust account for the length of the lease. If the bond is put in an interest-bearing account, the tenant is entitled to part of the interest earned.

Melbourne could be different.

 

[Scott No Mates]

Sorry to contradict you John, you need to refer to the lease to see if it directs you as to what is to be done with the bond, its form eg bank guarantee etc. Often, it may stipulate that interest is to be paid to the tenant/added to the bond/split between parties - check the tax implications if you receive interest.

If you use the bond for purposes other than security (and contrary to the lease provisions) you may be in breach (esp. retail leases act). Devil's advocate - if the property burns down and causes the lease to be terminated, how does the tenant get their bond back if you have used it to pay down your loan? Yes, it may save you some interest but is the risk worth it?

 

[Aaron_C]

how does the tenant get their bond back if you have used it to pay down your loan?

Redraw.