The Rent Review Specialist
Authorised Guarantee Agreement
Rent Deposit
A rent deposit is a sum of money that is provided by the tenant to the landlord as security for payment of the rent and other moneys per the covenants in the lease. The rent deposit deed records the circumstances in which the landlord can draw against this money and the conditions that must be satisfied for the deposit to be repaid to the tenant. The rent deposit deed is generally made between landlord and tenant only. Occasionally a guarantor may join in the deed
A rent deposit is attractive to landlords because it is an immediately accessible source of money that can be withdrawn as soon as the tenant is in breach of a relevant covenant in the lease. There is no need to take legal proceedings to recover the debt or secure performance of the obligation.
The amount of deposit can vary depending upon the circumstances, but is commonly equivalent to at least 3 months or 6 months rent. There are three types of structure for rent deposits:
1) the charge - a deposit is held in a separate account and is charged by the tenant to the landlord, and the account is usually administered by the landlord or its agent. Provided the charge has been registered at Companies House within 21 days of its creation, the landlord has security the landlord has security upon the tenant's insolvency, but the landlord cannot withdraw from the account without leave of the court if the tenant is in administration. The tenant is protected from the landlord's insolvency as the money remains the tenant’s property.
2) the trust - the deposit is paid to the landlord who agrees to hold the deposit on trust for the tenant. The tenant is usually protected if the landlord becomes insolvent, but the deposit must be paid into a separate identifiable account.
3) landlord's property - the deposit is paid over to the landlord and becomes the landlord's property to be held in an account with other monies, typically to be used for certain purposes and expressed to be repayable in certain circumstances. A rent deposit does not belong to the landlord, but remains the property of the tenant and can only be used by the landlord in the event of tenant’s default per the terms of the rent deposit deed. (Consequently, well-advised tenants will want to avoid this kind of deposit arrangement because it is vulnerable to landlord insolvency so could be used to pay the landlord’s other creditors.)
The deposit amount may be free of interest so not necessarily held in an interest-bearing account. Where interest is paid, the amount of interest would accrue to the principal and (depending upon what is agreed) either not repaid to the tenant until ending of the deposit arrangement or whenever the amount of interest that is accumulated exceeds an administrative realistic sum.
The terms and conditions for the deposit are normally recorded in a separate deed, the costs of which would be borne by the tenant, the costs should include administration of the deed. Generally, the deposit would be refundable either after a period of time, perhaps 3 years, or assignment or termination of the tenancy.
Since the object of a rent deposit is to protect the landlord in the event of tenant non-payment of rent and other monies properly payable under the lease, there is often a condition in the deposit deed that in the event the landlord needs to use the deposit the tenant would top-up the deposit to its full (original) amount. Similarly, since the amount of deposit at the onset would normally be related to the initial or passing rent payable, (such as 3 or 6 months’ rent) there is often a requirement for the tenant to top up the amount of deposit within a specified period to take account of any increase in rent at review so as to maintain that rental relationship.
Whether the amount of deposit would be topped up following increase in rent at review depends upon the landlord’s memory and the tenant’s conscientiousness. Often the requirement is overlooked: in any event since tenants normally only part with capital when required to, and may not have the money to spare later, it may be too much to expect voluntary compliance with the terms of the deposit deed.
A rent deposit may be obtained either on a new letting or from the (proposed) assignee on assignment of an existing tenancy. Interestingly, where the outgoing tenant, on assignment, completes an Authorised Guarantee Agreement (AGA), rarely is there any requirement in the terms of the AGA for the outgoing tenant to deposit any funds in connection with the AGA.
A rent deposit is attractive to landlords because it is an immediately accessible source of money that can be withdrawn as soon as the tenant is in breach of a relevant covenant in the lease. There is no need to take legal proceedings to recover the debt or secure performance of the obligation.
The amount of deposit can vary depending upon the circumstances, but is commonly equivalent to at least 3 months or 6 months rent. There are three types of structure for rent deposits:
1) the charge - a deposit is held in a separate account and is charged by the tenant to the landlord, and the account is usually administered by the landlord or its agent. Provided the charge has been registered at Companies House within 21 days of its creation, the landlord has security the landlord has security upon the tenant's insolvency, but the landlord cannot withdraw from the account without leave of the court if the tenant is in administration. The tenant is protected from the landlord's insolvency as the money remains the tenant’s property.
2) the trust - the deposit is paid to the landlord who agrees to hold the deposit on trust for the tenant. The tenant is usually protected if the landlord becomes insolvent, but the deposit must be paid into a separate identifiable account.
3) landlord's property - the deposit is paid over to the landlord and becomes the landlord's property to be held in an account with other monies, typically to be used for certain purposes and expressed to be repayable in certain circumstances. A rent deposit does not belong to the landlord, but remains the property of the tenant and can only be used by the landlord in the event of tenant’s default per the terms of the rent deposit deed. (Consequently, well-advised tenants will want to avoid this kind of deposit arrangement because it is vulnerable to landlord insolvency so could be used to pay the landlord’s other creditors.)
The deposit amount may be free of interest so not necessarily held in an interest-bearing account. Where interest is paid, the amount of interest would accrue to the principal and (depending upon what is agreed) either not repaid to the tenant until ending of the deposit arrangement or whenever the amount of interest that is accumulated exceeds an administrative realistic sum.
The terms and conditions for the deposit are normally recorded in a separate deed, the costs of which would be borne by the tenant, the costs should include administration of the deed. Generally, the deposit would be refundable either after a period of time, perhaps 3 years, or assignment or termination of the tenancy.
Since the object of a rent deposit is to protect the landlord in the event of tenant non-payment of rent and other monies properly payable under the lease, there is often a condition in the deposit deed that in the event the landlord needs to use the deposit the tenant would top-up the deposit to its full (original) amount. Similarly, since the amount of deposit at the onset would normally be related to the initial or passing rent payable, (such as 3 or 6 months’ rent) there is often a requirement for the tenant to top up the amount of deposit within a specified period to take account of any increase in rent at review so as to maintain that rental relationship.
Whether the amount of deposit would be topped up following increase in rent at review depends upon the landlord’s memory and the tenant’s conscientiousness. Often the requirement is overlooked: in any event since tenants normally only part with capital when required to, and may not have the money to spare later, it may be too much to expect voluntary compliance with the terms of the deposit deed.
A rent deposit may be obtained either on a new letting or from the (proposed) assignee on assignment of an existing tenancy. Interestingly, where the outgoing tenant, on assignment, completes an Authorised Guarantee Agreement (AGA), rarely is there any requirement in the terms of the AGA for the outgoing tenant to deposit any funds in connection with the AGA.
Authorised Guarantee Agreement
An Authorised Guarantee Agreement (known as an "AGA") is an agreement incorporated into a lease where the first or outgoing tenant (A) agrees to guarantee the performance of the terms of the tenancy by the assignee (in practice, remaining liable for the rent and other terms of the tenancy) for the duration of the assignee (B) interest in the tenancy. When (B) assigns to (C), A's liability ceases and B becomes the guarantor for C, and so on. In the event of assignee default, the AGA will normally entitle the guarantor to take over the remainder of the term of the tenancy.
AGAs were introduced in January 1996 when the law relating to privity of contract was reformed, per the Landlord and Tenant (Covenants) Act 1995.
The tenant cannot be required s to give such a guarantor unless the lease expressly provides for an AGA.
AGAs were introduced in January 1996 when the law relating to privity of contract was reformed, per the Landlord and Tenant (Covenants) Act 1995.
The tenant cannot be required s to give such a guarantor unless the lease expressly provides for an AGA.