If you are an existing landlord or tenant, you probably know what rental bond is. If you haven’t, in this market insight we discuss what a rental bond is and how they are used.
What is a rental bond?
A rental bond is a payment the tenant makes when signing up for a rental property. If you want to rent a property most landlords will ask you to pay a rental bond before you move in.
The rental bond is a form of financial protection in case there is a breach of the lease agreement.
It is used to cover any costs for which the tenant may be liable at the end of the tenancy. Examples include, a professional cleaner to restore the tidiness to its initial state, damages to the property such as holes in walls or mistreated appliances. It could also be to meet any outstanding utility costs or unpaid rent.
The rental bond is generally paid by the tenant to the property manager or sometimes to the landlord directly. It is paid before the tenant moves into the property. Some new tenants assume the rental bond is the first upfront rental payment, but this is not the case. The rental bond can only be paid in cash. You cannot pay this in any other form of asset. Once paid, the deposit bond is held throughout the full duration of the lease.
How much will the rental bond cost?
The rental bond is always outlined clearly in the tenancy agreement. You should read through the agreement thoroughly before signing. The amount owed is generally determined by the weekly rent. In most cases its four weeks rent paid upfront.
What happens with the rental bond during the lease?
Once the landlord and tenant have agreed to commence a tenancy agreement, the tenant would complete a bond lodgement form accompanied with paying the rental bond. The landlord or property manager would then be responsible for lodging the bond with the relevant government bond authority within the legislated time frame. Failure to lodge the bond in time may incur fines.
At no stage during the lease, can the landlord or property manager access those funds. The rental bond remains in the ownership of a tenant typically held in a joint account between the landlord and tenant .
In Melbourne a rental bond is lodged through the Residential Tenancies Bond Authority. Other states are territories have different authorities to deal with.
When is the rental bond released?
The rental bond is released at the end of the tenancy or lease agreement. If the property is left in the same or similar condition as it was prior to the lease and rent is paid to date, the deposit bond is paid back to the tenant. If there are damages caused by the tenant during their tenancy, they may have to pay for damages to be repaired. This can be deducted from deposit fund.
For a tenant to receive all of their rental bond they will need to ensure:
- The rent is paid up to date
- The property has no damages or issues
- Complete a condition report, confirming the state of the property is similar to the start of the tenancy
- They leave the property in a clean state. Examples may be to steam clean the carpets or to hire a professional cleaner.
An agreement needs to take place to finalise the rental bond refund. If the landlord and tenant cannot come to an agreement, they will need to file proceedings with their relevant government authorities and commence a dispute resolution.
NOTE: This is general information only. Landlords and tenants should refer to the applicable tenancy laws and residential tenancy authority in their state or territory for specific details on all bond matters.
Given the complexities to understand the laws and regulations in place to protect both the landlord and tenant, we strongly recommend landlords employ a property manager. They will know how to manage the rental bond and more importantly assist you if an agreement cannot be made at the end of a tenancy. The Residential Tenancies Bond Authority can be very in-depth and confusing.
While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you want to learn more please contact us. We welcome the opportunity to assist you.
October 2020
