Security bonds can be a mystery for new landlords.

Many first-time investment property owners know that tenants are required to pay an amount of money at the beginning of their tenancy, and are likely to have it refunded to them at the completion of the lease.

However, where this money goes in the interim, why it has to be held, and in what circumstances it is to be retained can often cause confusion.

Ensuring tenants pay a security bond before leasing a property is an important step to help landlords safeguard their investment properties.

As soon as a landlord secures a lease for the property, they are entitled to request a security bond from the tenants.

A security bond is intended to cover the landlord if the tenant does not fulfil their obligations of the rental agreement.

It can also provide landlords with some level of financial protection if their tenants cause damage to the property or owe money at the end of the tenancy. The promise of a refund at the completion of the lease may also deter tenants from absconding.

The following tips may assist landlords ensure the security bond payment and refund process goes smoothly:

• Paperwork

Completing the required paperwork is essential when it comes to security bonds.

For example, the bond amount must be stipulated in the lease agreement – even if it was clearly listed when the property was advertised.

This ensures potential tenants are aware of the amount they are required to pay upfront so there are no surprises.

Once tenants have paid the bond, it is also important to issue a hard-copy receipt so you and your tenants have a written record of the transaction if any disputes arise during the tenancy.

Don’t forget to include the tenant’s name, the date the bond was paid, the amount that was paid, the address of the leased property and your signature.

• Talk it through

Meeting with your tenants and explaining the security bond process to them can help to reduce any confusion.

Talk through the process with your tenants in person, as it will give them the opportunity to ask you questions.

The more your tenants understand about the purpose of security bonds, the more likely they are to treat your property better so they receive their refund at the completion of the lease.

A good time to do this is when you meet to discuss and sign the lease agreement.

• Lodge the bond quickly

All bonds received by landlords are required to be lodged with the appropriate residential tenancy authority in the state or territory of the leased property.

Penalties may be imposed if you deposit the bond into your personal bank account or fail to lodge it within the timeframe required by law in the relevant state or territory, so ensure this is actioned as soon as possible.

To find out more about how to lodge a bond, contact your local tenancy authority.

• Rent and bond increases

Landlords are able to increase the bond amount at the same time they implement rental increases.

As a general rule, a security bond will amount to the equivalent of four to six weeks worth of rental payments for the property being leased.

This means that if a tenant falls into arrears and absconds, the relevant number of weeks of lost rental income can easily be recovered from the bond.

Landlords who raise their rent may also wish to request additional funds for the bond.

Don’t forget to provide tenants with written notice of the security bond increase in the timeframe required by legislation in your state or territory and to lodge the additional funds with the relevant tenancy authority.

• Be sure before you refund pushy

Tenants can become insistent when requesting their bond back at the completion of a lease.

However, take your time to ensure you are 100% confident that they have fulfilled their obligations of the lease before you do so.

If you are satisfied with the property after the final inspection, an application should be submitted to the residential tenancy authority to reclaim the bond, which should then be promptly refunded to the tenant.

If you believe there are any discrepancies, an application must be put to the relevant authority to request any associated costs be subtracted from the bond. The balance can then be refunded to the tenant.

• Ensure you are insured

However, landlords should not rely solely on the bond.

While bonds offer some level of financial protection, more often than not when a landlord lodges an insurance claim, their loss is greater than the bond amount.

In this case, landlords who don’t have a tailored landlord insurance policy in place would be left out of pocket.

Landlord insurance can help to cover landlords for malicious damage by tenants, accidental damage, legal liability for occurrences on the property that cause death or bodily injury, and loss of rental income as a result of property damage or a tenant absconding.

For further information, visit or call 1800 804 016.

Press Release By Carolyn Majda, Manager, Terri Scheer Insurance

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