Western Australia Commercial Security Deposits: Bond Requirements

Commercial security deposits in Western Australia are primarily governed by the terms of the lease agreement, though retail shop leases are subject to the Commercial Tenancy (Retail Shops) Agreements Act 1985 (which commenced on 1 September 1985). Unlike residential tenancies, there is no government Bond Administrator for commercial leases. The treatment of security differs depending on whether the lease is a retail shop lease or a general commercial lease.

Retail Shop Leases

For leases covered by the Commercial Tenancy (Retail Shops) Agreements Act 1985, the landlord must provide a disclosure statement and a tenant guide at least seven days before the lease is entered into (Section 6). This statement must detail any security deposit requirement. Security deposits for retail shops are strictly regulated under Section 11 of the Act regarding how they are held and returned.

Common Security Forms

• Cash bonds: A lump sum paid upfront. For retail leases, the landlord must keep this deposit in an interest-bearing account with an Authorised Deposit-taking Institution (ADI) in Western Australia.
• Bank guarantees: The tenant's bank provides a guarantee to the landlord for a specified amount. This is a common form for retail leases, as it avoids tying up the tenant's working capital.

Holding the Deposit

Unlike residential bonds, commercial security deposits are not lodged with a government authority.

For retail shop leases, Section 11(1) mandates that the landlord hold the deposit in an interest-bearing account with an ADI in Western Australia. Under Section 11(2), the landlord must account to the tenant for interest earned; any provision in a retail lease that allows the landlord to derive a benefit from the interest earned on a security deposit is void.

For non-retail commercial leases, the landlord holds the deposit directly or through their solicitor's trust account, and interest treatment is subject to the negotiated lease terms.

Return of the Deposit

The timeline for returning the deposit depends on the type of lease:

• Retail Leases: Under Section 11(3), the landlord must return the security deposit and any accrued interest to the tenant "as soon as is practicable" after the lease has ended and the tenant has vacated the premises and performed all lease obligations.
• Non-Retail Leases: The return timeline is dictated by the lease agreement, commonly 30 to 60 days after vacating and completing make-good obligations.

Non-Retail Commercial Leases

For leases not covered by the Retail Shops Act (industrial, large office, etc.), there are no statutory requirements governing security deposits. The amount, form, interest treatment, and return conditions are entirely negotiated between the parties.

Landlords commonly request deposits equivalent to 3 to 6 months' gross rent (including outgoings) for higher-risk tenants, while established businesses may negotiate a lower amount or provide a bank guarantee.

Best Practices for WA Commercial Landlords

1. Clearly define deposit terms in the lease: Specify the amount, form (cash or bank guarantee), holding arrangements, and return timeline. Ensure retail leases comply with Section 11 interest requirements.
2. Require bank guarantees for significant leases: Bank guarantees are more secure than cash deposits and are easier to draw upon in the event of tenant default.
3. Include a top-up clause: If you draw on the security during the lease (e.g., for unpaid rent), require the tenant to restore it to the original amount within a specified timeframe.
4. Document make-good requirements clearly: Many commercial deposit disputes arise from unclear make-good obligations—specify the exact condition the premises must be returned in.

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