Security Deposits and Guarantees in Kuwait Commercial Leases

In commercial real estate transactions (such as The Avenues, Boulevard complexes, or luxury administrative offices in Kuwait City), the security deposit is not merely an amount to cover electricity bills as it is in the residential sector. Rather, it is a complex credit tool used by property-owning companies to ensure the seriousness of the business and the continuity of the tenant company.

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Legal Prohibition: The "Key Money" (Khuluw Al-Rijl) Amount

The most critical juncture regarding commercial deposits and advances in the State of Kuwait is found in Article (16) of the Rent Law.

• The article explicitly and penally prohibited the landlord from initiating the collection or stipulating the collection of any amount locally and commercially termed "Key Money" (Khuluw Al-Rijl) or "Initial Payment" in excess of the agreed monthly rental value to hand over the commercial shop.
• If it is proven to the court (via cheques or transfers) that the landlord extorted the tenant by demanding, for example, 10,000 Dinars as primary money to open a restaurant in their location, the Rental Court will subsequently deduct this amount from upcoming rent entitlements and consider the landlord a violator of the law.

However, major complexes circumvent this condition with separate contracts titled "marketing fees or technical consultation fees for joining the complex," the true nature of which depends on the conviction of the Rental Court judge.

Alternative Commercial Guarantee Mechanisms in Kuwait

To escape the prohibition dilemma and secure their credit rights, owners of major real estate resort to demanding:

1. Cash Deposit

A lump sum (equivalent to 2 to 3 months of the rental value), kept in cash by the landlord for a period that is not refunded until after the final handover of the premises (Make-Good) and returning it to a "Core & Shell" state, and paying all finishing bills and Fit-out contracting fees.

2. Local Bank Guarantee

Major and foreign companies prefer submitting a certified letter of guarantee from a Kuwaiti bank for a period of one year and a value of several months. If the company absconds or defaults, the landlord immediately liquidates this letter from the bank without waiting for compensation judgments from the Rental Court.

3. Crossed Cheques as a Guarantee

A cheque with no date issued but written in the name of the landlord. This is not recommended for companies because it exposes the company manager to criminal accountability if the cheque bounces due to insufficient funds at the police station (misdemeanor cheque cases). It is a highly dangerous pressure tool in Kuwait that is best replaced by a Bank Guarantee.

Returning the Deposit and "Commercial Clearance"

To release funds upon eviction, Kuwaiti real estate management companies are stringent in demanding a (Clearance Certificate - Baraat Thimma):

• A clearance from subcontractors to ensure no precautionary attachment is placed on the landlord's shop.
• A receiving report from the Fire Department (Civil Defense) confirming the safety of the shop's equipment.
• Proof of canceling the licenses from the landlord affiliated with the address from the Municipality and Commerce (so the address does not remain suspended to the previous company, preventing the landlord from renting it anew).

Landager software for the commercial sector provides the ability to "lock the account" and automatically withhold the deposit on the system until the landlord's employees complete the commercial (Move-out Checklist) to protect the complex from any surprises.

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