What Does a Security Deposit Cover?

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Security Deposit

Usually before moving into a rented property, a landlord would require you to put down a deposit. Today we would like to share about what types of deposit is required when renting a residential property. Generally there are two types of deposits required when renting. One is a security deposit, the landlord would typically ask for two months of security deposit. This is used to guarantee against whatever damages caused to the property by the tenant or betterment cost required to be paid by the landlord to return the property and its contents to its original condition to be able to rent it out again to another tenant. 

Under normal circumstances it is not intended to be a cost to the tenant, as technically the landlord is required to return this sum of money to the tenant when the tenancy period ends if there is no repairs or betterment required for the property. Some landlords may even imply that it is required as a security against runaway tenants to cover for rental loss should the tenant actually ‘run away’ within the tenancy period but it should never be the case. So for example if the rental of a residential property is RM1,000 per month, the security deposit required to be paid is RM2,000 on top of the RM1,000 advance rental for the month the tenant is moving in. This security deposit of course is refundable when the tenancy period is over. 

Tenancy period is usually for 12 months or 1 year but is stated in the tenancy agreement as 1+1 years, what does this mean? It means that the active tenancy period is 1 year with an additional 1 year option to renew should both parties mutually agree upon it. If both parties agree to renew the tenancy agreement, they will enter into a new agreement with agreed upon terms and are required to sign a new tenancy agreement document. 

Utilities Deposit

Another deposit usually required by a landlord when executing a tenancy agreement is the utilities deposit. This deposit is usually 50% of the monthly rental. If the rental per month is RM1,000 then the utilities deposit is RM500 and is held in trust by the landlord until the end of the tenancy period. This is to guarantee against any unpaid utilities bills such as electricity and water bills, which are services usually incurred by the tenant while staying in the property. Other expenses such as maintenance fees (high rise and strata buildings), security fees, assessment bills and other taxes are borne by the landlord and are usually not charged to the tenant during their stay. 

Repairs to the property for wear and tear are usually the responsibility of the landlord, such as changing light bulbs and electrical fixtures, leaky faucets and drain pipes and are not deducted from the security deposit unless there is proof that the tenant deliberately and maliciously damaged these items during their stay. However if the tenant attempts to fix these things themselves, they should take a photo for proof that they have fixed the items and attach other documents such as receipts to claim against such repairs from the landlord either in cash or to be deducted from the monthly rental sum.

Booking Deposit

When a tenant has decided to rent a property and both the tenant and landlord agree to initiate a tenancy, a booking deposit (or some may call it an earnest deposit) is collected from the tenant on behalf of the landlord. In normal circumstances if the services of a property agent is used to execute the tenancy agreement, it is collected in cash, cheque in the name of the real estate agency or transferred into the bank account of the agency, never into the property negotiator or agent’s personal bank account as this is illegal. An offer to rent form bearing the agency’s letterhead is signed by both the tenant and landlord with terms and conditions for the tenancy laid out inside. This forms the basis of the tenancy agreement document to be signed by both parties later on to be stamped by the stamp office of the Inland Revenue Board. 

Thereafter the remainder of the refundable deposits are paid by the tenant to the landlord via the agent, which is the balance of the 1 month security deposit and the half month utilities deposit. As mentioned earlier this 2.5 months deposit is held by the landlord until the end of the tenancy period and is refunded back to the tenant if there are no damages to the landlord’s property nor are there any unpaid utilities bills. 

Other Rental Costs

Other costs involved are usually for the admin cost of the tenancy agreement as well as the stamping fees at LHDN (IRB). If the landlord uses the professional service of a real estate agent to execute the tenancy agreement, the landlord is required to pay the agent a commission equivalent to 1 month’s rental. Although this usually comes from the monies paid from the security deposit and advance rental, landlords cannot assume that the security deposit is intended for this purpose and deduct it from monies paid by the tenant. It is a cost that the landlord must bear to acquire a tenant for their property if they use the professional service of an agent for this purpose. 

If you are a landlord or even a tenant, would you like to know if there is an alternative solution to all this? BlueDuck is in the business of Zero Deposit rentals, which means we are here to revolutionize the rental market by doing away with security deposits. 2 years on and 3 thousand tenancies down the road, we are proud to announce that this idea is actually catching fire throughout the country and has been on the upward trend. To know more about how you can benefit from it, do visit us at www.blueduck.my

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