The bonds that tie (tenants to landlords)...

Posted By Nikki Montaser

The name’s Bond. Rental Bond. And just like 007, there can be a bit of mystery surrounding these bonds. Just whose money is it? Who can access it? Under what circumstances? They’re a source of confusion for landlords and tenants alike, so here’s a rundown on what you need to know…

A rental bond can be thought of as a security deposit because it provides some financial security for the landlord in case the tenant doesn’t make good on their responsibilities. It’s the payment you should ask tenants to make at the start of a tenancy, and it’s held in trust with the Rental Bond Board (NSW) until the lease ends. It’s paid so there is a sum of money* available in case there’s a breach of the lease agreement, and it can be used to cover costs for which the tenant may be liable at the end of the tenancy – such as damage to the property, outstanding utility use charges or unpaid rent.

*The bond is equivalent to four weeks’ rent in NSW. It should be noted in NSW, that you can longer ask a tenant to pay a pet bond.

And tenants have to pay it?

Yes, the bond is paid by the tenant(s) named on the lease before the tenant moves into the rental. It’s separate from the rent and should not be mistaken as being an ‘upfront’ rental payment. The bond cannot be in any form other than money, such as a written guarantee, although it can be paid as a lump sum or possibly in instalments, depending on the bond authority. It will be held in trust for the duration of the lease.

Heads up: Bond replacement products (such as bond guarantees or bond loans) are not legal in some states and territories. However, bond assistance may be available through a government department.

Is a bond compulsory?

The collection of a bond is not compulsory in all states and territories, but it is standard practice. And, for landlords with insurance, it may be a necessity.

What happens to the money?

The tenant will usually complete a bond lodgement form and receive a receipt once they have paid the bond. When you or your Property Manager have collected the bond, you must lodge it (and the signed paperwork) with the relevant government bond authority within the legislated timeframe – or you can face fines.

In NSW, your Property Manager will lodge the bond online using the Rental Bonds Online portal. The principal tenant will receive an email link to follow and pay the bond amount. The tenant can then make this payment using BPAY or via credit card.

The bond is typically held in a joint account between you and your tenant. The authority will issue an official bond number once the monies are deposited. The bond is released at the end of the tenancy (who can apply for the release varies between jurisdictions, so check the relevant legislation – in NSW both the tenant and landlord can apply for the release of a bond).

What’s the deal if a co-tenant moves out?

If a co-tenant moves out – and they have paid a share of the bond – they will need to talk with the remaining tenant(s), and the landlord or Property Manager, to work out how they can claim their share of the bond before leaving.* It is often simplest for tenants to work out the bond split between themselves so the original amount remains lodged and your Property Manager can process the correct forms to remove your name from the bond.

* In cases of family and domestic violence, the rules may be different. Refer to your state/territory legislation for details.

Does the money belong to the tenant or the landlord?

It’s the answer to this question that can be a source of disagreement between landlords and tenants.

The bond monies being held belong to the tenant(s) but with reason, your Property Manager can make a claim on the funds.

So the tenant gets the money back at the end of the tenancy?

That depends. The bond is paid back to the tenant when the property is vacated, provided no money is owed for rent, damages or other costs. A tenant may receive a full, partial or no refund of the bond monies. It usually takes 2 days in NSW to get the money released, but if there is a claim, that can change to 14 days or longer if there’s a dispute.

For a tenant to get their bond back, they will generally need to:

have no outstanding rental or invoice payments
cause no damage to the property
leave the premises clean and tidy.

At the end of the tenancy, an agreement needs to be made about how the bond will be refunded.

And if there’s a disagreement?

If you and your tenant disagree on how the bond should be refunded, you’ll need to follow the procedure outlined by the relevant government office and begin the dispute resolution process. In NSW, this usually involves one party making a claim at NCAT.

What kinds of reasons are there for landlords to use the bond money?

A bond covers any breaches to the lease agreement caused by the tenant while the property is leased to them. At the end of the tenancy, the bond will be refunded to the tenant in full unless you make a claim against the money.

Landlords can often make a claim against the bond for:

rent arrears (rent that is not up-to-date)
damage to the property caused by the tenant or their guests (fair wear and tear excepted)
cleaning expenses (if the rental was not sufficiently cleaned at the end of the tenancy)
abandonment of the premises by the tenant
cost of replacing locks or other security devices if the tenant altered, removed or added these without your consent
reimbursement if you were forced to pay the tenant’s bills (for example, water bill)
loss of your goods.

You/your Property Manager can only recover an appropriate portion of the bond.

Where does landlord insurance fit in?

Landlord insurance steps in once the bond money has been exhausted (which is why it’s important to collect a bond at the start of the tenancy). Rental bonds offer landlords a level of protection if their tenants break their lease agreement – for example, damage the property or fail to pay rent. Usually, in all but minor cases, the bond is inadequate which makes landlord insurance an important investment, to cover the shortfall.

The information given in this article is general in nature and differs between states and territories. If you have a specific question, please speak to your Property Manager.