Cash Security Deposit vs. Bank Guarantee
Today, I discuss the cash vs. bank guarantee dilemma, the hidden risk of cash deposits you may not know, and the essential legal safeguards.
If you have a question, feel free to contact us.
VIDEO TRANSCRIPT
Ross Millen:
I had a query the other day from a commercial landlord and they said, "Is it better for me to get a cash security deposit from my tenant or a bank guarantee?" Now, intuitively, you would think that cash is king. It's better to get the cash, and if the tenant defaults, you've immediately got access to the cash. Whereas with a bank guarantee, you've got to make a claim on it and go to the bank and go through various procedures. But there is a bit of a catch here that people aren't aware of, and that is if your commercial tenant goes broke, goes insolvent, or bankrupt, then the liquidator or the trustee in bankruptcy may be able to claim that cash security deposit back as an asset of the company that's gone into liquidation or the bankrupt.
Now, you can only prevent this if you've lodged a security registration on the PPSR, the Personal and Property Security Register. Now, not a lot of landlords know that, and so not a lot of landlords register. And so if you haven't registered, your cash security deposit is not protected. So sometimes it might be better to get a bank guarantee, because that can be enforced against the bank no matter what happens to your tenant.
So the two takeouts from this are, when getting a new security deposit, perhaps a bank guarantee is better. Or if you have a cash security deposit, make sure you've registered your security interest on the PPSR, or else it won't be any good.
Thanks for listening. I'm Ross Millen, and Millens, we're here to help.
