Home Info Centre Rental bonds: 10 questions asked and answered
Rental bonds: 10 questions asked and answered
Insurance insights

Rental bonds: 10 questions asked and answered

30 Jul 2020 7 mins read

This is what you need to know about the bonds that tie tenants to landlords... and what it has to do with landlord insurance.

Rental bonds cause confusion among landlords and tenants. Just what is the bond?  What is it used for? And who can access the monies? These are common queries, with the latter often being the catalyst for argy-bargy. To help reduce the risk of conflict, we’ve put together 10 FAQs on rental bonds (and we explain why it is our business too!).

NOTE: This is general information only. Landlords and tenants should refer to the applicable tenancy laws and residential tenancy authority in their state or territory for specific details on all bond matters.

What is a rental bond?

A rental bond (or security deposit) is a payment the tenant is required to make when signing up for a rental property.. The bond is a form of financial protection in case there is a breach of the lease agreement and is used to cover any costs for which the tenant may be liable at the end of the tenancy, such as damage to the property, outstanding utility usage charges or unpaid rent. The bond is usually paid by the tenant to the landlord or property manager before the tenant moves into the rental. It is separate to the weekly rent and should not be mistaken as being an ‘upfront’ rental payment. The bond cannot be in any form other than money, and will be held for the duration of the lease.

How much is the bond?

The bond amount must be specified in the lease agreement and the maximum amount of the bond can vary from state to state, though it is typically equivalent to four weeks’ rent. The amount of the bond will sometimes be determined by the weekly rent, or may vary depending on the type of property being rented or the type of lease. In some jurisdictions, landlords can request additional bonds such as for pets or if the property is furnished.

Who pays the rental bond? Whose money is it?

Tenants named on the lease are responsible for paying the bond. In the case of co-tenants, each one is generally responsible for paying their share of the bond. The tenant will usually complete a bond lodgement form and should obtain a receipt, once they have paid the bond, from their landlord or property manager. The monies held belong to the tenant(s) and the landlord/property manager cannot take money from the bond unless they have good reason.

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.

Who collects the bond?

The bond is collected by the landlord or property manager. They are then responsible for lodging the bond with the relevant government bond authority within the legislated timeframe. Failure to lodge the bond in time may incur fines.

Who holds the bond?

All bonds must be lodged with the state/territory bond administrator:

  • Australian Capital Territory – Office of Rental Bonds (lodgement within two weeks for landlords, four weeks for agents)
  • New South Wales – Office of Fair Trading (lodgement within 10 working days)
  • Northern Territory – held by landlord or property manager (receipt must be given to tenant)
  • Queensland – Residential Tenancies Authority (lodgement within 10 days)
  • South Australia – Consumer and Business Services (lodgement within two weeks for landlords, four weeks for registered agents)
  • Tasmania – Rental Deposit Authority (lodgement within 10 working days)
  • Victoria – Residential Tenancies Bond Authority (lodgement within 10 business days)
  • Western Australia – Consumer Affairs Bond Administrator (lodgement within 14 days)

The bond is typically held in a joint account between the landlord and tenant. The authority will issue an official bond number once the monies are deposited.

FYI: Interest that accrues for the term of the tenancy is often used to fund tenant advocacy groups.

What happens if a co-tenant moves out?

If a co-tenant moves out – and they have paid a share of the bond – a change of bond arrangement form will need to be completed in order to refund the departing tenant’s share and lodge the new tenant’s contribution. If there is no new tenant, then the existing tenant(s) are responsible for ‘topping up’ the bond. 

When is the bond released? And to whom?

Bonds are released at the end of the tenancy. 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 nil refund of the bond monies.

In order for a tenant to get their bond back, they will generally need to:

  • pay their rent on time
  • cause no damage to the property
  • show the bond receipt
  • provide a detailed condition report
  • leave the property in a clean and tidy condition (usually the tenant is required to do a professional end of lease clean and provide proof)

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

When can a landlord claim against the bond?   

At the end of the tenancy, the bond will be refunded to the tenant in full unless the landlord makes a claim against the money.

Landlords and property managers can often make a claim against the bond for:

  • rent arrears (rent is not up-to-date)
  • damage to the property caused by the tenant or their guests (NOTE: landlords cannot claim for fair wear and tear)
  • cleaning expenses (if the rental was not sufficiently cleaned at the end of the tenancy)
  • abandonment of the premises by the tenant
  • reimbursement if the landlord was forced to pay the tenant’s bills
  • loss of landlord’s goods.
What happens if there is disagreement about the refund of the bond?

If the landlord (or the property manager who is acting on behalf of the landlord) and tenant disagree on how the bond should be refunded, they need to follow the procedures outlined by the relevant government office and begin the dispute resolution process.

What’s the deal with landlord insurance and rental bonds?

Rental bonds offer a level of protection if tenants break their lease agreement e.g. the tenant damages the property or fails to pay their rent. The bond provides a financial safety-net from which some costs incurred can be recouped. In many instances the bond will be insufficient to cover costs and the landlord could be left out-of-pocket, either footing the bills or pursuing the tenants through the courts. Usually, in all but minor cases, the bond is inadequate which makes landlord insurance an important investment.

Although the collection of a bond is not compulsory in all states and territories, making sure you collect the right amount of bond at the start of a tenancy ensures your policy responds effectively when it comes time to make a claim. Failing to retain a bond can cause your claim to be reduced by the amount of the bond, or even refused (it is a condition of EBM RentCover policies that a four week bond be collected at the time of signing a new lease agreement).

TIP: At EBM RentCover, we allow our clients to use the bond to cover expenses that are not covered under the policy, like cleaning, rubbish removal and reletting fees. However, if the bond is not needed for additional losses or clean-up, we may deduct it from the final payout. This is not the stance of all landlord insurance providers and you should read your PDS to determine how the bond is used in certain claim scenarios.

At EBM RentCover we educate clients about the unknown and add value by being a voice of knowledge in times of uncertainty.

Main photo by Melissa Walker Horn on Unsplash

*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are there, contact 1800 661 662 if you have any questions. 

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