Rental Deposits Explained: Protecting Both Landlords and Tenants

Rental Deposits Explained: Protecting Both Landlords and Tenants

Rental deposits play a central role in both residential and commercial lease agreements. When managed correctly, a deposit protects the landlord’s investment while giving the tenant confidence that their money is safe, regulated, and refundable. When handled incorrectly, deposits are one of the biggest causes of disputes in rental property.

At Prestige Real Estate, we believe that clarity, compliance, and professional management are the foundation of successful tenancies.

The Purpose of a Rental Deposit

A rental deposit is paid by a tenant prior to occupation of a property and serves as security for the landlord against potential losses arising from the tenancy. These may include unpaid rental, utilities, property damage beyond fair wear and tear, lost keys or access devices, or early termination of the lease.

From a tenant’s perspective, the deposit creates accountability while offering reassurance that, if the lease terms are honoured and the property is returned in an acceptable condition, the deposit will be refunded together with any interest due.

How Deposit Amounts Are Determined

South African law does not prescribe a fixed amount for rental deposits. Instead, the amount is agreed upon by the parties and recorded in the lease agreement.

In residential leases, deposits commonly range between one and two months’ rental, depending on factors such as the tenant’s rental history, credit profile, and the overall risk associated with the tenancy.

In commercial leases, deposits are typically higher due to increased operational risk, potential property modifications, longer lease terms, and greater financial exposure should a tenant default. Commercial deposits are negotiated contractually and may include escalation or top-up provisions in line with rental increases.

Where Rental Deposits Must Be Held

For residential property, the law is explicit:
Residential landlords or managing agents are legally required to place rental deposits in an interest-bearing trust account with a financial institution.

The deposit:

• Must remain intact for the duration of the lease
• May not be utilised during the lease period
• Must earn interest for the benefit of the tenant
• Must be fully accounted for at all times

Using a residential deposit for any purpose during the lease — including offsetting monthly rental — is a breach of the Rental Housing Act.

Failure to hold a residential deposit in an interest-bearing trust account constitutes non-compliance with the Rental Housing Act and exposes landlords and agents to disputes and legal risk.

For commercial property, deposits are governed primarily by the lease agreement. While commercial deposits are also required to be held securely, the specific structure and interest treatment are contract-driven rather than statutory.

At Prestige Real Estate, all residential deposits are administered strictly through interest-bearing trust accounts, ensuring full legal compliance, transparency, and protection for both landlords and tenants.

Deposit Top-Ups Linked to Rental Increases

Where a lease provides for annual rental increases, it is common practice for the deposit to be adjusted in the same proportion as the rental escalation. This ensures that the deposit continues to reflect the current rental value and remains adequate security for the landlord throughout the lease term.

In such cases, the tenant is required to pay the deposit top-up at the same time as the first increased rental payment for the new lease year. The top-up does not replace the original deposit but forms part of the total deposit held in trust.

Interest on Rental Deposits

For residential leases, the interest accrued on a deposit belongs to the tenant, unless otherwise agreed in writing.

Tenants are legally entitled to request:

• Proof of the account where the deposit is held
• Confirmation of interest accrued during the lease

While residential legislation clearly states that interest accrued on deposits belongs to the tenant, commercial deposits operate differently.

Commercial deposits must still be held securely, typically in a trust or designated account. However, unless otherwise stated in the lease:

• The landlord is not automatically obliged to pay the accrued interest to the tenant
• The treatment of interest must be clearly outlined in the lease agreement

This makes professional lease drafting critical, as ambiguity around interest is a common source of disputes in commercial tenancies.

For commercial leases, interest treatment depends on what is stated in the lease agreement. While deposits are commonly held in interest-bearing accounts, there is no automatic obligation for the interest to be paid to the tenant unless expressly agreed.

Clear drafting and professional oversight are therefore essential in commercial leasing.

Inspections: The Key to Fair Deposit Outcomes

Deposits and inspections go hand in hand.

To lawfully deduct from a deposit, two inspections are required:

1. Entry inspection — before occupation
2. Exit inspection — at the end of the lease

These inspections must be:

• Documented with written reports and photographs
• Signed by both parties

Without proper inspections, a landlord may lose the right to claim for damages. At the end of the lease, landlords are entitled to ensure the property is returned in the agreed condition, subject to the terms of the lease.

At Prestige Real Estate, we conduct detailed, professional inspections, ensuring accurate condition reporting and protecting our clients from unnecessary disputes.

What a Deposit May — and May Not — Be Used For

A rental deposit may only be applied to legitimate, lease-related costs after the lease has ended, including:

• Repairing tenant-caused damage beyond fair wear and tear
• Replacing lost keys, remotes, or access devices
• Settling outstanding rental or utility charges
• Costs arising from breach or early termination of the lease

A deposit may not:

• Be used as monthly rental
• Be applied in place of the final month’s rent
• Be offset against rent during the active term of the lease
• Be used for routine maintenance or upgrades

All deductions must be supported by actual invoices or receipts and made available to the tenant on request. Using the deposit as rent during the lease period is a breach of the lease and, in residential leasing, a contravention of the law.

Timeframes for Refunds

The timing of deposit refunds depends on the condition of the property and whether deductions are required.

In residential leases:

• If there are no damages or outstanding amounts, the deposit must be refunded within seven days of lease termination
• If repairs are required, the balance of the deposit must be refunded within fourteen days after the repairs have been completed
• If the tenant fails to attend the exit inspection, the landlord must inspect within seven days and refund the deposit within twenty-one days

A deposit can only be held longer if repairs are actually being done — and it must be refunded within 14 days after those repairs are finished.

The landlord must:

• Complete repairs promptly
• Keep invoices/receipts
• Refund the balance immediately once repairs are done

Commercial lease refund timelines are governed by the lease agreement and typically depend on the extent of repairs, reinstatement, or outstanding accounts.

For commercial leases, refund timelines depend on:

• The lease agreement
• Reinstatement clauses
• Outstanding accounts

Commercial deposits may legitimately be held longer if the lease allows it, especially where reinstatement works are complex — but this must be clearly set out in the contract.

Disputes Are Preventable

Most deposit disputes arise from:

• Poorly drafted leases
• Lack of inspections
• Unclear communication
• Informal handling of deposits

Professional management significantly reduces this risk by ensuring:

• Deposits are correctly held in trust
• Inspections are properly documented
• Deductions are lawful and transparent

Professional Management and Risk Control

Managing rental deposits carries legal, financial, and fiduciary responsibilities — particularly in residential leasing where trust account compliance is mandatory.

Professional property management ensures:

• Deposits are correctly held in interest-bearing trust accounts
• Monthly rentals are collected separately and accounted for correctly
• Inspections are properly documented
• Deductions are lawful and supported by invoices
• Deposits are refunded within prescribed timeframes

Commercial deposits involve higher values, more complex risk considerations, and stricter contractual interpretation. Errors in handling deposits, interest, or inspections can expose both landlords and tenants to unnecessary financial and legal risk.

At Prestige Real Estate, commercial deposits are managed with:

• Proper trust account handling
• Clear lease provisions
• Structured deposit frameworks
• Documented inspections
• Transparent reconciliation at lease end

This approach protects landlord investments while giving commercial tenants clarity and certainty throughout the lease period.

At Prestige Real Estate, deposit administration is handled with precision, transparency, and strict adherence to legislation — protecting landlords while ensuring tenants are treated fairly.