Commercial space security deposit

5 Replies

Originally posted by @Danielle Du Plooy :

Hello! Just wanted to find out what a typical security deposit is for a commercial space when negotiating a lease agreement?

 Normally 1 month.  But if mom and pop tenants I want to push for 2 months even if they have good credit, etc.  Currently in negotiation with a franchisee who has good credit but has a small judgement against her (that was 5 years ago.  She claims it's not her) so I am asking for 2 months security deposit.  They said no way.  I said fine.  So they came back and asked if we can go with 1 month deposit and 2 months of advance rent.  I might be ok with that.

There is not a typical security deposit it is all situational to the asset and tenant base.

Starbucks I would not ask for deposit on my center as lease guarantee is super strong.

I care more with mom and pop tenants about years in the business they are running, how many units they own, personal and business guaranty, full disclosure of all financials business and personal individual locations and parent company. Who will pay TI, when are leasing commissions if any due, who is doing build out work and are they insured properly?

Just tons of stuff more important than security deposit. That is way, way down the list. It's almost an afterthought to me versus lease structure and other metrics. The reality is if the go out of business you typically might go after them for defaulted lease and rent. If you push too hard they might declare bankruptcy for example and you get nothing or next to nothing. Instead attorneys usually offer discounted amount to get out of defaulted lease and personal guarantee where landlord almost has enough to pay for net TI, leasing commissions, attorneys fees with putting new tenant in place.