Understanding the tenant’s security bond

By Hayden Groves – REIWA President    https://reiwa.com.au/

When taking on a residential tenancy, typically the owner requires the tenant to pay a security bond upfront which equates to about four weeks rent.

The purpose of the bond is to provide the owner with an opportunity to mitigate any losses should they be incurred by the tenant. These losses may include damage to the property (inside and out) or the non-payment of rent.

The bond is not kept by the owner or managing agent, instead it is paid to the Government Bond Administrator, which is a specific government-managed trust account. Landlords and property managers who fail to comply with this provision face severe penalties. A recent example of this resulted in the owner of self-managed rental properties being fined $24,000 for the misuse of bond monies.

Typically, tenants receive their bond money back at the end of the tenancy once the managing agent has inspected the property to ensure it is in the same condition as at the commencement of the lease (taking into account fair wear and tear). The state of the property is checked against the Property Condition Report (PCR) – a mandatory document required to be completed at the start of a new tenancy. The completed PCR is agreed to and signed by the landlord (or the managing agent on their behalf) and tenant at the commencement of the lease.

Sometimes an outgoing tenant’s view of what constitutes ‘fair’ depreciation differs to that of the owner’s view, which can lead to a disagreement over how the bond is disbursed. If a bond inspection reveals the tenant failed to, for example, clean the oven or mow the lawn, the tenant should be given the opportunity to correct this. Sometimes the tenant will leave these smaller tasks to the owner and give permission for the costs of rectifying them to be deducted from the bond.

Occasionally, however, an agreement cannot be reached and the manner in which the bond is disbursed remains in dispute. In these situations, the PCR is relied upon to determine whether, for example, the carpet was stained during the term of the tenancy. It may have been stained prior, but if not noted in the PCR, it is difficult for the tenant to disprove responsibility. In the event of an unresolved dispute, the courts will ultimately decide the allocation of bond monies.

It is important tenants ensure the PCR is accurate at the commencement of the lease. Make sure you agree with each item listed in the PCR and bring any items you think may have been overlooked to the attention of your property manager.

If you make every effort to return the property to the owner in the best possible manner at the end of the tenancy, you are in a good position to have your bond refunded in full.

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