Retail bond in NSW explained
A retail bond in NSW is a cash security bond a lessee pays under a retail shop lease. Under the Retail Leases Act 1994 (NSW), the lessor must lodge the bond with NSW Fair Trading within 20 business days after receiving it or the lease becoming binding, whichever is later. It can be lodged online through Rental Bonds Online or by paper form. NSW Fair Trading holds the bond until the lease ends and it is released by agreement or by order.
What counts as a retail bond
A security bond is money the lessee pays to secure their obligations under the lease, such as paying rent and doing make good. Under a retail shop lease covered by the Act, a cash bond must be lodged, not held by the lessor.
Not all security is a bond that must be lodged:
| Security | Lodged with NSW Fair Trading? |
|---|---|
| Cash bond (money paid to the lessor or agent) | Yes |
| Bank guarantee | No, held by the lessor under the lease |
| Personal guarantee from a director or owner | No, it is a promise, not money |
Many retail leases ask for a bank guarantee, a personal guarantee or both, instead of or as well as a cash bond. See personal guarantee on a commercial lease for what a guarantor takes on.
How lodgement works
- The lessee pays the bond to the lessor or the lessor’s agent.
- The lessor or agent lodges it with NSW Fair Trading within 20 business days, online or by paper form.
- NSW Fair Trading confirms the lodgement, and the lessee can check it has been lodged.
- NSW Fair Trading holds the bond for the rest of the lease.
The lessor can’t use the money while it is lodged. A lessor who doesn’t lodge a bond on time may face a penalty under the Act.
If you’re a lessee, ask for confirmation that the bond has been lodged. If you don’t receive it, follow it up.
Getting the bond back
At the end of the lease, the bond is paid out according to a claim.
| Situation | What usually happens |
|---|---|
| Lessor and lessee agree how the bond is split | Both sign the claim and NSW Fair Trading pays it out as agreed |
| One party claims and the other doesn’t agree | The other party is told of the claim and has 14 days to dispute it by starting proceedings, such as mediation through the NSW Small Business Commissioner. If no dispute is started, the claim is paid |
| Mediation doesn’t resolve it | The dispute can go to the NSW Civil and Administrative Tribunal (NCAT) or a court, and the bond is paid out under its order |
The lessor can only claim against the bond for amounts the lessee owes under the lease, such as unpaid rent or the cost of make good the lessee didn’t do. Keep records of the condition of the premises when you hand them back.
Negotiating the bond and security in a NSW retail lease? We act for lessors and lessees under the Act, online. Retail leases in NSW.
Bonds when a lease is assigned
If the lessee sells the business and assigns the lease, agree what happens to the bond. The outgoing lessee, the buyer and the lessor can agree whether it is refunded and a new one lodged, or the tenant on the bond is changed. Check the steps with NSW Fair Trading. Deal with it in the assignment documents so it isn’t forgotten. See Retail Leases Act 1994 (NSW) explained for how assignments work under the Act.
Bank guarantee or cash bond?
| Cash bond | Bank guarantee | |
|---|---|---|
| Who holds it | NSW Fair Trading | The lessor, under the lease |
| How the lessor gets paid | Through a claim, with the lessee able to dispute | By calling on the guarantee with the bank, usually on demand |
| Cost to the lessee | The money is tied up for the lease | A bank fee, and the bank usually holds security from the lessee |
| Return at the end | Paid out under the claim process | Returned to the lessee, who gives it back to the bank |
For a lessee, a cash bond lodged with NSW Fair Trading gives a process before the lessor can take the money. A bank guarantee can usually be called on more quickly. For a lessor, the reverse is true. Either way, the lease should say how much security is needed, when it can be used and when it must be returned.
What to check in the lease
- the amount and form of security, and whether it can increase with the rent
- when the lessor can claim against it
- when it must be returned after the lease ends
- what happens to it on an assignment
Questions
Something else? Enquire online or email us.
Does a bank guarantee have to be lodged with NSW Fair Trading?
No. The lodgement rules apply to money paid as a security bond. A bank guarantee is held by the lessor under the terms of the lease.
Can the lessor keep the bond in a trust account instead?
Not for a cash bond under a retail shop lease. It must be lodged with NSW Fair Trading within the time the Act allows.
What if the lessor never lodged my bond?
Raise it with the lessor in writing first. If that doesn't resolve it, contact NSW Fair Trading or the NSW Small Business Commissioner.
Negotiating a retail lease in NSW?
We act for lessors and lessees under the Retail Leases Act 1994, including the security terms, online and on fixed fees. Send us your lease.
Sources
General information only, not legal advice. Every lease is different, so get advice on yours before you sign.