Managing the bond

02 Jul Managing the bond

For a landlord, there are three key components in risk management at the start of a tenancy.  One is the lease document, the second is the entry condition report and the third is the bond.  Going easy on any of these things may cause headaches at the end of the tenancy.  Today we’ll focus on the bond.

A bond is a security deposit that acts as a incentive for tenants to abide by the terms of lease, especially with regard to rent payments and care of the property.  A bond is and remains the tenant’s money.  Because of this principle, bonds must be lodged in accordance with state legislation and should be disbursed as soon as possible once the tenant vacates.  This point is often missed by many property managers and landlords.

Is a bond compulsory?

The short answer is no.  As a landlord you are not compelled to have a tenant pay a bond.  It is one of the few legislative matters that you can opt out of.  But frankly, a landlord who does not collect a bond is asking for trouble. It is essential that you collect the full quota of bond in a single payment; ideally when the lease is signed and certainly before any keys to the property are handed over.  NO BOND = NO KEYS

Should you accept a bond loan? 

Bond loan schemes, especially those operated by state governments, are a perfectly sound option.  Typically these schemes are operated by state housing departments and are designed to assist people on low incomes to secure a rental property.  It is often the case that a tenant can afford the rent, but paying the bond is a stumbling block.  A bond loan helps overcome that.

Essentially with a bond loan, the landlord’s interests are guaranteed by the lender who provide the funds for lodgement with the bond authority.  At the end of the lease, the bond can be claimed in the usual way by the landlord if needed.

As with a bond fully funded by the tenant, a tenant relying on a bond loan should not be given keys to the property until the paperwork for the loan is complete and the bond is fully approved.  NO BOND LOAN APPROVAL = NO KEYS

Should you accept a bond transfer? 

The best advice is to avoid this if possible, unless the tenant is moving from one property in your portfolio to another.  Or, if you can organise the logistics, so that the funds are transferred in full prior to you handing over any keys. The problem with a bond transfer is that you may not know until the last minute that a claim has been made against the bond.  Had you known this, would you have rented to the tenant in the first place?  Or, the bond amount may be insufficient and you have to chase a top-up payment.

What are the rules for bonds?

Maximum amounts for bonds and lodgement processes are governed by state law.  Also, you can charge only one bond per property.  You can’t charge a full bond to each tenant.  Many states offer online lodgement and claiming systems.

ACT  – 4 weeks rent – must be lodged within 14 days of receipt

NSW – 4 weeks rent – must be lodged within 10 days of receipt

NT – 4 weeks rent – must be lodge with a financial institution in the Northern Territory

Qld – 4 weeks rent – must be lodged within 10 days of receipt

SA – 4 weeks rent if rent is ≤ $250 – must be lodged within 14 days

      – 6 weeks rent if rent is ≥ $251

Vic – 4 weeks rent if rent is ≤ $350 – must be lodged within 10 days

        – negotiable if rent is ≥ $351

WA – 4 weeks rent is rent is ≤ $1200 – must be lodged within 14 days

         – negotiable if rent is ≥ $1201

What happens to the bond if the rent increases?

 You need to be vigilant with this and require a top-up payment from the tenant the keep the total bond lodged equivalent to the allowable amount. Failure to do so means that long term tenants my have a bond that is significantly under the lawful rate.  The lodgement times for top up payments are the same as those for an initial bond payment.