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Bonds & Guarantees - For Renting Residential Property

Information originally provided by Scotney Williams 1

There are only two kinds of security in residential renting they are Bonds and Guarantees.

Bonds

Bonds are a sum of money, which cannot exceed 4 weeks rent. The landlord is entitled to ask the tenant to pay the bond to them before the tenancy starts and then the landlord is required by the Residential Tenancies Act to pay the bond to the Tenancy Services Centre (formerly known as the Bond Centre) in Porirua. Landlords must pay the bond within 23 working days to the Tenancy Services Centre.

Since for most landlords the bond is their only security, it makes no sense not to require the maximum. The average bond charged is currently about three weeks but charging four weeks is safer than three weeks. Landlords should know that they can charge a four week bond and have the tenant pay say two weeks before the tenancy starts and the balance can be paid off over time. This overcomes the lack of affordability issue.

The original level of the bond is part of the tenancy contract and as such is binding on both parties. This means that landlord cannot change their mind after the agreement starts and charge any more bond. Landlords are stuck with the agreed amount.

The bond is security for all costs and losses and may be applied to losses including damage, water rates, unpaid rent, any other adjudicated loss / cost.

It is very important that landlords, in case of a claim, complete their bond claim quickly. The “Address for Service”, this is the legal term for the delivery of a document, only lasts eight weeks. After the expiry of this period, “Service” needs to be by means of “Personal Service”, the legal term for the physical delivery of a document to a person.

If for any reason the current periodic (read not fixed rental contract) tenancy agreement does not stipulate a bond, by the way this is happening surprisingly often, the only remedy is to issue a 90-day notice of termination and after the expiry to enter into a new agreement that does make provision for changing the Bond.

In the case of a fixed term contract there is no choice as changes can only be made at the end of the agreed rental period.

Guarantees

These are a signed document in which the Guarantor (usually a family member) agrees to underwrite and stand good for any cost or loss that might be incurred by the tenant. Guarantees are extremely effective in that they almost always ensure that the loss is made good. However many tenants simply do not have a person who is able or willing to go guarantor for them. Accordingly they are relatively rare.