We hear of these two terms good faith deposit and security deposit often whenever we talk about rental or leasing of industrial, commercial or residential properties. However, there are actually differences between the two.
Good Faith Deposit
Whenever we decide to take up a lease, we would usually do up a proposal in terms of a letter of intent which includes the proposed terms such as duration of lease, commencement date, rental rate etc. With the proposed terms and authorised signature on the letter of intent, a good faith deposit is usually also presented along with the offer to lease. Most of the time, the good faith deposit will be in the form of cheque but can sometimes also be in the form of bank transfer to the landlord.
Once the offer is accepted and both parties have signed the letter of intent with the good faith deposit, the landlord will not be able to rent the property to other parties.
The good faith deposit will usually be converted into the security deposit or part of the security deposit or in some cases converted into advance rental.
The remaining security deposit is usually paid upon signing of the tenancy agreement.
As for the security deposit, it is usually for the purpose of security throughout the rental period in case any items are damaged or if the premise is not handed over back to the landlord in the same or satisfactory condition. If the condition is perfect and there is no breach of any terms in the contract, the security deposit will be refunded back to the tenant usually within a few weeks without interest. The return of the security deposit will usually also be mentioned in the tenancy agreement.
In order to avoid forfeiture of any part of the security deposit, it is advisable to plan ahead for reinstatement or prepare for handover at least a few weeks before the expiry of the lease so that if there is anything that needs to be reinstated or rectified, there will still be enough time for you to do so.