Security Deposit
Security deposits are an important component to finalizing a term sheet. The amount of security deposit a landlord requests ca be based on a number of factors.
Variables:
Which Deal type you are entering into; co-working/flex space will trigger the lowest security deposit and a direct lease utilizing a full concession package can trigger a larger security deposit.
The financial state of the tenant; i.e., strong company financials will justify a lower security deposit, while weaker financials may trigger a larger security deposit.
Concession package; the landlord will typically enter into a direct lease with many out of pocket expenses such as funding improvements to the space, free rent, legal and brokerage fees. The combination of these expenses can add up to well over one (1) years worth of rent and therefore pushing the landlord towards requesting a larger security deposit.
Type of landlord; some landlords will have a higher risk tolerance than others.
Other factors associated with security deposits are the format in which the security deposit is provided and/or structured.
Other Factors:
Cash deposit; as the name suggests, a check will be provided upon signing the lease and returned after the lease has expired and the space vacated.
Letter of Credit; this is commonly requested by landlords. A Letter of credit is arranged through a bank. Establishing a letter of credit is more complex and timely than simply providing a check.
Burn Down; a burn down can be structured in many different ways, but most commonly the initial security deposit will be reduced/returned as rent payment milestones are reached durning a lease term.
As an example; Six (6) month security deposit to start the lease with One (1) month of security deposit returned to the tenant on the Twelfth (12th) month of paid rent, Twenty Fourth (24th) month of paid rent and Thirty Sixth (36th) month of paid rent on a Five (5) Year lease term.