Understanding Insurance and Security Deposits in Lease Agreements

The Importance of Insurance in Lease Contracts

First of all, we would like to emphasize that insurance in lease contracts is very important for protecting your investments. However, before delving into explaining the meaning of insurance and its importance, we must point out another important point that we would like to highlight for property owners to achieve the maximum benefit from renting their properties and to ensure obtaining high and regular revenues for a long period.

Selecting the Right Tenant

This point is how to select tenants and set guidelines for this matter. For example, owners must choose tenants for their properties who have a positive history and stability in rental relationships. This can only be achieved if these tenants have stable and reasonable income or revenues, successful investments, and a good reputation in the community where they live.

Security Deposit in Lease Contracts

In addition to the above, after selecting the appropriate tenant and at the beginning of the rental relationship, a security deposit must be paid. The meaning of a security deposit in the rental relationship is an amount of money paid by the tenant to the property owner at the beginning of the rental relationship.

This amount is determined by agreement between the parties and may be a percentage of the rent (5% or 10%) or, for example, the value of two months’ rent.

The Purpose of the Security Deposit

The importance of this security deposit is that it guarantees the owner, to some extent, coverage of damages incurred due to the tenant’s breach of contractual obligations, such as not paying the agreed-upon rent or delaying payment, or not paying electricity, water, gas bills, or taxes, etc., which the tenant did not pay at the end of the rental relationship.

Or it covers the tenant’s financial obligations resulting from damages or deterioration caused by the tenant to the rented place during the period of use. Finally, it represents pressure on the tenant not to breach their contractual obligations with the owner.

Documenting the Security Deposit

The security deposit must be paid at the beginning of the rental relationship and during the conclusion of the lease contract. It should be documented in the lease contract, distinguishing it from rent installments, and should be proven by a separate receipt distinct from the rental value specified in the contract so that there is no confusion in the future between it and the rental value, and to avoid future disputes between the parties.

Returning the Security Deposit

It’s worth noting here that if the tenant complies with the terms of the contract and does not breach any contractual obligations, and delivers the rented place in the condition it was at the beginning of the lease without any debts or bills, then in this case, the owner must legally return the security deposit to the tenant and may not deduct anything from it.

If the owner violates this and seizes the security deposit or any part of it without legal justification, the tenant has the right to resort to the judiciary, requesting that the owner be obligated to return the full security deposit with legal compensation.