How Much Security Deposit Should You Budget?

How Landlords Calculate Your Security Deposit

A landlord could demand a security deposit ranging from 2 to 12 months. However, it largely depends on their perceived risk. Established companies like law firms or hedge funds that can document a history of profitability will pay less than startups without a track record.

Commercial real estate landlords will do the following two things to determine your creditworthiness and financial risk.

1. Analyze your business and credit history based on your previous two tax returns and/or financial statements.
2. Evaluate the costs associated with your occupancy. Landlord concessions such as improvements to your space and/or free rent add to deal-making costs. They can result in higher required security deposits.

How To Avoid  Paying An Excessive Security Deposit

Consider working with a broker who understands the ins and outs of New York City commercial real estate.

Through their experience negotiating deals, the realtor will know which landlords have a history of requiring less security deposit. They will know which landlords will be open to a partial return of your security deposit (contingent on timely rent payments) during your lease term.

The best ones will leverage negotiation power by considering the following factors:

1. It is usually easier to deal with landlords with a startup-friendly and pragmatic reputation.
2. Built-out spaces already meeting your architectural requirements will likely come with lower security deposits than raw spaces. That’s because the landlord is on the hook for construction costs with raw spaces.
3. The ability to negotiate a “burn-down” in your security deposit under the lease terms. This means your security deposit will decrease following consistent and timely rental payments.
4. A reasonable security deposit considering your financial history.
5. If the security deposit should be paid with a letter of credit, and if it’s possible to improve the terms of a good guy guarantee.