Month End Glossary

Security Deposit

A security deposit is a payment made in advance as collateral to protect against potential damages or default in a lease, rental, or service agreement.

A security deposit is an amount of money paid upfront by a tenant, customer, or party in a legal agreement to the respective landlord, provider, or counterparty. This deposit serves as a financial guarantee for obligations under the agreement, such as maintaining the condition of the rented property or fulfilling the terms of a service contract. It is most commonly associated with rental agreements, where tenants pay the landlord a security deposit at the beginning of a lease term, which is refundable upon satisfactory termination of the lease, provided there are no damages beyond normal wear and tear. It can also be used in other contexts, such as securing utilities, hiring equipment, or contracts involving substantial assets or responsibilities.

For instance, in a residential lease, if a tenant causes damage to the property, the landlord can use the security deposit to cover repair costs. Alternatively, if no issues arise during the tenancy, the tenant would receive their deposit back at the end of the lease. A clear understanding of the security deposit terms is essential, as it ensures the rights and obligations of both parties are met and provides financial security for unforeseen circumstances. Always ensure the agreement specifies the conditions for withholding or refunding the deposit.

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