Q: I am a licensed real estate agent representing a commercial tenant in lease negotiations and the landlord is requesting a larger security deposit than my client is willing to pay. The landlord will not lower the initial security deposit requested, but has offered to provide my client with a security deposit “burn down.” What is a “burn down” provision?
A: Generally, as applied to security deposits in commercial leases, a “burn down” clause provides that after a certain period of time, if a tenant is not in default of the lease, the landlord will return a portion of the security deposit to the tenant. For example, if a tenant enters into a lease for a term of ten years, the lease may provide that if the tenant is not in default of the lease after the commencement of the third year of the lease, the tenant can request that the landlord return a portion of the security deposit (i.e. an amount equal to one month’s rent) back to the tenant or the tenant can request that the landlord apply a portion of the security deposit to the payment of the rent under the lease. The “burn down” provision may further state that at certain other future dates (i.e. each additional year) the Tenant can then request the return of an additional portion of the security deposit.
The Legal Line Question by:
Neil B. Garfinkel
REBNY Broker Counsel
Partner-in-charge of real estate and banking practices at Abrams Garfinkel Margolis Bergson, LLP