How Much Security Deposit Should You Budget?

Focused accountant calculating on laptop and tablet - budgeting security deposit in NYC

When you sign a lease for a commercial space in New York City, paying a security deposit to your landlord once signing the lease is inevitable.

The most important thing to consider is that commercial real estate security deposits work differently than residential.


Commercial landlords have way more leeway regarding the amount of security deposit they will require.

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.


The Key Takeaway

Refraining from tying up valuable capital in a security deposit is imperative. Moreover, do all you can to avoid wasting time negotiating with a landlord with unreasonable expectations.

Efficiently managing your time and avoiding excessive costs can differentiate your business’s success or failure.

Working with a knowledgeable and experienced commercial real estate broker will not only put you on the right path. It will keep your interests protected by avoiding unreasonable fees.

Would you rather talk this thru?

NYC commercial security deposits can be considerable. Ensure you don’t tie up too much capital. Connect with a commercial real estate expert to minimize your security deposit. Call or email us.

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