Renting in Singapore

99.co’s guides: Good Faith Deposit vs Security Deposit

September 25, 2015
People always get confused about the good faith deposit and the security deposit

People always get confused about the good faith deposit and the security deposit

The Good Faith Deposit and the Security Deposit are often mistaken with one another. This guide aims to set out their differences. Both are intricately related to the Letter of Intent and Tenancy Agreement respectively, and there will as such be a considerable overlap with the associated guides.  

As lined out in the rental timeline, you, as a tenant, will throughout the rental procedure sign and exchange two files: the Letter of intent (LOI) (common practise), and the Tenancy Agreement (TA) (obligatory). Each comes accompanied with a financial deposit. The Letter of Intent goes hand in hand with the Good Faith Deposit, whereas the Tenancy Agreement goes together with the security deposit.

Difference I

The Good Faith Deposit serves the purpose of credibly, and financially underscoring your intentions to venture into a rental scheme with the landlord. The security deposit additionally functions as compensation for the landlord in case the tenant damages the property due to negligence, or as a refund should the tenant terminate the lease prematurely. Both deposits generally comprise one month’s rent for a one year lease, and double for two year’s lease.

Difference II

The Good Faith Deposit only serves its purpose for a couple of days. Upon the signing of the TA it is converted either into the security deposit or a rental advance. The security deposit on the other hand will last until the termination of the lease, and shall at that point be returned to the tenant given there is no reason (damages have been done or lease is prematurely terminated) to withhold it.

Seeing that the security deposit lifetime is significantly lengthier, there will be the added consideration of interest. Commonly, the security deposit is returned at the end of the lease without an added interest payment. There will usually be a clause in the Tenancy Agreement stipulating the conditions surrounding interest payments. In the larger scheme of things, the loss in real value over one or two years will generally be limited and this is probably not a point of contention.

Difference III

While there are some additional differences they are generally inferable from the first two differences as outlined above. Apart from differences in purpose and lifespan, the Security Deposit also differs in that it is stated in both the Letter of Intent and the Tenancy Agreement, whereas the Good Faith Deposit should only be detailed in the Letter of Intent

As noted previously, the Letter of Intent is not obligatory whereas the Tenancy Agreement is. If the Letter of Intent as an intermediary procedure is skipped, then naturally the Good Faith Deposit is skipped also.

Make the good faith deposits legally binding!

On a final, yet important note, both the Good Faith Deposit and the Security Deposit ought to be conditioned; the security deposit in both the Letter of Intent and Tenancy Agreement, and the Good Faith Deposit solely in the Letter of Intent. This means that a clause ought to be included stipulating precisely under what conditions either deposit is forfeited or refunded.

If you still have any questions feel free to drop us a line in the comment section below!

Ready to find the home you’ll love? Go to 99.co!

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36 Comments

  • Reply Tom Whittaker November 28, 2015 at 2:50 pm

    Hi,
    Very informative article. Quick question. Is the LOI null if no good faith deposit has been paid but the LOI has been signed by both parties?

    • Reply Marouan Fatti November 30, 2015 at 4:56 pm

      Hey Tom,

      To answer your question: The LOI is not legally binding in itself, even after the good faith deposit has been paid. So technically, there is nothing to nullify. If you or the other party want to back out of the agreement, you can do so without any repercussions.

      Hope it helped!

  • Reply Pereira April 20, 2016 at 5:17 pm

    Hi,

    Just wanted to know what happens in the event of finding a replacement for a premature cessation of the contract. Is the safety deposit still forfeited?

    Thanks in Advance!

    • Reply Jamal April 20, 2016 at 6:24 pm

      Hey Pereira, in the event of a ‘premature cessation’, the safety deposit is not forfeited. Cool! Right? 😉 This is because you are actually replacing someone at your own place to continue the lease/contract which will keep the money flowing to the landlord. Thanks for reaching via comment and feel free to get back again!

  • Reply Pereira April 23, 2016 at 10:58 am

    Thanks for the clarification, Jamal!

    Although, in a situation where the land lord refuses to give back the deposit is there anything that can be done?

    • Reply Jamal April 24, 2016 at 11:43 pm

      In a situation where the landlord refuses to return the safety deposit (assuming you should actually receive it :D), then, in that case, the best option is to try to talk to the landlord. Remember, communication is the key. You might try to make him/her understand gently or softly the reason why you are leaving, your circumstances, also tell that you are replacing someone else on your behalf etc. Be truthful. Try this and I think this should work because humans love honesty, truth and soft words 🙂 Let me know if this works! Thanks a lot Pereira for reaching me via comments again.

      • Reply Chin August 10, 2016 at 1:55 pm

        Hi, how if landlord refuse to give back deposit to me by telling me that he don have money?
        (FYI, he is no working and he sold his HDB) Really worry I can’t take back my deposit

        • Reply Adam R. August 12, 2016 at 5:23 pm

          Hi Chin,

          A landlord does not have the right to withhold your security deposit without just reasons, as stipulated in the tenancy agreement signed by both you and him. In such matters, it is advisable to settle the matter with the smalls claims tribunal.

          Regards,
          Adam R.

  • Reply Doria Low May 16, 2016 at 8:58 pm

    Hi, I would like to know if the agent/landlord has the right to hold my security deposit beyond 2 weeks; reason being they have not received quotes from contracontractor to work out the deductibles. Even the handover date was delayed because agent/landlord was unable to meet at meet earlier. It has been 1 month since I moved out of the rented premise; I think the delay in returning my deposit is unreasonably long.

    • Reply Adam R. May 19, 2016 at 12:46 pm

      Hi Doria,

      Typically, a landlord can only hold on to your security deposit for 21 – 28 days after you have returned your keys. That said, it is best to give your ex-landlord certain conditions for the repayment which he should agree upon (eg. set a date to collect full payment or partial payments if he can’t pay the full security deposit at one shot).

      If all else fails, there is the small claims tribunal (https://www.statecourts.gov.sg/SmallClaims/Pages/GeneralInformation.aspx) which you can approach for recourse.

      Regards,
      Adam R.

  • Reply Ivy May 26, 2016 at 12:55 am

    Hi thanks for info.
    I am planning to rental a room and currently dealing an property agent appointed by landlord.
    But before signing the tenancy agreement, does the property agent has the rights to ask me to transfer the deposit into his own bank account just to secure the room?

    • Reply Adam R. May 26, 2016 at 11:13 am

      Hi Ivy,

      Regarding your question, was there an agreement between yourself and the landlord to have a letter of intent and that a good faith deposit be made? If not, then think it is best that you sign the tenancy agreement first before agreeing to transfer money to any party to avoid any disagreements.

      Hope this helps!

      Regards,
      Adam R.

      • Reply Ivy May 26, 2016 at 11:28 am

        Hi Adam,
        Thanks for the prompt reply.
        There is no LOI & Good Faith Deposit btw us and the landlord.
        Our main point of contact is just the agent himself.
        About the deposit, does the property agent has the rights to ask us to transfer the deposit into his own bank account ? Or shld we transfer it to the landlord directly?

        • Reply Adam R. June 2, 2016 at 11:27 am

          Hi Ivy,

          To safeguard yourself, it is best not to transfer any money to the agent. Deposits agreed upon should be directed to the landlord only

          It is best to get some proof of the tenancy agreement and meet up with the landlord together with the agent just to ensure that all parties are present. This is to prevent any miscommunication. You may also check with CEA to verify the agent’s authenticity just to be sure.

          Regards,
          Adam R.

  • Reply Lyvia October 20, 2016 at 10:03 am

    As a tenant,when we going to move out , can we request Landlord to check the property with our present and return deposits in the same time we leave? Please advise.

    As my landlord had complaint us last month and said that we may feel free to move out anytime, but now we have found a new home, the Landlord want us to pay for penalty for stay less that 6months. As our agreement is 6months minimum stay.

    • Reply Adam R. October 20, 2016 at 5:57 pm

      Hi Lyvia,

      Is there any clause in your tenancy agreement which absolves you from any rental payment obligations upon early termination? If the agreement stated in the contract is for 6 months, the landlord does have the right to collect the rental for the remaining months owed to him as stipulated in the contract.

      In this case, you may have to forfeit the security deposit as determined by the landlord. You may wish to negotiate with him further if you wish to avoid this from happening.

      Regards,
      Adam R.

  • Reply Jy October 31, 2016 at 7:42 pm

    Hi,

    I have a few questions.

    1. Is LOI a binding contract?

    2. Can landlord or tenant walk away from the deal during negotiation of TA. Any reasons needed to to walk away?
    Eg. If LOI stated a certain date to execute the TA by tenant and before the date is up, can landlord walk away from the deal and refund the goodfaith deposit to tenant? Assuming LOI signed and goodfaith deposit collected but still negotiating TA but not yet signed…

    Thank you!

    • Reply Adam R. November 1, 2016 at 10:25 am

      Hi Jy,

      1. No, the LOI is not a binding contract.

      2. It is still possible to walk away from the deal if you cannot arrive at a consensus on the terms in the TA with the landlord. The good faith deposit can still be refunded if the deal does not go through.

      Regards,
      Adam R.

  • Reply Rahul Gupta November 26, 2016 at 4:29 pm

    Hi,
    We had signed an LOI and given a good faith deposit to the landlord. Howver the next day we informed the landlord that we wouldnt be able to move in because of some reasons and we would want the deposit back. Howver the landlord refused to return the money as he claimed that he had already made expenses on the buying the things we required aa per the LOI. Since the landlord refused to return to our deposit , we agreed to move in as we couldnt forgo our deposit which was a big amount. But then the landlord said that they dont want to continue the deal. In this situation now when the owner does not want to deal again saying that it was we who backed out first, do we stand any chance of getting the good faith deposit back? If yes should it be full amount or the landlord can deduct the money he spent on arranging things?

    • Reply Adam R. December 1, 2016 at 4:38 pm

      Hi Rahul,

      The LOI is not a legally binding document and by right, the landlord should have returned you the good faith deposit if you chose to pull out of the agreement before signing the tenancy agreement.

      Also, if the landlord did claim that he has made the necessary expenses on purchasing the items that you require, you should request that he show proof of such a purchase before he withheld the deposit. Do note that the refund should be in the full amount as the deposit should be counted as the 1st month’s rent (if you chose to stick with the unit), not towards paying for the items you requested for.

      Regards,
      Adam R.

  • Reply Glen December 28, 2016 at 5:03 am

    Hi,
    For Good Faith Deposit, is it OK to pay by cash and get a receipt? Else, what other ways should it be paid to the Landlord’s agent.?

    Thank You.

    • Reply Adam R. December 29, 2016 at 10:43 am

      Hi Glen,

      There is a rule amongst agents that they should not accept cash payments. This is to minimise conflicts in the event the deal doesn’t go through, or if some (or all) of it goes missing.

      The best alternative should be via i-banking so that you can maintain a paper trail of the transaction. Another commonly used method is via cheque.

      Regards,
      Adam R.

  • Reply Ivan February 10, 2017 at 3:55 pm

    Hi,

    What if TA is signed, but I have not paid the deposit, and want to back out? Can I back out without legal repercussions? (TA has been dated and signed by tenant, agent, and landlord, but have not been submitted to govt.)

    • Reply Adam R. February 20, 2017 at 11:46 am

      Hi Ivan,

      As long as you’ve made it official by signing on the Tenancy Agreement, you are liable for the clauses mentioned in the contract. As such, even though the TA has not been submitted to the govt, the landlord has a right to claim a breach of contract if you choose to back out.

      Regards,
      Adam R.

  • Reply conway February 16, 2017 at 4:50 pm

    Hi, I moved out of my apartment and my housemates damaged their room(although I was the main tenant). I was prepared to lose my deposit. Now the owner claims even more than the deposit and wants me to pay extra. Is it legal to demand more?

    • Reply Adam R. February 23, 2017 at 5:32 pm

      Hi Conway,

      The security deposit should suffice to cover the damages, that is what its purpose is for in such an event.

      If your landlord be claiming for more, you should perhaps request for the receipt for repairs to verify.

      Regards,
      Adam R.

  • Reply Helen March 8, 2017 at 8:33 pm

    I’m intending to renew my rental lease for one more year when the two years lease is up. Can I request the landlord to return one month security deposit back to me or does the landlord has the right to keep the two month security deposit since my stay will be in total 3 years.

    • Reply Adam R. March 14, 2017 at 1:31 pm

      Hi Helen,

      Could I find out if your current tenancy agreement allows for negotiation for renewal? If so, the landlord does have a right to hold onto the two month security deposit until the end date for your 3 year stay.

      Regards,
      Adam R.

  • Reply Colleen August 8, 2017 at 9:18 am

    Hi. I viewed a unit with an agent and landlord agent (landlord overseas won’t be back for next 2 years). Agent asked for one month deposit to LL agent but nothing was signed that evening, just verbal agreement. So is the deposit considered as Good Faith Deposit or Security Deposit? Can I back out because I do not feel agent is protecting my interest and worry if I can count on her in future. Thanks

    • Reply Krristy Lam August 14, 2017 at 11:48 am

      Dear Colleen,

      The deposit is considered Good Faith Deposit as no Tenancy Agreement was signed. We hope things worked out for you. Wishing you all the best in your new rental premise.

      Best,
      Krristy

  • Reply Ayen August 14, 2017 at 9:10 am

    Hi, I’m currently in the process of shifting to another apartment before the end of the tenancy agreement. Before signing the agreement, the agent explained to me that we can shift out and returned our security deposit only with a valid reason (which she already accepted) and found new tenant(s) as a replacement. But now she said she had to cut down the deposit by RM100. This is what she had explained:

    “Hi, after recalculated the amount , correct deposit for the new tenant is RM1433.33 instead of RM1533.33. The RM100 is for the tenancy agreement fees which this amount is not refundable when you r moving out. The new tenant is not signing any contract now, we can’t charge her for the fees. RM1533.33 amount is correct when you divide by 3 with 2 of your current housemates cause 3 of you signed the contract. The new tenant asked for details the breakdown deposit, I need to explain to her. Pls take note ya the deposit for Batool RM1433.33”

    Does the agent have the right to deduct the security deposit?

    • Reply Krristy Lam August 14, 2017 at 11:45 am

      Dear Ayen,

      Only the landlord has the right to deduct an amount from the security deposit for a valid reason.

      Best,
      Krristy

      • Reply Ayen August 14, 2017 at 1:23 pm

        new update. I just noticed that there were no stamping on my tenancy agreement, The new agreement.

        From what I understand:
        stamping tenancy agreement fee: RM70 (standard)
        copies should cost about: RM10 each (even this we can print by ourselves)
        since we need 3 copies: the tenancy agreement should have cost total of about RM100 or less

        However, what I get
        Old tenancy agreement May 2016, the agent charged me RM200 total for Tenancy Agreement

        Then new housemate came in May 2017, we still stick to the old terms but what’s odd, the new housemate was told that the tenancy agreement is now RM300. And what’s worst, there’s no stamp at all on the tenancy agreement.

        Does this means the old contract (May 2016) is still on going?
        Kindly Advice

        • Reply Krristy Lam August 17, 2017 at 10:42 am

          Hi Ayen,

          The stamping fee on the tenancy agreement corresponds with the rental amount. If there was no change in rental fee, there should technically be no change in the stamping fee. You may want to clarify this with the housing agent. Hope everything works out!

          Cheers,
          Krristy

  • Reply Jhansen September 7, 2017 at 4:34 pm

    Hi!
    We are currently facing a situation wherein we paid a Good faith deposit tru I-banking to the owners account. But due to unforseen circumstances we need to cancel the transaction of renting his flat. Take note that there was no LOI and TA signed. We are currently communicating with the owners agent and he told us that the deposit we made is already forfeited but when we check to the Agency policy of the agent they told us that the owner must return the deposit since there was no TA signed. Please enlighten me if we have the right to claim our Good faith deposit.

  • Reply Krristy Lam September 12, 2017 at 6:18 pm

    Hi Jhansen,

    I hope you managed to sort things out with the owner’s agents.

    As no LOI and TA were signed, there is no contract. You should be able to claim back your good faith deposit.

    Good luck!

    Best,
    Krristy

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