Research On Legal Nature, Ownership And Refund Of Security Deposit For Commercial Property Leasing

Security deposit has been widely used at commercial property leasing industry.However, as there is neither confirmation nor rules for security deposit in currentChinese law, different understandings upon several important problems arisetheoretically and practically which causes some disputes hard to be solved and affectsthe growth and development of commercial property leasing industry. This article is todiscuss and analyze some arguable problems in security deposit field and to make asuggestion for security deposit system design. For details, there are three parts asfollows:Part1Legal Nature and Effectiveness of Property Right of Security DepositSecurity deposit is a kind of pledge over cash. This article demonstrates the reason oflegal acceptance for pledge over cash and analyzes the reasonability and necessary formitigation and supplementary of the statutory principle of property right. Meanwhile,this article demonstrates that security deposit satisfies the formality and substantialrequirements of pledge over cash, and makes a suggestion for legislation of publicdisclosure manner of security deposit.Party2Ownership of Security Deposit and Protection of Rights and BenefitsThe ownership of security deposit does not transfer along with the transfer ofpossession. Academically, there is a principle which states ownership is along withpossession for cash. However, this principle does not apply to both continental law system and Equity in Anglo-American law system definitely. It shall be subject to theaccurate function and applicable condition of the cash. For security deposit, becauseits function is static guarantee instead of money liquidity, the ownership of securitydeposit does not transfer along with the transfer of possession. Accordingly, thisunderstanding shall apply to calculation and payment of the interest for securitydeposit, and problems of sealing up and freezing of security deposit as well as theirsequence.Part3Refund of Security DepositIn order to balance the rights and liabilities of the parties in leasing relationship, thisarticle makes a suggestion for legislation regarding limitation of the security depositdeduction right of the landlord, limitation of the period of security deposit refund, thelandlord’s liability for breach of refund obligation and scope of the obligor who isliable for refund of the security deposit when the ownership of the leasing space istransferred.A comprehensive and detailed legal system for security deposit needs to be set up assoon as possible in Chinese law. In this system, security deposit shall be included inthe real right of security as a pledge over cash; Specific requirements including itsformality and substantial requirements, especially the public disclosure manner, shallbe stated clearly; The content of security deposit system shall be stated definitelyincluding transfer of security deposit ownership, calculation and payment of theinterest of security deposit, limitation of the security deposit deduction right of thelandlord, limitation of the period of security deposit refund, scope of the obligor whois liable for refund of the security deposit when the ownership of the leasing space istransferred, and the landlord’s liability for breach of refund obligation. AComprehensive and detailed legal system for security deposit may help to balance thelegal position and risk of the parties in leasing relationship, to prevent from abusing ofright by the parties in leasing relationship, and to settle disputes and arguments, so asto improve the development of commercial property leasing industry.