Why security deposits weigh on SME liquidity
When a Swiss SME signs a commercial lease — for an office, shop, warehouse, or workshop — the landlord almost always requires a guarantee: the security deposit, known in German as Kaution. This is a sum held at the landlord's disposal to cover potential damage, restoration costs, or unpaid rent, but in the meantime it leaves the company's operating cash cycle.
Unlike residential leases, where federal law caps the amount at a maximum of three months' rent (Art. 257e para. 2 CO), the size of the guarantee in commercial leases is freely negotiable. If the guarantee is provided in cash or securities, however, the landlord must deposit it with a bank in an account held in the tenant's name (Art. 257e para. 1 CO) — a requirement that applies to both residential and commercial leases. Landlord and tenant may agree on other forms of guarantee, such as a bank guarantee or insurance policy, subject to mandatory rules, including those on creditor protection.
For a business owner, the security deposit is not an immediate accounting expense, but a liquidity lock-up that can last for years. A CHF 30'000 guarantee on a five-year contract effectively means tying up capital that generates no meaningful return for the business and must be monitored with the same care as investments and trade receivables.
Legal basis and types of guarantee in commercial leases
The security deposit in commercial leases falls within the framework of the lease of premises and business contracts (Art. 253 et seq. CO). Cash guarantees are governed by Art. 257e CO. The guarantee can take different forms, each with specific balance-sheet and accounting implications:
Blocked bank deposit
Amount paid into a blocked account at a Swiss bank, held in the tenant's name with a pledge right in favour of the landlord. This is the form prescribed by law for cash guarantees (Art. 257e para. 1 CO): the money remains the tenant's property until a definite claim arises for the landlord. Accrued interest belongs to the tenant, unless otherwise agreed.
Bank guarantee (surety)
The bank undertakes to pay the landlord up to a maximum amount if the tenant defaults. The tenant pays an annual fee but does not tie up the same amount in its current account. Useful when liquidity is tight, but it involves a recurring financial cost.
Cash paid directly to the landlord
If the guarantee is provided in cash, the landlord is legally required to deposit it with a bank in an account held in the tenant's name (Art. 257e para. 1 CO). Payment directly to the landlord, without bank deposit, does not comply with this obligation and significantly increases the risk of dispute and recovery difficulties. In internal or external audit, this approach raises questions about traceability and creditor protection.
Rental deposit insurance
Policy that replaces a cash deposit: the tenant pays a premium, and the insurer guarantees the landlord. Common mainly in residential leases, it is less frequent in the commercial segment, but some landlords accept it for smaller contracts or short durations.
Commercial contracts often include guarantees equivalent to three, six, or even twelve months of net rent, especially for retail premises in premium locations or where the tenant makes significant fit-out investments. Before signing, verify that the contract clearly specifies the amount, the form of guarantee, conditions for partial or full release, and the terms for return after handover of the premises.
Comparison of the main forms of guarantee
The choice of guarantee type affects liquidity, ongoing costs, and ease of recovery. Here is a concise comparison to guide the decision:
| Criterion | Blocked bank deposit | Bank guarantee | Cash to landlord |
|---|---|---|---|
| Impact on liquidity | High — amount blocked for the full term | Low — annual fee only | High — money outside bank control |
| Cost to the tenant | Opportunity cost on interest; deposit interest to tenant | Annual bank fee (0.5–2% of guaranteed amount) | No direct cost, but high risk and non-compliant if without bank deposit |
| Tenant protection | High — segregated asset, bank lien | High — no unilateral withdrawal | Low — depends on landlord |
| Recovery at end of contract | Release of lien with written agreement from both parties; after one year from end of contract, direct release by the bank if the landlord has not asserted legal claims (Art. 257e para. 3 CO) | Release of guarantee; no refund of sums | Return on request — often slow or disputed |
| Accounting treatment | Current or non-current asset — security deposit | Off-balance-sheet commitment (footnote) + fee expense | Current asset — receivable from third party |
| Acceptance by landlords | Standard in the commercial market | Widespread, sometimes with preference for cash deposit | Sometimes requested, but non-compliant if in cash without bank deposit |
Accounting under Swiss standards
The security deposit paid by the tenant is neither a rental expense nor an operating fixed asset. It represents a company receivable from the landlord or, more commonly, a proprietary right to a blocked bank account. Correct recording avoids distortions in the income statement and cash flow statement.
At the time of payment: the amount is posted to a balance sheet asset account, typically "Security deposits" or "Rental guarantees paid" (for example account 1191 "Kautionen" in the Kontenrahmen KMU). If the money leaves the company's current account and is credited to a blocked account held in the company's name, the entry is:
Debit: Security deposits — CHF 30'000
Credit: Bank — CHF 30'000
If recovery is expected within twelve months of the closing date, the deposit should be classified as a current asset; if the lien extends beyond the next reporting period, as a non-current asset. If the blocked account is formally separate from the operating account, both items remain in cash and cash equivalents on the cash flow statement, but the security deposit should be disclosed separately in the notes to avoid overstating truly available liquidity.
During the contract term: no depreciation or provisions are recorded, unless there is concrete evidence that the deposit will not be returned (dispute initiated, damage confirmed). In that case, a provision for losses on rental guarantees should be assessed. Interest accrued on the blocked account is recorded as financial income when credited.
Bank guarantee: this does not create an asset, but an off-balance-sheet commitment to be disclosed in a footnote equal to the guaranteed amount, if material. The annual fee paid to the bank is a financial or general expense, recorded in the income statement when paid. Do not confuse the fee with the deposit: a bank guarantee does not reduce liquidity, but it increases recurring operating costs.
Impact on balance sheet and liquidity
- •Balance sheet: the deposit appears under current or non-current assets and reduces the net cash balance available for day-to-day operations.
- •Income statement: no effect until the deposit is partially or fully retained by the landlord.
- •Cash flow statement: the initial payment reduces net operating liquidity (change in assets); recovery at end of contract is a corresponding positive cash flow.
- •VAT: the security deposit is not consideration for a supply and is not subject to VAT. It must not be shown on an invoice.
Liquidity planning: how much capital remains tied up
For an SME opening a second location or expanding premises, the security deposit adds to other initial outlays: fit-out, utility deposits, supplier prepayments, equipment down payments. Careful planning avoids cash flow strain in the first months of operations at the new premises.
| Scenario | Monthly net rent | Guarantee required | Liquidity tied up |
|---|---|---|---|
| Cantonal office (3 months) | CHF 3'500 | 3 months | CHF 10'500 |
| City-centre shop (6 months) | CHF 8'000 | 6 months | CHF 48'000 |
| Logistics warehouse (3 months) | CHF 5'200 | 3 months | CHF 15'600 |
| Showroom with fit-out (12 months) | CHF 12'000 | 12 months | CHF 144'000 |
Including the security deposit in the cash budget means treating it as a one-off outflow at the start of the contract and as an expected inflow at expiry or termination, with a prudence margin of three to six months for potential disputes over handover conditions.
During negotiations, consider proposing a bank guarantee instead of a cash deposit if liquidity is limited, or negotiating a reduction of the guarantee after a period of regular compliance (for example, halving it after two years without default). Some contracts also provide for progressive partial release of the guarantee — a useful clause to include from the outset.
Recovering the deposit at end of contract
Return of the security deposit is the most sensitive phase. The landlord may retain the amount — or part of it — only if it has a definite, liquid, and enforceable claim against the tenant: overdue rent, documented restoration costs, damage beyond normal wear and tear. A simple assertion or unilateral estimate is not sufficient.
1. Handover protocol
Prepare a premises handover report describing the condition, with photographs and signatures from both parties. The protocol binds the landlord: if specific damage is not disputed at handover, it will be difficult to deduct it from the deposit months later. Keep a copy of the report in the accounting archive together with the contract and bank deposit confirmation.
2. Formal request for return
Send the landlord a written request to release the bank lien or return the deposit, citing the applicable contractual clause. Provide the IBAN for the transfer and a reasonable deadline (generally 30 days from handover). If there is no response, follow up in writing and, if necessary, initiate debt enforcement proceedings (Betreibung) or request release from the bank under Art. 257e para. 3 CO — one year after end of contract if the landlord has not asserted legal claims.
3. Accounting treatment of recovery
When the returned amount is credited, reverse the "Security deposits" account and credit the bank. If the landlord retains part of the deposit, record the difference as an expense (rental or maintenance costs, depending on nature) and reverse only the amount recovered. Document every deduction with an invoice or supporting document from the landlord before accepting the retention.
4. Contract transfer or sublease
In case of assignment of the lease to a successor or corporate succession, check whether the guarantee can be transferred to the new tenant with the landlord's consent, avoiding the need to pay a second deposit. If the company moves to new premises, negotiate prompt return with the former landlord and a reduction or deferral of the guarantee with the new one, leveraging demonstrated reliability.
Documentation and internal control
A poorly documented security deposit becomes a forgotten receivable: it still appears on the balance sheet at year-end, but no one knows whether it is recoverable. For SMEs with multiple locations or multi-year contracts, a central register is essential.
Control checklist for each security deposit
- ✓Premises address and contract start/end dates
- ✓Amount, form (blocked account, bank guarantee, cash) and bank reference
- ✓Accounting account and payment voucher
- ✓Contractual clause on return conditions
- ✓Automatic reminder 90 days before contract expiry
- ✓Handover report and recovery status (full, partial, disputed)
At year-end, the administrative manager or fiduciary should reconcile the "Security deposits" account balance with bank confirmations and the contract register. Any deposits from contracts expired more than one year ago without recovery should be flagged to management for legal action or a justified write-off.
Managing security deposits with Accountex
Keeping rental guarantees, contract deadlines, and effective liquidity under control requires accounting and administration to share the same information base. With Accountex you can record security deposits in dedicated accounts, link them to lease contracts, and monitor their evolution over time without confusing them with operating costs or fixed assets.
The cash flow statement automatically separates flows related to deposits from current income and expenditure, providing a clear view of truly available cash. Reminders for contract deadlines help prepare in good time for premises handover and return requests, reducing the risk of forgotten receivables on the balance sheet.
For business owners and fiduciary firms assisting multiple clients with locations in different cantons, centralised tracking of security deposits simplifies internal review and annual financial statement preparation, ensuring compliance with Swiss accounting standards and proactive liquidity management.