19 November 2020

What is there to know about security deposits?

In hospitality a security deposit is a certain amount of money the structure asks the tourist to pay in case the structure results damaged during the stay so they can cover expenses. In case no damage is provoked that same amount is regularly returned on the day the tourist checks out.

The legislation concerning deposits for medium-long stays is different than the one applied for short rentals and this could also vary depending on the country the business operates in.

Generally speaking, when the reservation is for a medium-long stay the amount asked corresponds to the first two months while this is not mandatory if the reservation is for a short period. In any case, if the owner or the property manager wish to request a security deposit they can, as long as this is communicated to the customer and included in the rental contract.

Other aspects to keep in consideration concerning the security deposit:

  • The security deposit is a totally separate concept from the reservation costs therefore it is important to charge this amount separately than the reservation.

  • The security deposit has to be charged on the first day of the stay unless the two parts have agreed differently.

  • The security deposit does not belong to the reservation costs and this it is not a service so VAT cannot be applied to it.

In hospitality it is normal practice to block the security deposit amount as guarantee directly in the credit card when the tourist checks in and then released shortly after the check out, if no damage is found of course.

Advantages of using a security deposit

It pushes clients to be more responsible with the room, or house that is, since these may lose the entire amount if any damage is made.

It is possible to use a flexible security deposit where the amount changes depending on if the reservation is made by a group, if the client has a pet etc.

Contraindications of using a security deposit

Some clients may not be too happy to pay a security deposit despite this amount is later returned if no damage is made, and decide to reserve somewhere else resulting in a lost reservation.

tourists coming from different countries may need to wait a bit longer for the money to be back into their account. This could mean longer waiting times for the tourist to receive their money back and maybe additional operations a property manager may need to do to return the money.

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