In Taiwan’s rental market, reservation deposits and security deposits are two commonly used payments. While they may seem similar, their legal definitions and purposes differ significantly. Understanding these differences can help both landlords and tenants avoid unnecessary disputes during the rental process.
What Is a Reservation Deposit?
Legal Basis
According to Article 248 of the Civil Code: “If one party to a contract receives a deposit from the other, it is presumed that the contract has been concluded.” In other words, once a deposit is paid, the law assumes that both parties have reached a preliminary agreement. The primary purpose of a reservation deposit is to ensure that neither party backs out easily.
If the agreement cannot be fulfilled, Article 249 further states:
- If the party who paid the deposit (e.g., the tenant) backs out, the deposit is non-refundable.
- If the party who received the deposit (e.g., the landlord) cancels the agreement, they must refund double the deposit.
This legal mechanism is designed to encourage both parties to act in good faith and discourage arbitrary withdrawal from the agreement.
Practical Use
A reservation deposit is usually paid before signing the lease agreement to temporarily hold the rental property and secure the landlord’s commitment. For example, a tenant pays the deposit to show their intent to rent, and the landlord agrees to stop showing the property to other prospects.
Things to note:
- There is no legal limit on the amount of a reservation deposit; it must be mutually agreed upon.
- Once the lease is signed, the deposit can either be refunded or used as the first month’s rent, depending on the agreement.
Tenants should always request a receipt to avoid future disputes.
What Is a Security Deposit?
Legal Basis
According to Article 3 of the “Residential Lease Agreement Act,” a security deposit is paid by the tenant to cover potential damage compensation, unpaid rent, or disposal of belongings after the lease ends.
Article 7 states that the deposit must not exceed two months’ rent, preventing landlords from demanding an unreasonable amount.
Practical Use
A security deposit is paid after the lease contract is signed. It acts as a guarantee throughout the rental period for issues like damages, unpaid bills, or overdue rent.
When the lease ends:
- If the tenant clears all payments and returns the property in good condition, the deposit should be fully refunded.
If there are damages or debts, the landlord may deduct the necessary amount before returning the balance.
Comparison Table: Reservation Deposit vs. Security Deposit
Item | Reservation Deposit | Security Deposit |
| Payment Timing | Before signing the lease | After signing the lease |
| Legal Reference | Civil Code Articles 248 & 249 | Residential Lease Agreement Act Articles 3 & 7 |
| Purpose | Ensures commitment to signing | Covers damages and unpaid obligations |
| Amount Limit | No legal limit, mutually agreed | Max of 2 months’ rent |
| Refund Timing | Refunded or applied to rent upon signing | Refunded after lease ends and debts are cleared |
Does a Security Deposit Affect Lease Validity?
A security deposit is not a legal requirement for a lease to be valid. As long as both parties agree on the terms and sign the contract, the lease takes effect.
However, if the contract explicitly states that “the lease is invalid without a deposit,” it may be legally binding. In such cases, the landlord may ask the tenant to vacate. That’s why both parties should fully understand the deposit clauses before signing to avoid future conflicts.
Conclusion
To summarize:
- A reservation deposit is paid before signing and ensures both parties will follow through with the agreement.
- A security deposit is paid after signing and serves as a safeguard during the lease period.
- These two deposits have distinct legal functions and should not be confused.
Whether you are a landlord or a tenant, understanding these rules can help you navigate the rental process more smoothly and protect your rights more effectively.
