ADGM security deposit law under section 53 is tenant-protective and precise. The 5% cap is hard. The trust obligation is real. The 21-day itemised-notice deadline is unforgiving — miss it and the landlord loses the right to make any deduction at all. These rules apply to every Short-Term Residential Lease in the ADGM Area.
1. The 5% hard cap
Section 53 caps the security deposit at 5% of annual rent. No exceptions, no negotiation. If annual rent is AED 100,000, the maximum deposit is AED 5,000. Any amount collected beyond 5% must be returned — retention of excess creates a breach of the RPR 2024 and a debt to the tenant.
The reservation deposit under section 55(6) is a separate instrument — also capped at 5% of annual rent — taken before the lease is signed. It is not part of the security deposit. A landlord cannot aggregate the two to justify holding more than 5% as security after execution. They serve different purposes and have different rules.
2. Trust holding obligation
Section 53 requires the landlord to hold the security deposit on trust for the tenant. This is not merely an accounting note — it creates a fiduciary obligation. The deposit cannot be commingled with the landlord's own funds and cannot be used for the landlord's operational expenses. In practice, prudent landlords hold deposits in a separate client account. Misapplying a trust deposit is a breach of both the RPR 2024 and common law trustee obligations.
3. Permitted deductions — and nothing else
| Deduction category | Permitted? | Notes |
|---|---|---|
| Unpaid rent | Yes | Must be actually unpaid at lease end |
| Tenant breach of lease | Yes | Breach must be documented and specified |
| Damage beyond fair wear-and-tear | Yes | Requires evidence vs condition report baseline |
| Lessee-responsible repairs | Yes | Repairs tenant was obliged to do but did not |
| Fair wear-and-tear | No — expressly excluded | Normal ageing of property through ordinary use |
| Landlord-caused damage | No | Damage by landlord's own contractors |
| General cleaning | No (unless well beyond baseline) | Routine cleaning is landlord's cost |
| Landscaping, redecoration preference | No | Aesthetic upgrades are not tenant's liability |
4. The condition report — your evidence baseline
Section 52 requires a condition report counter-signed by the tenant at the point of handover. Disagreements must be annotated in the report — the landlord cannot simply override tenant objections. The condition report is the baseline for every deduction dispute. Without a signed condition report, the landlord has no documented starting point to demonstrate that damage exceeds fair wear-and-tear.
- Complete condition report room by room, item by item, before handover
- Photograph all pre-existing damage with timestamps
- Get tenant's counter-signature on the day of handover — not days later
- Annotate any tenant disagreement in the report rather than arguing — note it and proceed
- Keep a copy — lease cost of drafting is the lessor's responsibility (s.52(2))
- At lease end, repeat the process — a check-out condition report against the check-in baseline
5. The 21-day return rule
Section 53(1)(c) is precise: within 21 days of lease termination or expiry, the landlord must:
- Notify the tenant of any intended deductions in writing
- Provide supporting evidence for each deduction (invoices, contractor quotes, photographs)
- Refund the balance remaining after deductions promptly after the notification
Missing the 21-day window for the notification — not just the refund — causes the landlord to lose the right to make any deduction. The entire deposit becomes returnable. Courts apply this rule strictly. The notification must be itemised — a vague statement of "deductions for damage" without specifics does not satisfy section 53.
6. Reservation deposit — separate rules
The reservation deposit under section 55(6) allows landlords to secure a prospective tenant's commitment before lease execution. Rules:
- Maximum 5% of annual rent
- Must be set off against the first rent instalment on lease execution
- If the lease does not proceed (for any reason), the deposit must be refunded
- A landlord may only hold one reservation deposit per property at a time — no taking multiple deposits from competing prospective tenants
7. Sale of property — deposit transfer
When a landlord sells a tenanted property, the security deposit passes to the new landlord by operation of law under section 64. The original landlord must account for the deposit to the new landlord at completion. The tenant's rights against the new landlord are unaffected — the new landlord is accountable for the full deposit from day one of ownership, including any deductions at lease end.
Failure to account for the deposit in the sale process creates a dispute between the original and new landlord — but the tenant's recovery right against the property's registered owner remains intact.
8. Tenant remedies
- 21-day deadline missed → full deposit recoverable as debt in ADGM Courts
- Deductions without itemised evidence → challenge each deduction; Courts will require invoices
- Deductions for fair wear-and-tear → Courts will disallow and order return
- Landlord-caused damage deducted → Courts will order return of that element
- Combine deposit claim with counterclaim for repair breaches (s.56) and utility cutoff breach (s.59(4)) if applicable
This article is for general information only and does not constitute legal advice. For advice on a specific ADGM real property matter, please contact us. Last updated: 19 May 2026.