A deposit and prepaid rent usually sit right next to each other in the tenancy agreement, and they're paid on the same day. So most people assume they're two words for the same thing.
They aren't. They exist for different reasons, they behave differently at move-out, and the law counts them separately.
The difference is worth understanding, because it decides what you actually get back.
In short:
- A deposit is security for the landlord's valid claims at move-out.
- Prepaid rent is rent you have already paid.
- Each of them can be up to three months' rent.
- A deposit is paid back if the landlord has no valid claims.
- Prepaid rent is normally lived out at the end of the tenancy.
- Both are adjusted when the rent lawfully changes — downwards as well as up.
- A guarantee can be provided for the deposit, for the prepaid rent, or for both. What it covers in your case decides what you still pay in cash.
What is prepaid rent?
Prepaid rent is exactly what the words say: rent you have paid before you need it.
The purpose isn't security. The purpose is that the landlord holds the rent for the final months of the tenancy up front. In return, you normally don't pay rent for the last months you live there. That's called living the rent out.
What's the difference between a deposit and prepaid rent?
Deposit
- Purpose: security for claims at move-out.
- Used for: unpaid rent, damage beyond normal wear and tear, agreed restoration work.
- At move-out: it's settled, and the remainder is paid back.
- Maximum: three months' rent.
Prepaid rent
- Purpose: rent paid in advance.
- Used for: the final months' rent of the tenancy.
- At move-out: you normally live it out, meaning you don't pay rent for the last months.
- Maximum: three months' rent.
The practical consequence: a deposit can come back as money in your account. Prepaid rent normally doesn't come back as money — it comes back as months in which you don't pay.
How much can the landlord require of each?
Up to three months' rent as a deposit, and up to three months' rent as prepaid rent. The two ceilings apply separately.
Together with the ongoing rent, that's why the move-in cost can reach up to seven months' rent in total. We go through it in more detail in our article on what it costs to move in.
Both amounts have to appear in the tenancy agreement, and they have to appear separately. Written together as one line item, neither party knows what should be settled and what should be lived out at move-out. That's one of those mistakes that only becomes expensive several years later.
What happens if the rent changes?
Both amounts are tied to the level of the rent and are adjusted when the rent lawfully changes — downwards as well as up. We go through those rules in our article on deposits and resident's deposits.
If you provide a guarantee instead of paying cash
A deposit guarantee means a third party provides the security to the landlord instead of your own money. It solves the liquidity problem at move-in.
Here it matters to keep the two items apart, because a guarantee doesn't automatically replace both:
- If the guarantee only covers the deposit, you still pay prepaid rent in cash where the landlord requires it — and you live that out as normal at the end of the tenancy.
- If the guarantee also covers the prepaid rent, you haven't paid it in cash. Then there's nothing to live out, and you pay rent right up to the day you move out.
Keyhole Guarantee can be issued in two parts, one for the deposit and one for the prepaid rent, with the guaranteed sum following the tenancy agreement. What applies to your particular tenancy therefore depends on what has been agreed. Ask specifically which of the two the guarantee covers before you do the arithmetic — it changes both what you need ready at move-in and what you pay in the final months.
Remember too that the premium for the guarantee is not savings and is not paid back, that you remain responsible for the final move-out settlement, and that you can't choose Keyhole on your own — your landlord needs an agreement with Keyhole first.
For landlords: how to write it in correctly
Vagueness on this point costs you at move-out, not at signing.
- Write the deposit and the prepaid rent as two separate line items, each with its own amount.
- State the number of months' rent, not only the figure, so later adjustment is unambiguous.
- Check that each item stays within three months' rent.
- Write clearly what has been agreed about restoration at move-out.
- Adjust both amounts when the rent lawfully changes — including when it falls.
- Keep the documentation with the tenancy agreement and the move-in report.
Frequently asked questions
Are a deposit and prepaid rent the same thing?
No. A deposit is security for claims at move-out. Prepaid rent is rent you have paid in advance and normally live out at the end of the tenancy.
How much prepaid rent can the landlord require?
Up to three months' rent. A deposit can be required on top, up to three months' rent.
What does living the rent out mean?
That you don't pay rent for the final months of the tenancy, because you already paid it in advance.
Do I get the prepaid rent paid out instead?
Normally no. It's offset against the final months' rent.
Can the amounts go up while I live there?
Yes, if the rent lawfully changes. They're also adjusted down if the rent falls.
What if I provide a guarantee instead?
It depends on what the guarantee covers. If it only covers the deposit, you pay prepaid rent as normal and live it out at the end. If it also covers the prepaid rent, you haven't paid it in cash, so there's nothing to live out. Ask which items the guarantee covers in your case. Either way, the premium is not paid back.
Are you a landlord?
Book a free, no-obligation conversation with Daniel about writing the security into your tenancy agreements correctly.
Are you a tenant?
Visit our Help Centre and see what you can ask your landlord before you sign.
