# Deposits and prepaid amounts

Item 7 real-estate lines are opening cash, not rent. They usually mix a
security deposit the landlord will hold, utility deposits the providers will
hold, and sometimes a short period of prepaid rent the landlord will apply.
Recurring occupancy — base rent, pass-throughs, percentage rent, utilities —
belongs on a monthly calendar. The [rent](/rent/) chapter is that calendar.
This chapter is the first checks.

Both chapters use the real-estate bucket, so the injected comparison table
will look the same. Read it here for what is refundable, credited, or earned
on payment; read it there for what the lease costs each month after opening.

## The labels as filed

| Brand | Filing labels | Low | High |
| --- | --- | ---: | ---: |
| German Doner Kebab | Lease, Utility & Security Deposits; Property Agent | $25,000 | $30,000 |
| Shah's Halal Food | Real Property | $3,000 | $10,000 |
| The Great Greek | Real Estate Lease Deposits; Real Estate Service Charge | $5,000 | $19,500 |
| Mad for Chicken | Lease & Utilities deposits | $15,500 | $37,500 |
| 375° Chicken 'n Fries | Lease & Utilities deposits | $10,000 | $30,000 |

GDK's wording is the most specific: lease, utility, and security deposits in
one $25,000–$30,000 line, plus a property-agent row of $0–$0. Mad for Chicken
and 375° say **Lease & Utilities deposits** at different amounts. Great Greek
splits **Real Estate Lease Deposits** ($5,000–$16,000) from **Real Estate
Service Charge** ($0–$3,500). Shah's **Real Property** of $3,000–$10,000 is
the broadest label and the smallest band.

Great Greek also prints **Utility Deposits/Licenses** at $1,000–$3,000 in the
licenses bucket. Utility deposits therefore appear in real estate for GDK, Mad
for Chicken, and 375°, and in licenses for Great Greek. Adding Great Greek's
licenses row into the table above would mix buckets; leaving utilities out of
a Great Greek deposit schedule would understate opening cash. Put
$1,000–$3,000 on the deposit worksheet and leave the Item 7 licenses label
intact. The [licenses and permits](/licenses-and-permits/) chapter keeps that
combined row visible.

## Three kinds of money that look alike in one cell

**Security deposits** are held. They may be refundable at the end of the term,
applied to the last month, or drawn by the landlord against unpaid rent or
damage. Item 7's amount column does not say which. The lease does. A $25,000
GDK-shaped deposit that is refundable in year ten is still $25,000 of opening
cash that is not working capital.

**Utility deposits** are held by the electric, gas, water, or communications
provider. They can be waived for a buyer with credit, or they can exceed the
Item 7 line when each provider wants two months of estimated service. GDK
bundled them with the lease deposit. Great Greek bundled them with licenses.
Shah's may have put them in **Real Property** or in **Miscellaneous Opening
Costs** of $5,000–$15,000. The public table does not split Shah's miscellaneous
row, so this chapter does not either.

**Prepaid rent** is earned by the landlord as rent, usually for the first
month or for a defined period. It is not a deposit. If Item 7's real-estate
line includes first month's rent, the monthly occupancy model must not count
that month again. If it does not, the first month is an extra check. GDK's
label says deposits, not prepaid rent. That is a hint, not a closing statement.

The City of Seattle's [commercial lease
tool](https://www.seattle.gov/documents/departments/economicdevelopment/oisi/english%20final%20full%20lease%20tool.pdf)
separates security deposits, prepaid rent, and the rent-commencement date for
exactly this reason.

## Worked example: deposits versus three months of occupancy

Mad for Chicken's deposit high of $37,500 is the largest real-estate cell in
the itemised set. Its additional-funds high is $162,000 for three months. If
occupancy were $12,000 a month, three months would be $36,000 — almost the
entire deposit high — and that $36,000 would still not be the deposit. The
deposit is held; the rent is spent. A buyer who funds only the Item 7
real-estate row has funded the hold, not the three months.

GDK's deposit high of $30,000 against additional funds of $15,000–$20,000 for
three months is the tighter case. If occupancy is $8,000 a month, three months
of rent already exceed the additional-funds high before labor and goods. The
deposit row did not hide that. The [working capital](/working-capital/)
footnote either assumed cheaper occupancy or assumed the reserve was never
meant to cover it.

Shah's **Real Property** high of $10,000 against a printed total of $405,000
is 2 percent of opening investment. Treating that as “cheap rent in this
system” misreads the row. Construction is $80,000–$160,000; the premises cost
is there. Minnesota's public [Shah's Halal
filing](https://cards.web.commerce.state.mn.us/documents/%7B9078B29B-0000-C21E-982F-C2FDAFB07783%7D/download?contentSequence=0&documentClass=FRANCHISE_REGISTRATIONS)
shows the two lines apart.

## Prepaid construction-period rent

Rent during design, permitting, and construction is the deposit-adjacent cost
Item 7 most often understates, because it is occupancy before opening and
therefore easy to leave out of both the real-estate row and the additional-funds
row. A free-rent period that starts on opening does not cover the build. A
free-rent period that starts on delivery might. The lease's commencement
clause, not the Item 7 label, decides.

[Second-generation versus shell](/second-generation-vs-shell/) changes the
length of that period. [Tenant-improvement allowance](/tenant-improvement-allowance/)
changes whether the tenant is also funding contractor draws at the same time.
A reimbursement TI plus prepaid construction-period rent is two cash demands
in the same months. GDK's $25,000–$30,000 deposit line will not pay both.

Great Greek's real-estate service charge of $0–$3,500 is a brokerage or
administrative amount, not rent. It is due, or it is not, according to the
footnote. It should sit on the pre-opening checklist next to deposits, not
inside monthly occupancy.

## Deposit checklist

1. Copy the filing's real-estate labels without renaming them “rent.”
2. Split the lease into security deposit, prepaid rent, and first month, even
   if Item 7 combined them.
3. List every utility deposit separately, including Great Greek's licenses-bucket
   combined row.
4. Write down whether each amount is refundable, credited, or earned.
5. Add construction-period rent from the commencement clause.
6. Keep the monthly occupancy model on the [rent](/rent/) page's checklist,
   fed by the lease, not by the deposit cell.

## Refunds, last-month rent, and the end of the term

A security deposit that is applied to last month's rent is not refundable
cash at exit; it is prepaid occupancy with a long delay. A deposit that is
refundable only after a condition survey can be held through a dispute about
the hood or the slab. Item 7 does not model year ten. The lease does. Write
the refund conditions on the deposit worksheet so they are not later
mistaken for working capital.

Utility deposits are often refunded after a year of on-time payment, or
applied to the last bill. That refund is not opening cash coming back in
month two. Do not put it in GDK's $15,000–$20,000 additional-funds line as
an inflow during the initial period unless the provider's letter says the
refund lands then.

Key money and going-concern payments for a second-generation restaurant are
not deposits. They are purchase prices for someone else's remaining term,
furniture, or liquor position. None of the five itemised real-estate labels
uses those words. If a listing demands key money, it is a site quote against
Shah's **Real Property** or against a new worksheet line with no Item 7 home.
The [second-generation versus shell](/second-generation-vs-shell/) chapter is
where that bargain is tested.

The injected comparison below sorts real-estate highs. Use it to see who
printed a deposit-shaped row. Use the lease to see what happens to the money.

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HTML: https://donerhandbook.com/deposits-and-prepaid/