How Do I Take a Bond or Damage Deposit?

Understand short-stay bonds and set the right amount

First, the legal position: short-stay holiday rentals are not covered by the Residential Tenancies Act 1986. The RTA applies to residential tenancies where a person is living in the property as their home, not to holiday rentals where guests are staying temporarily. This means you do not have to lodge the damage deposit with Tenancy Services and you are not bound by the RTA's bond lodgement rules. You can collect a damage deposit directly from guests and hold it yourself, giving you complete flexibility on the amount, how you hold it, and how you return it.

The tradeoff is that you do not have the formal protection that the RTA provides to landlords. Instead, you rely on clear terms, documentation, and practical steps to protect yourself. This is actually standard practice for short-stay hosts across New Zealand and the world.

Work out what amount makes sense for your property. A typical damage deposit for a short-stay holiday home is between $200 and $1,000, depending on the value of the property, how many guests are staying, and the length of the booking. A luxury two-bedroom bach in peak season might hold a $1,000 deposit. A smaller property or shoulder-season booking might be $250 or $300.

Think about what would actually cost you to repair or replace if something broke or was damaged: replacement windows, furniture, appliances, professional cleaning, or refinishing floors. Your deposit should reflect a reasonable upper bound of that risk for the guest count and booking length. A couple staying one night needs a smaller deposit than six friends staying two weeks. Whatever amount you choose, make it proportionate and clearly communicate it in your booking terms before the guest commits. A wildly inflated deposit puts guests off and damages your reputation. A deposit that is too low leaves you exposed.

Collect the deposit before check-in

The most important rule: never let a guest check in until the damage deposit has been collected and cleared. If you take payment by card or bank transfer, wait for the transaction to settle completely before providing check-in details. If a chargeback or reversal happens, you need to know about it before the guest arrives. Many hosts reserve the right to cancel the booking if the deposit does not clear, and this should be stated in your terms.

State in your booking confirmation and terms that the damage deposit is required and collected as a separate charge. Include the amount clearly, explain how it will be held, and outline the conditions for its return. Be explicit: 'A $500 damage deposit is required to confirm this booking. The deposit is held separately and is refunded in full within 30 days of checkout if there is no damage to the property.' This clarity prevents confusion and disputes.

Make it easy for guests by offering payment by card (via Stripe or PayPal), direct bank transfer, or other digital methods that create a clear record. Avoid cash if possible because it leaves no audit trail and creates disputes later. Digital payment also means you have a timestamped record of when the money arrived, which matters if there is ever a dispute about the deposit.

How to hold the deposit safely

Once collected, you have two main options. The simplest is to keep it in a separate designated account that is clearly labeled for damage deposits, not your operating cash. This creates clear visibility for your records and your accountant. Some hosts hold deposits in a simple interest-earning term deposit or savings account so the money stays safe and separate.

If you prefer more formal protection, you can place deposits in a trust account held by a legal practice or accountancy firm. This adds a layer of independence and creates an explicit record that the money is held on behalf of the guest. The cost is usually minimal, often $20 to $30 per deposit.

Whatever method you choose, keep detailed records: the guest name, booking dates, deposit amount, method of collection, and the date it was returned. This protects you if there is ever a dispute.

Return the deposit and handle disputes fairly

Return the full deposit within 14 to 30 days of checkout (state your timeframe clearly in your terms). This shows professionalism and builds trust for future direct bookings. Most guests appreciate a quick refund and are more likely to leave positive reviews if money comes back promptly.

If you need to make deductions for damage or cleaning, provide an itemized list with photos or receipts before you transfer the balance back. For minor wear and tear (a small scuff on a doorframe, a light bulb that needs replacing), do not deduct. For genuine damage (a broken window, damaged furniture, excessive cleaning needed), document it with photos and get a quote for the repair cost.

If you deduct money, send the guest the breakdown with evidence (photos and repair quotes) and explain why you are keeping part of the deposit. This transparency prevents disputes and shows you are fair and professional. If a guest disputes the deduction, be prepared to show your evidence and stand by reasonable charges. However, avoid nickel-and-diming guests over truly minor issues, as this damages your reputation.

A damage deposit is not a substitute for insurance. Make sure your home and contents are insured for short-stay rental use. Some standard home insurance policies exclude holiday rental or do not cover loss from guest damage. Talk to your insurer explicitly about short-stay holiday rental and confirm you are covered for damage caused by guests. If a guest causes damage that exceeds your deposit amount, your insurance should cover the gap.