When moving to a new apartment, tenants often face the problem of not yet having received their old deposit back while already having to pay the new one. Together with the rent and moving and, if applicable, renovation costs, this can quickly create an enormous financial burden. Some companies have recognized this problem and provide a remedy through a rental deposit guarantee or guarantee certificate. This form of rental security can be an interesting alternative for tenants and landlords. However, it also has some pitfalls.
What is a rental deposit guarantee?
There are various providers from the banking, credit institution and insurance sectors that offer solutions to replace rental security. They act as guarantors for the tenant and issue them a guarantee certificate. The tenant then passes the document on to the landlord.
Unlike with rental security, the landlord does not receive cash, but only confirmation that the deposit guarantor will cover the tenant in the event of financial damage. After the tenant moves out, the landlord can contact the guarantor in the following cases and demand financial compensation from the guaranteed amount:
- an outstanding rent payment,
- an unpaid additional charge from a service-charge statement,
- damage to the apartment or rented furnishings,
- cosmetic repairs not carried out as agreed.
In these cases, the deposit company is liable up to the amount of the rental security agreed in the lease.
Does the landlord have to accept the rental deposit guarantee?
An important difference between rental security and a guarantee is that the landlord does not have to accept the latter. The only forms of investment that the landlord must implement upon request are a savings account and payment in cash. This means that both parties must agree to this substitute arrangement.
How does the rental deposit guarantee work from the tenant’s perspective?
For tenants, the guarantee certificate provides immediate financial relief. They do not have to raise the rental security and enter into a contract. There are generally two terms that do not differ in terms of relevant aspects.
- Rental guarantee: A credit institution guarantees the tenant. If the landlord reports damage, the provider covers the tenant. In principle, it can also a private individual can take on a rental guarantee. However, acceptance by landlords is generally significantly lower.
- Rental deposit insurance: An insurance company offers to assume liability in the event of damage. If the landlord substantiates their claim, the insurance company pays out the amount.
In both cases, the tenant does not have to provide the rental security deposit amount. However, they must pay their guarantor a premium. Depending on their own creditworthiness and the provider, this is between approximately four and seven percent of the rental security deposit required per year. With a rental security deposit of 1,800 euros (equivalent to a net cold rent of, for example, 600 euros), the costs amount to 90 euros per year with a premium of five percent.
Tip: Most guarantees can be canceled again at short notice. In this case, the tenant must of course pay the agreed rental security deposit to the landlord. If the tenant has sufficient creditworthiness, a loan may be an alternative.
Advantages and disadvantages for the tenant
Such deposit protection offers tenants advantages:
- They remain liquid and can better cover the costs of moving, renovations, and double rent.
- They can use the guarantee as interim financing until they receive the rental deposit held by their former landlord.
- Savings remain untouched.
- They avoid taking out a loan.
However, there are also disadvantages to a rental deposit guarantee:
- The costs of the rental deposit guarantee are relatively high. Over several years, a considerable amount accumulates. The premiums are lost. Unlike a rental security deposit, the tenant does not get this money back.
- A deposit guarantee does not release the tenant from personal liability in the event of damage. The deposit guarantors can seek recourse against the tenant and reclaim the compensation paid for the damage. This is also the usual practice.
- The granting of the guarantee depends on the tenant’s own creditworthiness. Therefore, this form of rental deposit is not suitable for all tenants. In addition, the tenant’s own creditworthiness decreases due to a corresponding SCHUFA entry.
- If the landlord’s claim on the deposit was unjustified but the guarantor paid, reclaiming the amount of the damage is often relatively time-consuming and can only be enforced through legal action.
How does the rental deposit guarantee work from the landlord’s perspective?
For the landlord, very little changes through a Guarantee. With the guarantee certificate, the landlord has the assurance that, in the event of damage, a credit institution, an insurance company or another third party will step in on behalf of the tenant. This creates a different process than usual; however, the landlord can freely decide when concluding the contract whether to accept the guarantee certificate.
Nevertheless, there are two variants of the guarantee, which differ slightly but in one important respect:
- Guarantee waiving the defense of prior recourse: With this procedure, the security guarantor will ask the tenant for a statement in the event of damage. If the tenant provides arguments against the payment, they can prevent or delay it. In the event of a dispute, this can lead to legal proceedings.
- Guarantee payable on first demand: This form of rental deposit guarantee is easier for the landlord to handle. They only have to present the guarantee certificate and will receive the requested amount up to the amount of the rental security. The damage is not examined.
Advantages and disadvantages for the landlord
Almost nothing changes for the landlord. They therefore benefit from the following advantages:
- Access to the deposit amount according to clearly defined standards.
- Less effort, as no investment of money is required for the tenant.
- Security through guarantors.
- A rental deposit guarantee tends to indicate a solvent tenant.
- Difficult-to-let properties are easier to rent out with a guarantee, as tenants have to provide less cash.
There are also disadvantages that the landlord should be aware of:
- Depending on the type of guarantee, their own claim must be proven using forms.
- The tenant can block the settlement of damage in the case of guarantees waiving the defense of prior recourse.
Is a rental deposit guarantee worthwhile for both parties?
Both tenants and landlords can benefit from this alternative to providing rental security in cash. For tenants, this option is generally only financially worthwhile as a short-term stopgap, but it can make a move possible in the first place. Landlords should make sure to primarily accept a guarantee payable on first demand. This is the simple option when damage occurs. Overall, the rental deposit guarantee is a useful addition to the existing deposit options. However, both parties should assess individually whether the advantages or disadvantages outweigh the other.