Many people looking for an apartment are familiar with the additions in listings: “Two months’ rent as a deposit” or “The rental security amounts to three net cold rents.” These notices refer to a security deposit that the tenant is required to pay. With this payment, the landlord wants to protect themselves against rent arrears and, in the event of damage when the tenant moves out, create financial leverage for rectification. However, both the amount of the deposit and the way the money is invested and used are subject to relatively strict regulations. It is therefore interesting for both prospective tenants and landlords to know exactly how a rental deposit works. The question also arises: What rights and obligations result from this for both parties?
Legal Basis for the Rental Deposit
The basic rule is: No landlord is obliged to require rental security. However, it may be in their interest to protect themselves. If someone requires such a rental deposit, the German Civil Code (BGB) applies. The rental deposit is regulated in § 551 BGB. Accordingly,
- the rental deposit may amount to up to three months’ net cold rent.
- the tenant may pay the sum in three monthly installments beginning at the start of the tenancy.
- the sum must be kept separate from the landlord’s assets and invested at the usual interest rates for savings deposits with a three-month notice period.
- deviating agreements are possible, but may not burden the tenant beyond the statutory requirements.
In addition to this legal basis, there are a number of court decisions dealing with details of handling an agreement on the payment of rental security. For example, in the case of a rarely used flat-rate rent, the monthly amount stated in the tenancy agreement serves as the basis for calculation. This means that, in this case, operating costs are not deducted from the gross amount. A ruling by the Federal Court of Justice (BGH VIII ZR 86/03 of December 3, 2003) also established that the tenant has the right to a refund in the event of an excessive payment. This applies to some older contracts.
Another special feature applies to combined deposits. If the landlord calculates several forms of rental security in order to separately secure, for example, parquet flooring, kitchen appliances, and the net cold rent, the total amount may nevertheless not exceed three net cold rents.
Maximum of three Net cold rent as rental security
The law and court rulings establish clear provisions for rental security. The deposit may amount to a maximum of three months’ net cold rent. Any claims exceeding this amount are invalid. A landlord is likewise free to waive a deposit or set a lower amount.
Important: The rental security must be agreed in the tenancy agreement. An amount agreed subsequently or verbally is legally invalid!
A guarantee additionally demanded alongside the deposit payment to be made is also invalid. If the landlord demands a guarantor in addition to the rental security and the guarantor signs a written declaration, this is legally invalid. This means: The guarantor does not have to make any payment in the event of default.
Moving in: When and how is the rental security due?
The rental deposit is generally due on the move-in date. However, the tenant may pay the total amount in three instalments. This is permitted regardless of any provision to the contrary in the tenancy agreement. Section 551 of the German Civil Code (BGB) expressly provides for payment in instalments and prevents the tenant from being placed at a disadvantage by other agreements.
Many landlords require the rental deposit to be received before the keys are handed over. However, receipt of the money in advance is not required. Such demands can lead to a conflict that places a strain on the new tenancy. Tenants should act prudently, and landlords should observe the legal requirements.
Failure to pay is grounds for termination
The deposit provides security for the landlord. Therefore, the landlord has the right to receive payment on time. Tenants should ensure that the instalments or the total amount are paid accordingly. Late payment may result in termination without notice. Under Section 569 (2a) BGB, the landlord has the right to terminate the tenancy agreement extraordinarily and without notice if the tenant is in default with payment of the security deposit and the outstanding amount reaches at least the equivalent of two months’ net cold rent.
Alternative: Rental deposit guarantee or guarantee certificate
A guarantee is a special form of providing a deposit. There are numerous providers that guarantee to landlords that they will cover financial claims up to the amount of the rental deposit. In return, the landlord receives a guarantee certificate. Should he the entire sum of the If the landlord is legitimately entitled to claim the rental security deposit or part of it, the guarantor steps in.
As a rule, these are highly reputable providers such as banks, insurance companies, or similar businesses. In principle, private individuals can also provide a guarantee, but landlords are then significantly less likely to accept it.
The tenant does not have to deposit security with the provider of the rental deposit guarantee. However, they pay an annual premium. The process is comparable to insurance. The disadvantage: This guarantee generally causes the Schufa score to decrease slightly.
Important: The landlord is not required to accept this form of rental security.
Holding the deposit – how it works
The deposit belongs to the tenant. However, the landlord holds the amount in order to offset financial disadvantages from this amount if there is legitimate need. This arrangement requires special handling of the rental security.
To prevent financial damage to the tenant, for example in the event of the landlord’s insolvency, the landlord must invest the amount separately from their own assets. This is possible in various ways. These include, for example, escrow accounts or the classic savings account in the tenant’s name. It is also possible to hold the money collectively with the funds of several other tenants in one account.
Important: In the event of insolvency, the deposit amount must be protected from access by third parties. The entire amount must also be available at all times.
Another important point is the interest. The landlord must invest the amount at the usual interest rate. During a period of low interest rates, this is of little relevance. However, if interest rates on investments rise significantly, a tenancy lasting several years can generate enormous interest growth. If the landlord has not invested the deposit amount appropriately, they must compensate for any loss of interest. This means that they are obliged to make a compensatory payment to the tenant.
The tenant may request proof of the investment method. The landlord must disclose where and at what interest rate the money is invested. If this is not provided, the tenant is even entitled to withhold rent payments until proof is provided.
Moving out: May the tenant use or withhold the rental deposit?
Ideally, the rental security remains untouched. Nevertheless, the question arises at the latest when moving out: May the landlord use the amount? In which cases does this apply? How long may they keep the money?Withhold? Many tenants and private landlords are unclear about these questions, and there are one or two misunderstandings.
Living off the rental deposit
A classic misunderstanding is the belief that tenants are allowed to “live off” the rental deposit at the end of the contractual term. However, tenants are by no means allowed to stop paying rent and refer to the deposit amount. This serves a different purpose. If they fail to pay the rent as contractually agreed, they are in default regardless of any rental security.
Who is entitled to the rental deposit?
In principle, the person who receives the rental deposit is the person who paid it or in whose name it was invested. However, this question may be relevant if several people – a couple, a shared apartment, etc. – signed the rental agreement and made the payment jointly.
- In the case of a couple, the landlord may pay the rental deposit to one person as a total sum. This discharges the landlord from the debt. A special case arises if only one member of the couple moves out but the agreement remains in place. It is advisable for both tenants to agree on compensation or for the agreement to be renewed with only one tenant. In this case, the rental deposit including interest must be repaid to the entitled party and paid again by the remaining tenant.
- The procedure is similar for a shared apartment. In this case, there is often a main tenant who is allowed to sublet the apartment to additional people. Unless otherwise agreed, the landlord pays the amount to the main tenant. If the shared apartment remains in existence after the main tenant moves out, the rental agreement is amended and the remaining tenants pay the deposit amount again. Nevertheless, the previous deposit must be paid out.
- If a third party paid the deposit at the beginning of the agreement, the outcome depends on how the arrangement was structured. Either the third party acts as the tenant’s creditor or becomes an additional contractual partner of the landlord. Depending on the decision, the rental deposit goes to the tenant or the additional contractual partner.
- If a tenant dies, the heirs become the beneficiaries. The landlord must pay the deposit to the community of heirs or the sole heir. In theory, under special circumstances, the heirs may also take over the tenancy. In this case, the rental deposit would remain in place remain.
By when must the rental deposit be repaid?
In principle, tenants are entitled to immediate repayment of the deposit at the end of the contract. However, various rulings grant the landlord a period of six months to check the proper condition of the apartment and any outstanding payments. The rental security must be paid out to the tenant no later than six months after the end of the contract. The only exception applies in the case of outstanding amounts and pending service charge statements. More on this below.
If the landlord does not repay the deposit even after being requested to do so following this period, they are in default. The tenant can then initiate debt collection proceedings, apply for a court payment order, or file a claim for repayment. It is advisable to first send a written request by registered mail for payment, setting a payment deadline.
Claiming repayment: Observe the limitation period
When claiming outstanding deposit amounts, the tenant must observe the limitation period. This is three calendar years ending at the end of the year in which the tenant moves out. If a tenancy agreement ends, for example, on 30 April 2022, the limitation period begins on 1 January 2023 and ends on 31 December 2025. If the tenant has not claimed repayment of outstanding deposits by then, their claim becomes time-barred and the landlord is no longer required to repay them.
Special case: Deposit repayment when ownership changes
During a tenancy, the property may change owners. The new owner assumes all ongoing tenancy agreements and the rights and obligations arising from them. This also applies to the rental security. However, if the new owner becomes insolvent or fails to pay even after a written request, the tenant can also hold the previous owner responsible. In this case, seeking legal advice is recommended.
When and for what purposes may the landlord withhold and use the rental security? The landlord must repay the entire rental security plus any interest earned to the tenant. However, they may withhold the amount and, if applicable, even offset it. This is possible in the following cases:
- A rent payment is still outstanding.
- Cosmetic repairs were agreed upon for the move-out, but have not yet been completed.
- A service charge statement is outstanding, from which the tenant is expected to owe an additional payment.
- The tenant is in
- The tenant is in default with regard to additional payments from already completed service charge statements.
- The tenant has caused damage to the apartment.
In all cases, the landlord may retain the money and, if necessary, use it to offset the resulting financial disadvantage or damage. However, there are also restrictions. The assessment of damage must be able to withstand judicial review. In this context, the apartment handover report may be of particular importance. In the case of outstanding service charge statements, the landlord may also retain only the amount corresponding to the expected additional payments. Any amounts exceeding this must be paid out no later than six months after the end of the contract.