Rent deposit

Rent deposit / Mietkaution

May 09, 2023

Almost all tenants agree to pay a deposit when signing a tenancy agreement for a flat. The deposit is a financial payment by the tenant that serves to secure claims arising from the tenancy and its termination. The deposit thus constitutes security for the landlord/landlady. The landlord/landlady can satisfy any claims from the security deposit if the tenant does not meet his/her payment obligations. A security deposit is not required by law, but the obligation to pay a security deposit must be agreed between the parties to the tenancy agreement. As a rule, such an obligation will be agreed in the tenancy agreement. However, this agreement must comply with the legal requirements in order to be effective.

Different types of deposit

The deposit can be paid in different ways. In practice, the most common are the cash deposit, the provision of a guarantee and the handing over of a savings book in the name of the tenant. If no specific type of security is agreed upon, the tenant can provide a deposit of his/her choice.

If a cash deposit is to be paid, the tenant does not necessarily have to hand over the deposit amount to the landlord in cash; the amount can also be transferred. If the tenant agrees to hand over a savings book, he/she shall take out a savings book in his/her name for the deposit amount, which shall then be handed over to the landlord/landlady. If a guarantee is to serve as a security deposit, a third party agrees to vouch for the tenant in the event of the tenant's default.

Investment of the deposit

If the security deposit is provided in the form of a sum of money, the landlord/landlady must invest this sum in a credit institution separately from his/her own assets in accordance with section 551 (3) of the German Civil Code (BGB). This is to prevent the deposit amount from being mixed with the landlord's/landlady´s own assets, whereby the tenant does not bear the insolvency risk of the landlord/landlady with regard to the deposit amount. The tenant has a right to information from the landlord/landlady as to whether the landlord/landlady has actually invested the deposit. However, it is of particular practical relevance for tenants that the payment of the deposit can be withheld until the tenant is given a bankruptcy-proof account by the landlord/landlady. Furthermore, the cash deposit has to be invested at the usual interest rate for savings deposits with three months' notice. The interest is entitled to the tenant

Amount and due date of the deposit

According to section 551 (1) BGB the amount of the deposit may not exceed three times the monthly rent, whereby "monthly rent" refers to the net rent. This means that advance payments for ancillary costs may not be included in the basis for calculation. However, if a so-called gross rent has been agreed, the operating cost portions do not have to be deducted. Section 551 (1) BGB also contains the "prohibition of accumulation", which is not recognisable at first glance. Accordingly, the landlord/landlady may not demand several types of security deposit which together amount to more than three times the monthly rent. In this respect, an agreement according to which the tenant has to provide a cash deposit amounting to three times the net rent and a guarantee for the rent debts is invalid. A deposit agreement that violates section 551 (1) BGB and is frequently found in practice is the so-called special key deposit, according to which the tenant has to provide a key deposit in addition to the deposit. Because the agreed deposit and the key deposit together will usually be more than three times the monthly rent, this agreement is invalid insofar as it goes beyond section 551 (1) BGB.

However, according to the case law of the Federal Supreme Court (BGH) (BGH 25.06.2003. VIII ZR 344/02), the consequence of a violation of section 551 (1) BGB is not that no deposit is owed at all in total, but only a deposit in the amount of section 551 (1) BGB, because according to the BGH the deposit agreement is not void in total, but only in part. However, it can be argued with good reasons that the BGH in this respect makes a reduction that preserves the validity of the agreement, which is actually not granted in other cases.

Furthermore, the tenant does not have to pay the deposit all at once. Rather, according to section 551 (2)BGB , he/she has the right to pay the deposit in three equal monthly instalments. This applies even if the agreed amount of the deposit is less than three times the net rent. If the tenant decides to pay in instalments in accordance with section 551 (2) BGB, the first instalment shall be paid at the beginning of the tenancy. However, section 551 (2) BGB only applies to the cash deposit.

“Wear out" of the deposit

The tenant cannot "wear out" the deposit. A “wear out“ of the deposit is understood as a behaviour of the tenant in which he/she stops paying the rent in the amount of the deposit before the end of the tenancy.

Secured claims

Provided that the deposit agreement of the tenancy agreement does not contain any restriction - which should be the rule - the rental security serves to secure all claims of the landlord/landlady arising from the tenancy and its settlement. Claims that are not yet due or conditional are also secured by the deposit. However, the security deposit only secures claims arising from the specific tenancy and not further claims of the landlord/landlady arising from other legal relationships or other tenancies.

Draw down of the deposit

When asking about the possibilities of claiming the security deposit, a distinction must be made between claiming it during the tenancy and after the end of the tenancy.

During the tenancy

During the tenancy, the tenant is not entitled to the deposit. As already mentioned, he/she may not "live off" the deposit.

The landlord/landlady, on the other hand, may satisfy his/her own claims from the security deposit even during the current tenancy - however, this only applies to legally binding or undisputed landlord/landladys claims with which the tenant is in default. In contrast, the landlord/landlady can not offset disputed claims; according to the Federal Court of Justice, this would contradict the fiduciary character of the security deposit agreement. If the landlord/landlady is satisfied from the deposit, he/she is entitled to a claim for replenishment of the deposit against the tenant.

After the end of the tenancy

After the end of the tenancy and the return of the rented property, the landlord/landlady is in principle obliged to return the deposit. This is because the tenant acquires a claim to the return of the deposit subject to a condition precedent as soon as the deposit is paid. Landlords/Landladys often claim part of the deposit for themselves after the end of the tenancy. This is justified by existing claims of the landlord/landlady against the tenant. In legal terms, this is a set-off with the landlord's/landlady's own claims against the tenant's/tenant's claim for restitution.

Refunding obligation

The deposit must be returned to the tenant after the end of the tenancy. The law does not prescribe a specific period for the return of the deposit. However, it is recognised that the landlord/landlady does not have to return the deposit immediately upon return of the rented property. Rather, the landlord/landlady has a so-called review and consideration period after the return of the rented property. Within this period the landlord/landlady shall be allowed to withhold the deposit until he/she has clarified whether there are still claims from the tenancy secured by the deposit, for the settlement of which he/she could then resort to the deposit. Jurisprudence regularly assumes a review and consideration period of six months. However, this period can be extended, especially if no operating costs statement has been prepared yet. This is because the deposit also secures any additional claims from the operating costs statement. In such a case, the landlord/landlady can retain an appropriate part of the deposit as security for his/her claim for additional operating costs - at least if an additional claim is to be expected. However, this also means that the part of the deposit that exceeds the expected additional claim must be returned and can be claimed by the tenant if necessary.