What you need to know about rent deposits

Moving into a new rental apartment is usually a time that involves a lot of effort on the part of the tenant due to the moving process and often also a certain degree of uncertainty about the new living circumstances. The landlord also hopes to have made a good choice as regards his new tenant. To pave the way for a pleasant tenancy for both parties, it is important to recognise the respective rights and obligations and to lay them down in the rental contract.

One of the important agreements upfront is an agreement on the payment of a rent deposit by the future tenant. We will explain all you need to know about this relevant topic.

What exactly is a rent deposit and what types of deposit are there?

The rent deposit refers to a payment to be made by the tenant to the landlord at the beginning of the rental period in an agreed amount. It is not something that is automatically payable, but requires an explicit written mention in the rental contract.

This payment, also called rental collateral, serves to safeguard the landlord in the event that the tenant does not honour his obligations arising out of the rental contract. It is thus a form of protection against all kinds of damage caused by tenants. The deposit may only be retained in part or in full at move-out if it is earmarked for a specific purpose. In addition to repair costs for damage to the rented property, legitimate claims also include unpaid utility costs and outstanding rent payments.

Our tip: Specify in detail in the rental contract the condition you want the apartment to be in at move-out; this provides security for both parties.

The usual form of deposit is a cash deposit. The sum is usually transferred to the landlord or, sometimes, handed over in cash. In the latter case, it is essential for the recipient to hand over a receipt, which the tenant should keep for future reference. Because if there are disagreements at the end of the tenancy, he will have the burden of proof.

Another option would be a rental deposit guarantee. The tenant can obtain this from a rent deposit agency and deposit a guarantee document with the landlord instead of the money. As a rule, guarantors are financial institutions with assured creditworthiness.

What is the maximum amount of the rent deposit and how must it be paid?

The amount of the deposit is clearly and unambiguously regulated in the German Civil Code (BGB). It may not exceed three months' rent. This refers to the combined basic rent; utility and other ancillary costs are excluded in the calculation. However, this does not apply in the special case of an agreed fixed-sum rent: Here, the total rental price is decisive for the calculation.

The deposit is not necessarily due in full immediately. It is legal to pay in three instalments, with the first instalment due at the exact start of the tenancy. The two other instalments are to be paid with the two following monthly rent payments.

For his part, the landlord is obliged to invest and manage the deposit payment in a special account that is insolvency-proof and separate from his other assets.

How long may the security deposit be retained after the tenant has moved out?

The answer to this question is not as clearly and unequivocally regulated by law as the amount of the deposit. What is certain is that the landlord is obliged to return the deposit with interest earned, for which he is granted a so-called "reasonable processing period". In most cases, this is between three and six months, very often depending on an outstanding utility bill.

If it takes longer, the tenant should definitely remind the landlord of the repayment and also demand it in writing. If the landlord does not provide a plausible reason for his conduct, the tenant has the right to take legal action. In order to achieve consensuality in case of discrepancies, the landlord should make the settlement more transparent to the tenant in order to clarify the situation.

It should be noted that the tenant's repayment claim is time-limited and dependent on its being claimed. A three-year limitation period begins in January of the year following the commencement of the claim. The tenant's right to the payment claim expires thereafter. Fairness dictates that the landlord should not allow this to happen.