Security deposit

Security Deposit - A security deposit is a form of security that the tenant provides to the landlord upon signing the lease agreement. It serves as a safeguard against outstanding claims arising from the tenancy-such as unpaid rent, unpaid utility bills, or claims for damages resulting from damage to the rental property.

What exactly does “security deposit” mean?

The legal framework for the security deposit is clearly defined in Section 551 of the German Civil Code (BGB). The most important provision: The security deposit may not exceed three months’ net base rent-that is, three months’ basic rent excluding utilities. The tenant has the right to pay the security deposit in three equal monthly installments. The first installment is due at the start of the tenancy, and the remaining two installments are due together with the next two rent payments. Any agreement requiring the tenant to make an immediate lump-sum payment of the entire security deposit is invalid.

The landlord is legally required to invest the security deposit separately from their own assets-at the standard interest rate for savings deposits with a three-month notice period. In practice, the security deposit is usually deposited in a separate security deposit account (escrow account or special account) at a bank. The interest earned belongs to the tenant and increases the security deposit amount.

The rental security deposit guarantee (deposit insurance) has established itself as an alternative to the traditional cash security deposit. In this case, a financial institution or insurer issues a guarantee certificate for the deposit amount. The tenant pays an annual premium for this (typically 3-5% of the deposit amount) but does not have to make a large one-time payment. However, the landlord is not obligated to accept a guarantee in lieu of a cash security deposit-this requires a contractual agreement.

After the tenancy ends and the apartment is properly returned, the landlord must settle the security deposit within a reasonable period and refund the unused amount. Case law generally grants the landlord up to six months to do so, during which time they can verify whether any outstanding claims exist-particularly regarding the final utility bill. In the case of disputed claims, a reasonable portion of the amount may be withheld.

Rights and Obligations in Security Deposit Management

Security deposit management entails clear obligations for landlords. Separate investment is mandatory: Anyone who leaves the security deposit in their own checking account or mixes it with their personal assets is acting in breach of duty and becomes liable in the event of insolvency. In this case, the tenant may demand repayment of the security deposit regardless of any outstanding claims.

Proper documentation is also crucial: The landlord should be able to provide the tenant with proof of how the security deposit is held. In the event of a change in ownership, the security deposit automatically transfers to the new owner (Section 566a of the German Civil Code, BGB)-who is then liable for its repayment, even if they did not receive the deposit from the previous owner.

Practical Tip for Landlords in Nuremberg and Franconia

In the Nuremberg metropolitan area, the average net rent (excluding utilities) for a 70-square-meter apartment ranges between 600 and 900 euros, depending on the location-the maximum permissible security deposit thus falls within a range of approximately 1,800 to 2,700 euros. For landlords in neighborhoods such as Erlenstegen, Mögeldorf, or the Old Town, where rent prices are higher, the security deposit amount is correspondingly higher.

We advise landlords in the region to set up a separate security deposit account at a local bank or savings bank and to carefully document the account statements. When the lease ends, we are happy to assist you with a structured security deposit statement that transparently lists all outstanding items and is legally compliant.

Frequently Asked Questions

Does the landlord have to pay interest on the security deposit?

Yes. According to Section 551(3) of the German Civil Code (BGB), the rental deposit must be invested with a financial institution at the interest rate customary for savings deposits with a three-month notice period. The interest accrued is due to the tenant and is added to the deposit. Although returns are low during the current period of low interest rates, the obligation to invest remains unchanged. The landlord is liable for lost interest if they have not invested the security deposit properly.

How long may the landlord retain the security deposit after the tenant moves out?

After the tenancy ends, the landlord is entitled to a reasonable period for inspection and settlement. Case law generally provides for three to six months for this purpose. For the outstanding utility bill, a reasonable portion may be withheld until the final settlement. Unjustified delays exceeding six months entitle the tenant to seek immediate repayment through the courts.

Can the tenant offset the security deposit against the final months’ rent?

No. The tenant may not offset the final months’ rent against the security deposit on their own initiative-not even if the tenancy has already been terminated. The security deposit serves as security for all of the landlord’s claims arising from the tenancy and is only due for repayment after the tenancy has been fully settled. An unauthorized offset by the tenant constitutes a breach of duty and may result in consequences of default.

How is the security deposit handled in the event of a change in ownership?

If a landlord sells the rented property, the tenancy agreement automatically transfers to the new owner pursuant to Section 566 of the German Civil Code (BGB)-this also applies to the security deposit. Pursuant to Section 566a BGB, the new owner is liable to the tenant for the repayment of the security deposit, even if they never received it from the previous owner. It is the buyer’s responsibility to ensure in the purchase agreement that the seller either transfers the security deposit or that the purchase price is reduced accordingly. Buyers of rented properties in Nuremberg should therefore explicitly stipulate in the purchase agreement that all security deposits are transferred or credited. The total amount of outstanding security deposits is substantial when there are multiple tenants-for an apartment building with six units and an average monthly rent of 700 euros, this can quickly add up to 12,600 euros, which the buyer would otherwise have to repay out of their own pocket.

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