Rental deposit

Rental Deposit - A rental deposit is a security deposit that the tenant pays to the landlord at the start of the tenancy. It serves to protect the landlord against outstanding claims arising from the tenancy-such as rent arrears, unpaid utility bills, or damage to the rental property that goes beyond normal wear and tear.

Legal Regulations Governing Rental Deposits

The security deposit is regulated by § 551 BGB and is subject to clear legal requirements. The deposit may not exceed three months’ net rent. The tenant has the right to pay the deposit in three equal monthly installments, with the first installment due at the start of the tenancy.

The landlord is obligated to deposit the security deposit separately from their own assets in a separate account-at a bank at the standard interest rate for savings deposits with a three-month notice period. The interest earned belongs to the tenant and increases the security deposit amount. This investment requirement serves to protect the tenant: In the event of the landlord’s insolvency, the security deposit does not become part of the insolvency estate.

Any agreement deviating from this to the detriment of the tenant is invalid. If the landlord demands more than three months’ net rent or insists on a lump-sum payment, the tenant may reclaim the overpayment or insist on payment in installments.

Forms of Security Deposit

In addition to the traditional cash deposit (transfer to a security deposit account), there are other common forms of security:

A security deposit savings account is opened by the tenant, funded with the security deposit amount, and pledged to the landlord. The tenant remains the account holder, and the landlord receives the savings book as collateral. This form provides both parties with transparency regarding interest accrual.

In the case of a bank guarantee (rental security deposit guarantee), the tenant’s bank issues a guarantee certificate to the landlord. The tenant pays the bank an annual fee but does not have to pay the full security deposit amount immediately. For the landlord, the bank guarantee is equivalent to a cash security deposit.

Rental deposit insurance works similarly to a bank guarantee: An insurance company guarantees the deposit to the landlord, and the tenant pays an annual premium. The cost is typically 3 to 5 percent of the deposit amount per year.

Return of the Security Deposit

After the tenancy ends, the landlord must return the security deposit, including any accrued interest, within a reasonable review period. Case law generally grants the landlord a period of three to six months during which they can review whether any claims arising from the tenancy exist.

The landlord may only withhold the security deposit for legitimate claims-such as proven damage beyond normal wear and tear, outstanding rent arrears, or utility costs that have not yet been settled. For the utility cost reserve, the landlord may withhold a reasonable portion of the security deposit until the final utility cost statement has been issued.

Practical Tip for Nuremberg and the Metropolitan Region

In the Nuremberg metropolitan region, we observe that the return of the security deposit regularly leads to conflicts between landlords and tenants. We strongly recommend that landlords create a detailed move-in/move-out report with photos when the tenant moves in and out. This is the only way to prove, in the event of a dispute, which damages occurred during the tenancy and which were already present upon move-in.

Tenants should ensure that the security deposit is actually held in a separate account and obtain written confirmation of this. In Nuremberg, several local banks offer special rental security deposit accounts with easy online pledging.

Frequently Asked Questions

Can the landlord use the security deposit during the tenancy?

The landlord may also claim the security deposit during the current tenancy if there are legitimate and due claims-such as legally established rent arrears. In this case, the landlord may request that the tenant replenish the security deposit to its full amount. However, the security deposit may not be used to settle disputed claims during the lease term.

Does the new owner have to assume the security deposit?

Yes, in the event of a change of ownership through sale, the new owner assumes the obligations of the previous landlord in accordance with Section 566a of the German Civil Code (BGB)-including the obligation to repay the security deposit. When moving out, the tenant can therefore contact the current owner, regardless of whether the security deposit was actually handed over.

What happens if the landlord has not invested the security deposit separately?

If the landlord does not invest the security deposit separately from his own assets, he violates § 551 (3) BGB. The tenant may demand that the deposit be held separately and is entitled to interest at the market rate. In the event of the landlord’s insolvency, the deposit that has not been held separately becomes part of the insolvency estate, meaning the tenant may only be able to enforce their claim on a pro-rata basis.

Can the tenant pay the security deposit in installments if they cannot afford the full amount?

Yes. Section 551(2) of the German Civil Code (BGB) expressly grants the tenant the right to pay the security deposit in three equal monthly installments. The first installment is due at the start of the tenancy; the second and third installments follow on the next rent payment dates. If the landlord requires a one-time payment of the full security deposit in the lease agreement, this clause is invalid if it disadvantages the tenant. The tenant may nevertheless claim the statutory right to pay in installments. Landlords in Nuremberg who wish to reject a potential tenant because they cannot pay the full security deposit immediately risk a breach of contract-payment in installments is a legally guaranteed right of the tenant and cannot be validly waived.

Security Deposit Accounts and Interest Obligations in Practice

Although interest rates on savings deposits have been low for years, the obligation to keep the funds separate remains. Many banks offer special rental security deposit accounts where the tenant is the account holder and the landlord is the pledgee. A cash security deposit held in a standard security deposit savings account currently yields only minimal interest-yet the tenant is entitled to this interest, and it must be paid out when the deposit is returned. Landlords who wish to invest the security deposit in their own account or in a fund must ensure that the security against attachment is maintained and that the funds can indeed be attributed to the tenant. Incorrect handling can prove costly in the event of a dispute.

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