A new apartment is often a happy new phase in life. However, even at the beginning there can be doubts about the deposit paid to the landlord. It is paid as security for the landlord and very often raises many questions – for both tenants and landlords. How high can the deposit be and is it interest-bearing? How do I avoid a landlord-tenant dispute over this issue? What rights and responsibilities does a tenant of an apartment in Germany have?
Are tenants obliged to pay a deposit for an apartment?
No, there is no top-down obligation to pay a deposit. The tenant is only obligated to do so if it is specifically agreed upon in the lease. Whether a deposit will be required and in what amount is the sole responsibility of the owner of the apartment.
However, such a clause is almost always included in lease agreements. It is undoubtedly in the landlord’s interest – the deposit serves primarily as a security in case the tenant does not pay the rent on time or the apartment is damaged.
From a legal point of view, the amount of the deposit can be negotiated between the landlord and the tenant. However, in competitive housing markets, in localities where demand for housing is very high, tenants simply specify the amount of deposit they expect. However, the legislation clearly sets an upper limit – the deposit cannot be more than the equivalent of three months’ rent (the so-called Kaltmiete).
There is, however, one exception to the above rule – if the tenant wants to make the apartment accessible to disabled people, the tenant can demand additional security.
How to pay a deposit?
It is best to pay the deposit by bank transfer to the account specified in the lease agreement. However, it is worth noting that a tenant has the right to pay the deposit in up to three installments – even if the landlord demands a single payment. The law clearly defines it – the landlord has no right to refuse a tenant to pay the deposit in installments.
Does a tenant have to pay the deposit before moving in?
The entire deposit or the first installment of the deposit must be paid when the tenancy begins. This means that the tenant does not have to make the transfer, for example, on the day of signing the agreement, before moving in. Subsequent installments of the deposit due can be transferred together with subsequent rents.
Many landlords expect the tenant to pay the deposit in cash when signing the lease. This is only acceptable if the tenancy starts immediately.
It is worth noting that the tenant, when paying the deposit in cash, should receive a written receipt from the landlord. Otherwise, he will have no way to prove that the deposit was paid.
What to do in a situation where a tenant cannot pay the deposit?
The fact that a tenant does not have a direct way to pay the deposit does not immediately mean that they have to give up on renting an apartment. There are several alternatives to a cash deposit. Possibilities include:
- Surety bond (German: Mietkautionsbürgschaft)
- Bail insurance (Mietkautionsversicherung)
- Bail loan (Mietkautionskredit)
In the case of a surety, a wealthy individual or a bank certifies that the guarantor will cover the costs in case of damage to the property or non-payment of rent. In this case, the landlord can demand from the guarantor an amount higher than the predetermined deposit amount. It is worth noting that only a few banks offer this type of service, and in addition they charge a processing fee and regular fees (monthly or annually) for guaranteeing the deposit.
Deposit insurance works more or less on the same principle as surety in case of property damage. In this situation, the insurance company covers the owner’s designated costs. However, the insurer then enforces reimbursement from the tenant. As with a surety bond, the tenant is required to pay annual premiums and processing fees. The cost of insurance, of course, depends on the amount of the security deposit.
This solution can be a good idea, because the tenant saves a high deposit amount during the move and can, for example, invest it or spend it on furnishing the new apartment. The extent to which insurance is paid depends primarily on the financial situation of the tenant. The length of the lease also plays quite an important role here.
Is it worth taking out a loan for a security deposit?
It all depends on the current financial situation of the tenant. In short – if the tenant prefers to allocate his savings for another purpose or does not have them at all – a loan may be the right solution here. In such a situation, the amount originally intended for the deposit can be invested and thus achieve a higher growth than the cost of the loan.
Even if the tenant’s financial situation is not bad, it may be that a loan is a good idea. Especially in times of low interest rates, loans are available at extremely affordable rates. Most security deposit loans come with very low interest rates. Depending on the agreement you have with your bank and the type of account you have, a debit line may also be available. However, this very often comes with a slightly higher interest rate.
A security deposit loan has its advantages and disadvantages – if the tenant does not cause any damage, the security deposit amount will be returned to his account. However, he will be required to pay the loan installments every month. Therefore, you should determine your monthly financial capacity before making such a decision.
How does the landlord have to keep the deposit?
There are clear rules on this issue: a landlord cannot keep the deposit in his private account. Instead, he must deposit the entire deposit into a separate, designated account. Pooling the security deposit with the landlord’s private assets is not allowed. A so-called escrow account is usually used for this purpose.
Are there alternatives to an escrow account?
Yes, the landlord can also deposit the security deposit elsewhere – however, in this case, both the landlord and tenant must state this in the rental agreement. Alternatives to an escrow account include, for example:
- savings book,
- open savings account,
- special deposit of security deposit,
In the case of a passbook, the tenant together with the landlord open such an account where the entire amount of the security deposit is placed. Either option requires constant access to the money – in the event of termination of the lease by either party, the landlord must be able to withdraw the money and return it to the tenant in a timely manner.
Can the landlord increase the security deposit?
No, the security deposit included in the lease is valid for the entire duration of the lease. Even if the rent increases, the landlord cannot request an increase in the security deposit. If the lease agreement does not include a security deposit, this also works in the tenant’s favor because the landlord cannot later require the security deposit to be paid – the contents of the lease agreement are valid for the entire period contained therein.
What can the landlord use the deposit for?
There are strict rules on this too – the landlord can only access the deposit at the end of the tenancy. The security deposit itself is meant to protect the landlord from such situations:
- Payment of rent arrears,
- Damage to the property or part of it (broken doors, windows, damage to the fitted kitchen),
- Claims for unpaid utility charges,
When is the landlord obligated to return the tenant’s security deposit?
The law does not define specific dates on this issue. Several court decisions have defined different deadlines. According to these decisions, landlords have between two and six months to repay the security deposit. During this time, the landlord should check whether any serious damage has occurred and whether there are any claims for unpaid rent.
Important: the tenant right after moving out should make a return report and ask for the landlord’s signature. Photos that show the condition in which the apartment is returned are also necessary. This is an excellent way to prove that you are not at fault and are not responsible for any damage to the apartment.
Unfortunately, sometimes tenants need a little more patience – a landlord can withhold a security deposit for up to six months if a utility bill has still not been delivered. However, the landlord must justify the delay. Thus, he must be able to present why he assumes that there will be an additional charge that he will have to settle with the amount from the security deposit.
Furthermore, he may not retain the entire amount to settle this charge, but only the “appropriate portion”. The Hamburg District Court determined this amount in its judgment. The landlord may retain a maximum of three to four monthly advances to cover additional costs. If the tenant has paid, for example, a flat fee of €200 per month for utilities throughout the rental period, the landlord can keep a maximum of €800 of the deposit until settlement. As soon as the amount of the bill is deducted from the deposit, the landlord is obliged to return the money.