10 questions to ask about bail – Security – on both sides

At the beginning of a tenancy, the landlord may require the tenant to provide a security deposit. This is mostly done with the rental deposit. A prerequisite is an appropriate agreement in the lease. Rent deposits are intended to protect the landlord in the event the tenant fails to pay rent or causes damage to the property.

The following questions are covered in this article:

1. What are the most common forms of rental security deposit?

The cash deposit: the tenant transfers the amount of money to the landlord into an escrow account. He is entitled to pay the sum in three consecutive monthly installments, with the first installment due at the beginning of the tenancy.

Pledging a savings account: the tenant establishes a savings account with the required security deposit amount and pledges it in favor of the landlord. Credit unions have forms available for pledge statements. The form should include a clause stating that the credit institution will inform the tenant if the landlord requests payment of the deposit money. The passbook is given to the landlord along with the pledge statement.

Savings book with a blocking notice: The tenant transfers the savings book set up with the rental security directly to the landlord. The savings account should be previously blocked by the financial institution, ensuring that each party can only dispose of the savings account receivables with the consent of the other party.

The guarantee by a third party: The guarantor stands in for the tenant's obligations under the lease. The guarantee should be limited to the allowable three months' rent. It must be made in writing and must be signed by the guarantor personally. The guarantee form is given to the landlord. If no third party is available, a bank can also act as guarantor. One disadvantage in this case is that banks charge fees for providing a guarantee.

2. What is meant by an "insolvency-proof investment of rental security"?

If the rental security is paid as a cash deposit, the landlord is required to place the deposit in an escrow account separate from its assets. If the landlord is insolvent, creditors will not have access to the tenant's security deposit in this case. The tenant can require the landlord to provide proof of an insolvency-proof account and withhold payment of the security deposit until proof is provided (Federal Court of 13. October 2010 – VIII ZR 98/10).

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

Yes. § 551 Abs. 3 BGB stipulates that the deposit must be invested at the usual interest rate for savings deposits with a three-month notice period. The interest accrued increases the deposit amount and is due to the tenant after the lease ends. If the deposit is not invested in accordance with the law, there is a breach of contract, which obliges the landlord to pay damages. The damage consists of the loss of interest due to the failure to invest. The loss of interest can be calculated by a credit institution.

4. What does "overcollateralization" mean?

The landlord may demand a maximum of three months' rent (excluding advance payments for heating and operating costs) as rent security. If he demands more, there is an impermissible overprotection. The tenant can then reclaim the excess amount. It's also illegal for a landlord to ask for anything else besides a cash deposit, such as a surety bond, and thereby obtain a total of more than three months' rent security. But beware: the restriction to three months' rent does not apply if a third party (for example, a student's mother) voluntarily and unsolicitedly provides the landlord with a guarantee for the liabilities under the lease (Federal Court of Justice of 7. June 1990 – IX ZR 16/90).

5. What happens if the landlord uses the deposit during the current tenancy??

If the landlord has claims against the tenant arising from the tenancy and offsets them against the deposit, the deposit is reduced and the landlord can demand that it be increased again to the amount of three months' rent. However, during the rental period, the deposit may only be accessed because of legally established, undisputed or obviously justified claims. Disputed claims do not entitle you to access. This does not change even if it is expressly agreed in the lease that the landlord can satisfy himself because of due claims even during the tenancy from the deposit. Such an agreement in the lease is invalid (Federal Court of Justice of 7. May 2014 – VIII ZR 234/13).

6. What happens when there is a change of homeowner?

If the home is sold, the new owner takes the legal position of the old one and can claim the transfer of the deposit. In contrast to the cash deposit, the tenant's cooperation is required when transferring a pledged savings book. If the tenant refuses to cooperate, the old owner will release the rental collateral to the tenant to protect against future liability. In this case, the new landlord is entitled to renewal of the rental security (Berlin Regional Court of 6. July 2010 – 63 S 319/09).

It is different if the old owner has already returned the deposit to the tenant or declared the release of the pledged savings account before the sale of the house or apartment. Thus, the deposited security is waived by mutual agreement and the lease agreement is amended. The new owner can then not demand renewal of the deposit from the tenant after the sale, as there is no contractual basis (Landgericht Berlin vom 15. March 2011 – 65 S 283/10).

7. May the rent deposit be used up?

No: The tenant may not simply stop paying rent three months before the end of the tenancy on the grounds that the landlord can draw on the rent security deposited. This would undermine the security purpose of the deposit. Although the tenant probably does not have to fear termination of the tenancy, which is ending anyway. However, legal fees loom if landlord has lawyer collect back rent.

8. When is the return of the deposit?

After termination of the tenancy and return of the apartment, the landlord must account for the rent deposit within a reasonable period of time. The settlement period is not regulated by law. Since claims for damages by the landlord become time-barred six months after the return of the apartment, case law holds that the landlord also has that long to account for the deposit. However, the settlement period can also be much shorter, for example, if the landlord can immediately determine without problems, which claims he is entitled to against the tenant.

9. Is the landlord allowed to retain part of the deposit for operating costs?

Yes. If an operating cost account is still outstanding and is to be expected with an additional claim against the tenant, the landlord may retain an appropriate portion of the deposit until the operating costs are settled.

10. How is the repayment of the deposit?

If there are no claims against the tenant, the cash deposit plus accrued interest is returned to the tenant. If you have a guarantee, the guarantee certificate will be given to the guarantor. In the case of the pledged savings bank book, the landlord declares to the credit institution that the pledge has been released and returns the savings bank book to the tenant. If there are claims against the tenant, the landlord can offset them against the cash deposit and transfer the remaining amount to the tenant. In the case of a guarantee, the guarantor makes a claim and returns the guarantee deed as soon as his claims are satisfied. In the case of a pledged savings book, the landlord shows his claims to the credit institution and asks for release of the claim. The credit institution informs the tenant and returns the required amount after four weeks to the landlord, provided that no objections are made by the tenant in this time.

Sample letter to your landlord:

This article does not replace legal advice. Before following the instructions, you should definitely seek legal advice. The BERLIN RENTERS ASSOCIATION e.V. is at your disposal.

TenantMagazine 6/14

Illustrations: Julia Gandras

Illustration by Julia Gandras

Deposits can be protected against unjustified access by the landlord

Illustration by Julia Gandras

A good rental security has the interests of both parties in mind

Illustration by Julia Gandras

If there are no claims after the end of the contract, the tenant has the right to get the deposit back within a reasonable period of time