Business Law

German law on rent deposits and guarantees

Many residential and commercial tenancy agreements contain mechanisms for protecting a landlord from economic risks. Usually tenants are required to pay a rent deposit or arrange a third-party guarantee. German law attempts to strike a balance between protecting the interests of of both landlords and tenants.

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Restrictions on rent deposits

To protect tenants, §551 of the German Civil Code (Bürgerliches Gesetzbuch, BGB) provides that rent deposits in the form of money may not exceed three times the amount of one monthly rent payment (excluding pre-payments for service charges).

If a tenancy agreement stipulates a higher amount, the excess is ineffective. The remainder of the agreement, up to the legal rent deposit amount, remains effective. Where a tenant pays a rent deposit in excess of three months’ rent, he can bring a claim against the landlord for unjustified enrichment. This claim exists regardless of when the tenancy agreement comes to an end and regardless of when the rented property is returned to the landlord. However, the claim must be brought within three years of the tenant paying the excess amount. This three year period begins to run at the end of the year in which the payment is made.

Guarantees

A rent deposit is not the only method by which a landlord can seek to secure the payment of rent. The landlord can also require the tenant to find a guarantor.

The guarantor signs the tenancy agreement and states that if the tenant fails to pay rent, he will pay instead.

In residential tenancy agreements, guarantees are limited to three times the amount of the monthly rent (excluding bills). An agreement fixing a guarantee in excess this amount is also ineffective in relation to the excess, unless the guarantee was given voluntarily.

Conclusion

Landlords have several options to secure rent payments under tenancy agreements. However, if guarantees are not given voluntarily in residential transactions, their scope will be restricted. The amount a landlord can require as a monetary rent deposit is also restricted.

Christian Solmecke is a partner at the law firm WILDE BEUGER SOLMECKE. He is the author of numerous legal publications in the area of internet and IT law. He is also an associate lecturer for social media law at the Cologne University of Applied Sciences.

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