The rental deposit (Mietkaution) protects the landlord in case there are still outstanding claims at the end of the tenancy – such as rent arrears or damage to the apartment. How high it may be, how it must be paid and invested, and when it must be returned is governed quite precisely by § 551 BGB. One key provision here: the tenant may pay a cash deposit in three equal monthly installments – a right that no one can take away contractually. This guide objectively sets out the most important points regarding the amount, installment payment, investment and repayment of the deposit, and is aimed above all at landlords who wish to let their property on a legally sound basis.
How high may the rental deposit be?
The upper limit for the rental deposit is set out in § 551 Abs. 1 BGB: it may amount to at most three times the rent attributable to one month – and this is excluding the operating costs shown as a flat rate or as an advance payment. The decisive figure is therefore the pure cold rent (Nettokaltmiete), not the warm rent.
An example: if the net cold rent (Nettokaltmiete) is 800 euros and an additional advance payment of 200 euros for operating costs is agreed, the maximum deposit is calculated from 3 × 800 euros = 2,400 euros. The operating costs are left out.
If a higher deposit is agreed in the rental contract, this agreement is not entirely void: it is reduced to the permissible maximum of three net cold rents. The tenant can reclaim the excess amount. For landlords this means: keeping cleanly to the statutory limit saves later disputes.
The right to pay in three monthly installments
If a sum of money is to be provided as security, the tenant is entitled under § 551 Abs. 2 BGB to three equal monthly partial payments. In detail this means:
- The first partial payment is due at the start of the tenancy – not already upon signing the contract.
- The further partial payments fall due together with the immediately following rent payments, that is typically with the second and third month's rent.
- All three installments must be of equal amount.
Important: this right to installments is a statutory entitlement of the tenant. The landlord may not require the full deposit to be paid all at once before move-in. If the contract demands immediate payment in full, the tenant may nevertheless rely on the statutory installment payment. According to the view of tenants' associations, the right to three installments also exists where the agreed deposit amounts to less than three months' rent.
Separate, insolvency-proof investment and interest
A sum of money handed over as security may not simply be mixed by the landlord with his own money. § 551 Abs. 3 BGB obliges him to invest the deposit with a credit institution at the interest rate customary for savings deposits with three months' notice. The contracting parties may also agree on a different form of investment.
In both cases the following applies: the investment must be kept separate from the landlord's assets. This separation is decisive – it ensures that the deposit is protected even if the landlord runs into financial difficulties or insolvency. The usual arrangement is a rental deposit account (Mietkautionskonto) or a deposit savings book held in the tenant's name and pledged in favour of the landlord.
The returns belong to the tenant and increase the security, that is: the interest is paid out together with the repayment. An exception to the obligation to pay interest applies only to housing in a student or youth residence.
What forms of deposit are there?
The deposit can be provided in various ways. The most common forms:
- Cash deposit / deposit account: the tenant pays a sum of money, which the landlord invests separately and with interest. The right to installments under § 551 Abs. 2 BGB applies directly only to this cash deposit.
- Deposit savings book: a savings book in the tenant's name that is pledged to the landlord; the interest remains with the tenant.
- Guarantee (Bürgschaft): a third party – such as parents or a bank – stands as guarantor. The tenant does not have to tie up any capital; with a bank guarantee, however, ongoing fees are incurred.
- Rental deposit insurance (Kautionsbürgschaft): an insurer acts as guarantor in return for an annual premium. The tenant pays no deposit sum but bears premium costs permanently and is liable to the insurer by way of recourse if the security is called upon.
With a guarantee and insurance, no sum of money is paid to the landlord, which is why the statutory right to installment payment does not apply here. Which form is accepted should be clearly regulated in the rental contract.
Repayment of the deposit after moving out
There is no fixed statutory deadline by which the deposit must be repaid after moving out. The landlord is entitled to a reasonable period for examination and consideration in order to clarify whether he still has any claims – for instance due to damage or unpaid rent. The case law regularly regards a period of around three to six months as reasonable.
A special case is operating costs not yet settled: if a back payment is to be expected, the landlord may retain an appropriate part of the deposit until the operating costs statement is available – but not the entire deposit if only a moderate additional claim is to be expected. The undisputed part must be paid out promptly.
Upon repayment, the interest accrued during the rental period must also be handed over. The tenant's claim to repayment becomes time-barred under the regular period of three years (§ 195 BGB).
What applies if the tenant does not pay the deposit?
If the tenant does not pay the agreed deposit or the due installments, this has serious consequences. § 569 Abs. 2a BGB provides that the landlord may terminate the tenancy extraordinarily without notice for good cause if the tenant is in default with a security payment amounting to the sum of two months' rent.
An example: with a net cold rent (Nettokaltmiete) of 600 euros and a deposit of 1,800 euros, payable in three installments of 600 euros each, the arrears already reach the limit of two months' rent after two unpaid installments (1,200 euros). Termination without notice may therefore come into consideration.
The precondition is that the deposit obligation was validly agreed at all. If the tenant pays the arrears in time, the situation can often still be defused. For landlords it is advisable to issue reminders for payment arrears early and on the record.
Deviations to the tenant's disadvantage are invalid
§ 551 Abs. 4 BGB makes it clear: an agreement deviating to the disadvantage of the tenant is invalid. The protective provisions of § 551 BGB cannot be circumvented contractually.
In practice, therefore, invalid clauses are in particular those that
- require a deposit of more than three net cold rents,
- exclude the right to payment in three monthly installments,
- waive the separate investment or the interest on the deposit (except in the special case of a student or youth residence).
Despite a clause to the contrary, the tenant can always rely on the statutory provision. For landlords this is a good reason to work with legally sound contractual rules from the outset: an invalid clause does not protect but is replaced by the law – usually to the landlord's detriment. This article provides general information and does not replace legal advice in individual cases.
