In everyday language, the rent deposit (Mietkaution) is the financial safeguard against damage that a landlord asks a tenant to provide at the start of a tenancy. Officially, it is therefore also referred to as a rental security (Mietsicherheit). Many tenants and landlords are still surprised to learn that there are more reliable options for this kind of protection than the widespread practice of lodging a large sum of money. Here is an overview:
What a rent deposit has to achieve:
A rent deposit is a landlord’s or property manager’s financial safeguard for the future. If a tenant causes damage, whether to the building or the flat or through unpaid rent, the rental security means the landlord is not left to bear the costs. They can draw on the rental security, which can cover the damage in such a case. If no damage occurs, it remains unused and is returned to the tenant.
A rental security can therefore be understood as a guarantee that ensures, with 100% certainty, that the landlord receives compensation if the tenant causes damage to the rented property.
On this basis, it is possible to lodge other forms of rental security with the landlord or property manager besides a sum of money. The main thing is that, in accordance with Section 551 BGB (German Civil Code), they fulfil their basic function of providing the landlord or property manager with sufficient financial security.
Disadvantages of a cash deposit for the tenant
The maximum amount of the rent deposit is set by law and is strictly based on the amount of the rent itself. A liability amount of no more than three months‘ net basic rent (excluding service charges) is permitted as security.
Not every tenant can easily spare such a sum – or wants to. Especially when moving, there are other important expenses to cover: the move itself, the rent for a larger flat, for example when a child has arrived, or new furniture and household appliances.
Some tenants also have to wait up to six months for the deposit they previously paid to be returned, and do not want the new rental security to leave them short of money until then.
What types of rent deposit are there and what are their features?
Three are recommended, one is not. These are the best-known rent deposit options:
- Cash deposit
- Rent deposit guarantee
- Bank guarantee
- Private guarantee
What is a cash deposit?
The cash deposit (Barkaution) is the best-known form of rent deposit: a sum of money is handed over as rental security. Despite what the name might suggest, however, it does not have to be paid in cash. A bank transfer or lodging a savings book (savings deposit) is also possible.
Key points about the cash deposit:
- A cash deposit of up to 3 months‘ net basic rent may be payable.
- The cash deposit must be held in a separate rent deposit account or rent deposit savings
book. - The cash deposit must be held at a bank at the usual interest rate and with a three-month notice
period. - The cash deposit can be lodged as a savings book pledged to the landlord.
Conclusion: Recommended for anyone who does not mind doing without a large sum of money
for a longer period.
What is a rent deposit guarantee?
A rent deposit guarantee (Mietkautionsbürgschaft) is a proven and widely accepted alternative to a cash deposit. Instead of paying a sum of money directly, the tenant gives the landlord a guarantee certificate issued by a recognised insurer. The certificate guarantees that this insurer will stand surety if the tenant causes damage to the rented property. This means the insurer advances the costs of the damage. The tenant pays a small annual fee for this service.
Key points about the rent deposit guarantee:
- The tenant pays an annual service fee for the rent guarantee but can keep the
large sum of money that a cash deposit would require. - 100% secure: a rent deposit guarantee gives the landlord the same security as
a cash deposit. - If the tenant is still waiting for the deposit on their old flat to be returned, a
financial squeeze can be avoided, as the rent guarantee can be
provided immediately. - In the event of unemployment through no fault of their own, kautionsfrei.de, for example, covers the annual fee for
up to 2 years, so the tenant can continue to live without worry. - Less effort for the landlord: no account management, deposit tax or final settlement required
What is a bank guarantee?
A bank guarantee (Bankaval, also known as Bankbürgschaft or Avalkredit) is broadly similar to a rent deposit guarantee: the bank assumes liability for a tenant towards the landlord if damage occurs. It therefore offers the same security as a rent guarantee.
Key points about the bank guarantee:
- Some banks attach conditions to a guarantee, such as having an existing customer account, or charge additional costs.
- A bank guarantee gives the landlord the same security as a cash deposit.
- A financial squeeze while waiting for a deposit to be returned can be avoided, as a bank guarantee can be provided promptly if the right conditions are met.
- Less effort for the landlord: no account management, deposit tax or final settlement is required.
- With some providers or banks, applying for a guarantee has a negative impact on your credit rating.
Conclusion: Recommended for anyone looking for a quick, secure, cashless solution.
What is a private guarantee?
Here, private individuals – often parents, grandparents or siblings – act as guarantors for the rental security and are liable for the tenant if damage occurs. Although this is perfectly possible in law, it obviously involves considerable financial risk for the guarantor if damage occurs.
In addition, some landlords and property managers refuse private guarantees, because there is a residual risk of being left with the costs. Private individuals cannot guarantee their own ability to pay at all times in the way an insurer or bank can. The basic function of a rent deposit – giving the landlord 100% security – is therefore not fulfilled.
Key points about the private guarantee:
- A private guarantee involves a high financial risk for the guarantor.
- It cannot offer 100% security.
- This type of guarantee has only low acceptance among landlords and property managers.