Rental Deposits in Germany: Legal Limits, Rules, and Return Deadlines

For landlords in Germany and especially those renting out furnished apartments on platforms like Wunderflats, security deposits (Kaution) are a key tool for safeguarding their property. At the same time, German tenancy law sets strict rules around how deposits can be requested, stored, and returned.

Missteps can easily lead to legal disputes, strained landlord–tenant relationships, or even financial penalties. This article provides a clear, practical guide to the legal framework governing rental deposits in Germany.

Whether you are a German property owner or an international landlord renting to tenants in Germany, understanding these rules is essential for compliance and for protecting your property without violating tenant rights.

1. Legal Framework for Rental Deposits in Germany

The legal foundation for rental deposits is set out in § 551 of the German Civil Code (Bürgerliches Gesetzbuch, BGB). This section defines what landlords can request and how deposits must be handled. The key provisions are:

1.1 Maximum Deposit Amount

The deposit cannot exceed three months’ net cold rent (Kaltmiete).
- Net cold rent means the rent excluding utilities, service charges, or heating costs.
- For example, if the net cold rent is €1,000, the maximum deposit is €3,000, even if utilities add another €200–300 per month.

This legal cap is absolute. Any clause in a rental agreement demanding a higher amount is invalid.

1.2 Separation of Funds

Landlords are legally required to keep the deposit separate from their personal assets. Specifically:

The money must be placed in a separate bank account, ideally a special Mietkautionskonto (rental deposit account).
The deposit must be protected from the landlord’s creditors. If the landlord were to face insolvency, the deposit should remain secure for the tenant.

Failing to keep the deposit separate can expose landlords to legal claims and undermine trust with tenants.

1.3 Interest Rules

Every landlord must treat the deposit as the tenant’s money, held in trust, earning interest, and protected from the landlord’s personal finances. Ignoring this obligation, even in a low-interest environment, is a violation of tenant rights.

Under § 551(3) of the German Civil Code (BGB), a landlord who takes a cash deposit must follow strict rules on how the money is stored:

Interest-bearing account: The deposit must be placed in a standard savings account with a three-month notice period, which earns the usual interest rate (for such accounts).
Tenant’s money, not yours: Any interest earned belongs to the tenant. It must be added to the deposit amount and returned at the end of the tenancy (minus any lawful deductions).

Separate from personal assets: The deposit account must be kept strictly apart from the landlord’s private funds. This ensures it is protected even if the landlord runs into financial difficulties.

No Waivers or Exceptions Allowed

Even if the interest earned today is minimal, the duty remains in force. Landlords cannot argue that interest is irrelevant.
Invalid lease clauses: Any contract clause that tries to waive the tenant’s right to interest, or that allows the landlord to mix deposit money with personal funds, is legally void. Such provisions have no effect under German law.

2. Payment Rules: How and When Tenants Pay

German law also regulates the payment process, giving tenants flexibility and protection.

2.1 Installment Payments

Tenants have the right to pay the deposit in up to three equal monthly installments:

The first installment is due at the start of the tenancy.
The remaining installments are due with the following two monthly rent payments.

Landlords cannot legally demand the full deposit in one upfront payment unless the tenant voluntarily agrees.

2.2 Forms of Deposit

Landlords can accept different forms of deposit:

Cash Deposit: The most common method, paid into the landlord’s designated account.
Bank Guarantee (Bürgschaft): Instead of transferring cash, the tenant provides a bank-issued guarantee, which assures payment to the landlord if needed.
Third-Party Guarantee: Sometimes, parents or relatives issue a guarantee, particularly for student tenants.

Under § 551 BGB, tenants may pay the deposit in cash or, if both sides agree, through “another form of investment” such as a bank guarantee (Bürgschaft) or a pledged savings account.

Landlord’s Rights in Practice

Cash is the default: Unless your rental contract explicitly allows alternatives, you can insist on a standard cash deposit.
No obligation to accept a guarantee: A landlord is not legally forced to accept a bank guarantee. Many leases specify cash only, and courts uphold this as valid.
Agreement required: If you and your tenant agree on another form, like a guarantee or deposit insurance, that is permitted but it must be by mutual consent.

Common Practice

Some landlords prefer guarantees because they avoid handling money directly.
Others avoid them because guarantees can be more complex to enforce and may involve banks refusing payout without dispute.
To avoid misunderstandings, make sure the lease clearly states what forms of deposit you accept.

No Double Security

German law forbids demanding more than three months’ net rent in total, regardless of the form.
You cannot ask for two months’ cash plus a guarantee worth another two months — the cap always applies.

In practice: If a tenant proposes a bank guarantee, you may consider it, but unless your lease allows it, you are within your rights to require cash instead.

3. Use of the Deposit: What It Covers

The deposit exists to protect landlords, but its use is strictly limited.

3.1 Permissible Uses

Landlords may use the deposit to cover:

Unpaid Rent: Including base rent and agreed utilities.
Utility Costs (Nebenkosten): If the tenant leaves before final utility bills are available, the landlord may withhold part of the deposit until actual costs are settled.
Property Damage Beyond Normal Wear and Tear:
- Example: Broken furniture, burn marks, holes in walls.
- Not included: Normal aging of appliances, slight wall discoloration, minor scratches.

3.2 Prohibited Uses

Not Prepayment of Rent: Landlords cannot apply the deposit toward ongoing monthly rent.
Not for Normal Wear and Tear: German courts consistently distinguish between ordinary usage and actual damage.

Clear documentation (photos, inspection reports, receipts) is critical when landlords intend to withhold money for damage.

4. Return of Deposit: Rules and Deadlines

Returning the deposit is a sensitive step and often the source of disputes.

4.1 Legal Standard

German law states that the deposit must be returned “within a reasonable period” after the tenancy ends. The law does not fix an exact timeframe, but case law provides guidance.

What “Reasonable Period” Means in Practice

3 to 6 months is generally considered reasonable.
The exact period depends on the circumstances, especially the timing of final utility bills.
There is no specific number of days or months written into the law.
Courts usually allow landlords a window of up to 6 months in complicated cases (for example, when waiting on annual utility bills or dealing with disputed damage).
If there are no damages and all service charges are settled, landlords are expected to return the deposit much sooner, often within a few weeks.

In short: Think of 6 months as the maximum outer limit in rare, complex cases. In most straightforward cases, landlords should return the deposit much earlier to avoid disputes.

4.2 Withholding for Utility Bills

Since utility bills (Nebenkostenabrechnung) are typically issued annually, landlords may retain a portion of the deposit to cover expected costs (such as a pending utility bill or the cost of a small repair). However:

Only hold back what is necessary: If a utility bill is expected to be around €150, you should not hold the tenant’s entire €3,000 deposit, just a reasonable portion to cover that amount.
Return the rest promptly: The balance must be paid back to the tenant without unnecessary delay.
Courts disapprove of blanket retention: Keeping the entire deposit for months when only a minor issue is pending is generally seen as excessive and could expose the landlord to legal claims.

In practice: Always return the majority of the deposit quickly, and only retain what you can reasonably justify for specific, outstanding costs

4.3 Return Process

Landlords must:

Provide the tenant with a settlement statement (Abrechnung) if deductions are made.
Return the balance by bank transfer.
Include any accrued interest (if applicable).

Delays beyond the reasonable period without justification may expose landlords to claims for damages or interest penalties.

5. Common Mistakes to Avoid

Even experienced landlords can make errors when handling deposits. The most frequent pitfalls include:

5.1 Demanding More than 3 Months’ Rent

Attempting to request a deposit above the legal cap is unenforceable. Such clauses can damage credibility and may give tenants grounds to challenge the entire agreement.

The statutory cap is absolute. If a landlord demands or accepts more than three months’ net rent as a deposit, that extra amount is considered unjust enrichment. Tenants can reclaim the excess through court if the landlord refuses to return it voluntarily.

5.2 Mixing Deposit with Personal Finances

Keeping the deposit in a personal account or using it for personal expenses is strictly prohibited (breach of § 551(3) BGB). The deposit must be held separately from the landlord’s own money in an interest-bearing account.

Tenants who discover this may legally demand immediate separation of funds.

5.3 Excessive Delays in Returning the Deposit

Failing to return the deposit—or unjustifiably holding the entire amount for longer than six months—can lead to legal disputes and claims for damages.

5.4 Lack of Documentation

Without clear inspection reports or receipts, landlords may lose disputes over deductions. Courts typically side with tenants if the landlord cannot prove damage.

German tenancy law is strict, and errors with deposits are not just “bad form”: they can have serious legal consequences.

Invalid Contract Clauses

Any lease term that tries to reduce the tenant’s rights under § 551 is legally invalid.
This includes clauses such as:

“No interest will be paid on the deposit.”
“Tenant waives the right to deposit return.”
“Deposit will be used as advance rent.”

These provisions have no legal effect, even if signed. Courts will strike them down.

A landlord who fails to comply with deposit rules may face:

The court orders to correction of improper handling.
Claims for repayment of excess deposits.
Liability for damages if the tenant suffers financial loss from improper storage or delayed return.

In short: Deposit rules are not optional “best practice.” They are binding law, and violations expose landlords to legal claims.

6. Practical Tips for Landlords

To stay compliant while safeguarding your property, consider the following best practices:

6.1 Written Confirmation of Deposit

Always provide a written receipt or confirmation when you receive the deposit. This reassures tenants and provides proof in case of dispute.

6.2 Conduct Thorough Check-In and Check-Out Inspections

Perform a joint inspection with the tenant at move-in and move-out.
Document the condition of the property with photos and a signed protocol.
This makes it far easier to prove damage later.

6.3 Maintain a Separate Bank Account

Open a dedicated Mietkautionskonto or a savings account linked to the rental unit. This ensures compliance and simplifies accounting.

6.4 Keep Detailed Records

If deductions are necessary:

Keep invoices, receipts, and written explanations.
Provide a clear statement to the tenant showing how the deposit was used.

6.5 Communicate Clearly

Set expectations at the beginning of the tenancy about deposit handling.
Inform the tenant early if part of the deposit will be withheld pending utility bills.
Transparent communication reduces disputes and builds trust.

7. Advanced Legal Considerations for Rental Deposits

While § 551 of the German Civil Code (BGB) sets the core rules on rental deposits, there are several extra legal details landlords need to know.

a. What Forms of Deposit Are Allowed

No double security: You cannot demand multiple forms of deposit at once if the total exceeds the three-month legal limit. For example, you can’t ask for two months’ rent in cash plus a guarantee worth two more months.

b. Deposit in Case of Property Sale

When a rental property is sold, the question arises: who is responsible for the tenant’s deposit?

BGB § 566a BGB makes this crystal clear: the new owner automatically assumes liability for the deposit, even if the former landlord never actually handed over the money.
For tenants, this provides strong protection: they don’t have to chase the old landlord. The new owner must repay the deposit at the end of the lease.
For landlords, this means when selling a property, you should always transfer the deposit funds to the buyer to avoid double liability. If you fail to do so, both the old and the new owner remain on the hook until the tenant gets their money back.

If the old landlord didn’t transfer the deposit money to the new one, the previous landlord may still be liable. In practice, both old and new landlords can be held responsible until the tenant gets their deposit back.

c. Offsetting the Deposit Against Rent

Tenants cannot simply stop paying rent in the last months and claim you should take it from the deposit. The deposit is only for unpaid rent or damages after the lease ends.
An exception may apply if the landlord becomes insolvent (bankrupt).

Insolvency Exception: Offsetting Rent Against the Deposit

Normally, tenants are not allowed to use the deposit as rent payment during the tenancy. But German courts have recognized a narrow exception:

If a landlord becomes insolvent (bankrupt) and the deposit is at risk of being lost to creditors, tenants may be permitted to offset the deposit against future rent payments.
This is not a standard right in everyday rentals; it’s a protective measure courts allow to prevent tenants from losing their deposit entirely in insolvency proceedings.
Outside of insolvency, tenants must always continue paying rent normally, and the deposit remains security until the tenancy ends.

d. Broader Legal Framework

The rules on deposits are part of the wider tenancy law in the BGB (§§ 535–580a). This means they link with rules about rent payments, maintenance, modernisation, and termination. Knowing this helps landlords understand that deposit rules cannot be read in isolation—they’re tied to other tenant rights and landlord duties.

e. Deposit Replenishment

If the deposit has already been used (e.g., for repairs), you can legally ask the tenant to top it up to the agreed amount.

8. Case Examples

To illustrate how these rules play out in practice, here are a few scenarios:

Example 1: Furnished Apartment with High Rent

A landlord rents out a furnished apartment for €1,500 net cold rent plus €250 utilities. The maximum deposit is €4,500. Even though the apartment is furnished and valuable, the landlord cannot legally demand more.

Example 2: Unpaid Rent

The tenant moves out owing one month’s rent of €1,200. The landlord deducts this from the €3,600 deposit, returning €2,400 within three months. This is fully compliant.

Example 3: Pending Utility Bill

The tenant leaves in June, but the landlord’s building utility accounts close in December. The landlord may withhold a portion of the deposit (e.g., €400) until the actual costs are calculated, returning the remainder promptly.

Example 4: Damage Dispute

During the move-out inspection, the landlord finds a broken sofa worth €600. The landlord keeps the invoices and deducts this amount from the deposit. Since the damage is beyond normal wear, the deduction is valid if documented.

9. Landlord Checklist

Before, during, and after the tenancy, landlords can use this checklist to stay compliant:

Before Tenancy
- Ensure the deposit amount does not exceed 3 months’ net cold rent.
- Set up a separate account.
- Provide tenants the option of paying in installments.
During Tenancy
- Confirm receipt of deposit in writing.
- Keep the deposit untouched except for valid deductions at tenancy end.
At the End of Tenancy
- Conduct a joint inspection and document the condition.
- Prepare a clear settlement statement if deductions apply.
- Return balance within 3–6 months, keeping only what is justified for utility bills.

Always keep in mind, a rental deposit is not income for the landlord. Legally, it always remains the tenant’s property. Landlords cannot spend, invest, or use the deposit for personal purposes. That’s why German law is strict about how it must be stored, managed, and returned.

For landlords renting out furnished apartments via Wunderflats or independently, understanding and complying with Germany’s strict deposit rules is essential. The three-month cap, separate account requirement, installment payment option, and timely return obligation are all non-negotiable under the BGB.

By following the rules and avoiding common mistakes, landlords can safeguard their interests while respecting tenants’ rights.

Legal review by Stephan Hartmann, Ass. jur., Data Privacy Officer at Lecturio — Tbilisi, Georgia

Disclaimer: The contents of this page have been prepared for your information and Stephan Hartmann, Ass. jur., Data Privacy Officer at Lecturio has been commissioned to check the legal correctness of this article. However, this article does not constitute legal advice. Always consult a legal professional for personalized guidance, especially if you're renting out property in Germany as a non-resident landlord or in complex circumstances.