Payment of the rent deposit on an insolvency-proof account

The Federal Supreme Court (BGH) has ruled that a tenant of residential accommodation may make the payment of the deposit dependent on the landlord's designation of an insolvency-proof account.

The defendants rented a flat located on this farm as well as six horse stalls together with pasture land from the plaintiffs, who are the owners of an estate with stables and pasture land, by means of two interdependent tenancy agreements. Whereas the rental agreement for the stables does not provide for the payment of a security deposit by the defendants, the residential rental agreement contains the following provision on the provision of security in § 6 no. 2:

"At the beginning of the tenancy, the tenant shall pay the landlord a cash deposit in the amount of € 2,000.00 for the fulfilment of his obligations into a rent deposit account - to be handed over to the landlord upon moving in. The landlord shall invest this sum of money separately from his assets with a credit institution at the usual interest rate for savings deposits with three months' notice. The tenant is entitled to the interest. They increase the security. The tenant is entitled to pay the deposit sum in 3 monthly instalments. The first instalment is due at the beginning of the tenancy, the two following instalments with the second and third rent (...)."

The defendants did not pay the agreed deposit despite several requests. They pleaded that payment only had to be made once the landlords had named and proved to them a separate rent deposit account that met the legal requirements. The plaintiffs took the view that a rent deposit account did not have to be notified in advance and subsequently terminated the entire tenancy due to the lack of deposit payment. With their lawsuit, the plaintiffs sought eviction as well as reimbursement of pre-court lawyer's fees.

The district court dismissed the action. On the plaintiffs' appeal, the district court upheld the action.

The defendant's appeal against this decision was successful. The VIII. Civil Senate of the Federal Court of Justice (BGH), which is responsible for residential tenancy law, ruled that a tenant may make the payment of the security deposit dependent on the landlord naming an insolvency-proof account beforehand. Pursuant to Section 551 (3) of the German Civil Code (BGB), the landlord has to invest a rental security given to him separately from his assets, irrespective of the form of investment, if any, agreed upon. The purpose of this provision is to separate the security deposit from the landlord's assets and thus to protect it from the access of the landlord's creditors. There is no reason not to grant the tenant this protection intended by the legislator from the outset, but to leave a gap at the beginning of the tenancy by requiring the tenant to first hand over the deposit to the landlord in cash or to transfer it to a landlord's account that is not insolvency-proof. In the present dispute, the tenants therefore did not breach their duty to provide security of tenure by not paying the deposit; the termination based on this is invalid.

Judgment of the BGH of October 13, 2010 - VIII ZR 98/10
Previous instances:
AG Rheinberg - Judgment of July 20, 2009 - 12 C 498/08
Kleve Regional Court - Judgment of March 25, 2010 - 6 S 129/09


§ 551BGB reads (as of 26.10.2010): Limitation and investment of rental collateral


(3) The landlord shall deposit a sum of money given to him as security with a credit institution at the usual interest rate for savings deposits with three months' notice. The contracting parties may agree on another form of investment. In both cases the investment must be made separately from the landlord's assets and the tenant is entitled to the income. They increase security. In the case of accommodation in a student or youth hostel, the landlord is not obliged to pay interest on the security deposit. (...)


Source: Press release of the BGH


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