Rental deposit: cap, escrow and payout

Last updated: 29 August 2026 · Reading time approx. 8 minutes

The rental deposit (Mietkaution) sits in your account but does not belong to you. That is exactly where the three costly mistakes in a German rental portfolio come from: a deposit set too high, money kept among your own funds, and a sale in which nobody thought about the deposits. § 551 BGB governs the cap and the escrow duty, § 548 BGB starts the clock for settling up, and § 566a BGB decides who has to repay after a change of owner.

The cap: three months' rent – excluding service charges

Under § 551 Abs. 1 BGB the security may not exceed "three times the monthly rent, excluding any service charges shown as a flat rate or as an advance payment". The clause after the comma is the real content of the provision: the basis is the net rent (Netto-Kaltmiete), not the sum the tenant transfers each month.

Item in the tenancy agreement	Amount	Counts towards the cap?
Net rent	900 €	yes
Service charge advance	160 €	no
Heating cost advance	90 €	no
Parking space (same agreement)	50 €	yes
Relevant monthly rent	950 €	—
Maximum permitted deposit	2,850 €	3 × 950 €

A landlord who instead uses the gross rent of 1,200 € asks for 3,600 € – 750 € above the cap. The excess is void under § 551 Abs. 4 BGB: an agreement deviating to the tenant's disadvantage has no effect, even if both sides signed it.

Residential only. § 551 BGB sits in the sub-title "tenancies for residential premises", which § 549 Abs. 1 BGB positions as special law against § 535 to 548 BGB. The three-month cap therefore does not apply to commercial space, where higher security is a matter of negotiation. In a mixed-use building run on one contract template, residential law quietly migrates onto the commercial unit, or the other way round.

The tenant may pay in three instalments

§ 551 Abs. 2 BGB gives the tenant the right to three equal monthly instalments. The first falls due at the beginning of the tenancy, the others "together with the immediately following rent payments". In practice: you cannot make the full deposit a condition for handing over the keys. A template that demands the entire deposit before move-in deviates to the tenant's disadvantage.

In the example above, 3 × 950 € flows in – at the start of the tenancy and with the second and third month's rent. For the liquidity plan of a freshly renovated property that matters: the deposit is only complete in month three, and even then it is not free cash.

Escrow duty: separate from your own assets

§ 551 Abs. 3 BGB demands three things at once. First, deposit with a bank "at the interest rate customary for savings deposits with three months' notice". Second – and this is the core – the investment "must be kept separate from the landlord's assets". Third, the returns belong to the tenant and increase the security.

The parties may agree a different form of investment, but the separation duty applies "in both cases" under the wording of the statute. Parking deposits in the business current account or a private savings account therefore does not satisfy it, regardless of the interest earned there. For rooms in student or youth hostels only the duty to pay interest falls away, not the separation.

The reference rate that no longer exists

The rate § 551 Abs. 3 BGB points to used to be published by the Deutsche Bundesbank as its own series – savings deposits at a minimum/basic rate with three months' notice. That series, the Bundesbank itself writes, "was often used in the past as a reference value for the interest on rental deposits". It was discontinued at the end of the reporting month of June 2003.

The successor category in the MFI interest rate statistics – household deposits redeemable at notice of up to three months – stood at 0.71% p.a. in June 2026 (provisional figure). It also contains other products, such as savings deposits with loyalty and growth bonuses, and the Bundesbank states plainly that the rate for the narrow category lies below that figure and cannot be derived by a flat deduction.

What that means in practice: on the 2,850 € deposit from the example, the closest published rate yields roughly 20 € of interest a year. Across twelve flats with an average deposit of 2,400 €, you hold 28,800 € of other people's money and about 204 € of annual interest on top, all of which belongs to the tenants. The work is therefore not in the return but in the evidence – and after three years on a pooled account that evidence cannot be reconstructed.

One side effect of § 551 Abs. 3 Satz 4 BGB is often missed: because the returns increase the security, the balance may exceed the three-month cap – § 551 Abs. 1 BGB expressly makes its limitation subject to that sentence. Accrued interest therefore does not breach the cap.

Settling up after move-out: the BGB sets no deadline – § 548 BGB does

The common statement that a landlord has three or six months to settle the deposit appears in no statute. § 551 BGB governs the cap and the escrow, not repayment, and names no date; how long an inspection may take is assessed by the courts case by case.

What does exist is a statutory limitation period. Under § 548 Abs. 1 BGB the landlord's claims for compensation for changes to or deterioration of the leased property become time-barred after six months, counted from the point at which he gets the property back. Not from the end of the contract, not from the settlement – from the handover back.

An important distinction: those six months concern damage to the property. Rent arrears — which in the worst case lead to terminating the tenant for rent arrears — and the balance from the service charge statement do not fall under § 548 Abs. 1 BGB – the general limitation rules and the statement's own deadlines apply, which the article on the service charge statement sets out. Conversely, tenant claims for reimbursement of expenses are also time-barred after six months under § 548 Abs. 2 BGB, but there the clock starts when the tenancy ends.

Record the handover date – it starts the six-month clock of § 548 Abs. 1 BGB.
Document damage on the handover day, not after refurbishment.
Obtain quotes or invoices instead of deducting round numbers.
Before deducting for redecoration, check whether the tenant owes the cosmetic repairs at all – where the clause is void there is no claim and therefore no ground for a deduction.
Put the settlement in writing: deposit, accrued returns, every deduction with evidence.
Pay out the balance and keep proof of the payment.

Buying and selling: § 566a BGB is a liability risk

This provision is two sentences long and is overlooked in almost every portfolio purchase. Where the tenant of the sold dwelling has provided security, § 566a Satz 1 BGB puts the acquirer into the rights and obligations it created. Sentence 2 adds: if the tenant cannot obtain the security from the acquirer when the tenancy ends, the former landlord remains obliged to return it.

For both sides of a portfolio deal that produces one concrete check:

Role	Risk	What belongs in due diligence
Buyer	Owes the deposit but never received the money	Deposit schedule per unit, account evidence, actual transfer as a completion condition
Seller	Stays on the hook for repayment if the buyer does not perform	Document the transfer, tell tenants who now holds the money

Reducing the purchase price by the deposit total is no substitute for the transfer – it does not change who the tenant faces. Other people's money also belongs in no yield calculation, unlike the items covered in the article on non-recoverable service charges. With the contract you also inherit the length of the tenancy – and with it the deadlines that can push an own-use notice after the purchase back by years.

What the deposit means for cash flow

Deposits are not an equity cushion. They show up as an inflow but are repayable trust money that must be held separately under § 551 Abs. 3 BGB and whose returns belong to the tenant. In an honest property calculation they therefore appear not as income but as a liability of constant size – across twelve units, quickly a five-figure sum. What the running calculation looks like without such pass-through items is shown in the article on calculating property cash flow.

Deposits, deadlines and evidence per property in one place

RenoDiary keeps tenancies, handover dates, receipts and documents together per unit – so the handover date, the deposit amount and the evidence are still findable three years later.

Try it for free

What the courts have decided

The statute deliberately does not say how long the settlement period may run – that gap is filled by settled case law of the Federal Court of Justice (Bundesgerichtshof, BGH).

BGH, judgment of 18 January 2006 – VIII ZR 71/05

The tenant's claim to repayment does not fall due the moment the tenancy ends: the landlord is entitled to a reasonable period to decide how to use the deposit, during which they may withhold it in whole or in part if a further claim – for example from the service charge statement – is to be expected. The Senate names six months as the benchmark, though the circumstances of the individual case can justify a longer period; the legislature deliberately left the deadline open during the tenancy-law reform because it can only be judged case by case. For landlords that means: withholding the whole deposit indefinitely "just in case" is not allowed, but as long as a concrete additional claim is on the table, you may keep back the part of the deposit needed to cover it instead of paying out in full.

Frequently asked questions

Does parking rent count towards the basis?

§ 551 Abs. 1 BGB removes only service charges shown as a flat rate or an advance payment. Anything else agreed as rent in the same residential tenancy agreement remains part of "the monthly rent". A separate parking agreement, by contrast, is not residential premises.

May I draw on the deposit during the tenancy?

§ 551 BGB does not answer this expressly. It does require separation from your own assets and declares deviations to the tenant's disadvantage void. Reaching in before the tenancy ends therefore goes beyond what the wording supports – the evidenced route is settlement after handover.

Does the cap also apply to a guarantee or deposit insurance?

§ 551 Abs. 1 BGB limits "security" generally, not just cash. The instalment right in Abs. 2 and the escrow duty in Abs. 3 expressly attach to a "sum of money" – with a guarantee there is nothing to invest.

Do I have to top up the deposit after a rent increase?

§ 551 BGB provides no claim for a top-up. It names an upper limit, not a right to exhaust it later. How a rent increase itself is justified and capped is covered in the article on rent increases and the capping limit.

Sources

§ 551 BGB (limitation and investment of rent security deposits) — Gesetze im Internet (retrieved on 19 August 2026)
§ 549 BGB (provisions applicable to residential tenancies) — Gesetze im Internet (retrieved on 19 August 2026)
§ 548 BGB (limitation of compensation claims) — Gesetze im Internet (retrieved on 19 August 2026)
§ 566a BGB (rent security deposit on sale) — Gesetze im Internet (retrieved on 19 August 2026)
Deutsche Bundesbank, interest rate statistics "Zinssätze für Spareinlagen mit dreimonatiger Kündigungsfrist", as at 31 July 2026 — Bundesbank (PDF) (retrieved on 19 August 2026)
BGH, judgment of 18 January 2006 – VIII ZR 71/05 (reasonable settlement period, withholding for an expected further claim) — Federal Court of Justice (retrieved on 25 August 2026)

This article provides general orientation and does not replace individual tax or legal advice within the meaning of § 3 StBerG. How an individual clause or settlement is judged in a specific tenancy remains a question of the particular case.