German Federal Court rules on rental deposit offsets

The German Federal Court of Justice (BGH) has issued a ruling regarding the use of rental deposits. The court decided that landlords may, under certain conditions, offset expired damage claims against a tenant's claim for the return of the security deposit. This decision strengthens the security function of cash deposits.

In the specific case, a tenant requested the return of a deposit after vacating a property in November 2019. The landlord attempted to offset the deposit against claims for damages totaling 1,175 euros in May 2020. While claims for property deterioration generally expire six months after the return of the property under Section 548 of the BGB, the BGH ruled that the offset was permissible.

Separately, legal guidelines emphasize that according to Section 551 of the BGB, rental deposits must be held separately from the landlord's personal assets to ensure insolvency protection for the tenant. Furthermore, any interest earned on the deposit legally belongs to the tenant, not the landlord.