Have you negotiated a security deposit with the tenant when renting the apartment? You should correctly return it with interest. And if you have not explicitly agreed on the amount, you can count on the interest usually demanded by banks in the borrower’s location. With the current rise in interest rates, it pays to keep an eye on everything, as the amounts involved may be far from negligible.
The landlord must return the deposit (security deposit) to the tenant at the end of the lease , including interest. If the amount of interest is not agreed in the lease agreement, the usual interest rates charged by banks in the borrower’s location apply. In practice, these may be several percent per annum. With a higher security deposit and a longer lease, the interest can reach tens of thousands of crowns.
If you are not sure how to set up a tenancy agreement correctly, you can use our service of checking or creating a tenancy agreement by a solicitor.
A security deposit or security deposit in a tenancy agreement provides the landlord with insurance against a number of unwanted situations, such as arrears of utilities or rent, or to cover any damages that may have occurred to the furnishings of the apartment. A common mistake made by landlords is to consider the security deposit as an “interest-free security”. However, the law provides that the tenant is also entitled to interest.
A security deposit is not legally obligatory, so it is possible to get a tenancy without a security deposit. However, if there is a security deposit, it may be no more than three times the monthly rent. This only includes the rent itself. Utility costs are not included in this calculation.
So if the tenant pays CZK 25,000 per month, you can set a security deposit of up to CZK 75,000. The six times the monthly payment previously allowed seemed to the legislator to be over the edge, as it did not allow many residents to even afford to start a home.
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Also, tripling the monthly payment may be an amount that many people are unable to pay in one lump sum, so paying in instalments is not ruled out. This step will allow the landlord to obtain the security deposit at the level they require, while at the same time achieving a process acceptable to a larger number of potential tenants.
If the security deposit is negotiated at the maximum possible amount, i.e. the three times the monthly payment already mentioned, it should also include any penalty. In other words, the contractual penalty can no longer be set above that amount. Even if it is agreed separately in the contract.
If, however, he had only required a deposit of one monthly payment, then he could, in the above-mentioned case, have also agreed on a contractual penalty of CZK 50 000.
Tip: Do you want a bulletproof apartment rental agreement? The penalties in the lease agreement are very limited. But there are still ways to protect yourself effectively. How? Find out in our next article.
An interesting issue is the possibility of requiring the landlord to pay interest on the return of the security deposit. Although many tenants do not apply this in practice, they have every right to do so under the Civil Code.
Only the amount of interest is disputed if it is not expressly agreed. The law states that if interest is to be paid and the amount is not known, then ‘the normal interest required for loans granted by banks in the place of residence or registered office of the borrower at the time of conclusion of the contract’ shall apply .
However, such a definition provides only partial guidance. On the contrary, it raises other questions, namely which are the banks whose credit policy is being assessed and which loans will be taken into account.
Generally speaking, it will be a range of around 4-16% per annum. If, for example, we assume an interest rate of 10% and a deposit of CZK 75 000, the annual interest rate would be CZK 7 500. With a three-year lease, the landlord would then return CZK 23 500 in interest, and that is no small amount.
The real calculation would be a bit more complicated, because the amount of interest changes over time. Given the rather sharp rise in interest rates in recent months, it is more than advisable to think about this aspect of the contract in advance.
In practice, we often see that lease agreements do not address interest on the deposit at all. On a long-term lease, this can then mean a surprisingly high amount that the landlord has to pay back to the tenant without the tenant knowing.
Similarly, our client terminated her lease after four years and asked the landlord to return her deposit of CZK 60,000. Although the landlord returned the security deposit, he refused to pay any interest, claiming that “the security deposit never accrues interest”.
Therefore, the client turned to us for help. We pointed out to the landlord that according to the Civil Code, the security deposit is refundable with interest. At the same time, we proceeded on the basis of the rule that if the amount is not agreed in the contract, the banks’ normal interest rates apply.
After sending a pre-action notice, the landlord finally agreed to pay the interest. The client thus still received approximately CZK 11,000, which she would otherwise probably not have recovered at all.
In practice, many tenants and landlords are unaware that the law provides for interest on security deposits.
If you want to make sure that the lease agreement addresses the interest on the security deposit correctly, it can be checked for you by an attorney specializing in real estate.
Tip: There’s always the option of looking to rent an apartment or house without a deposit. You can read an article on this topic, in which we discuss what a security deposit is actually for, what its conditions are, and where to look for rental offers without a security deposit.
To avoid paying too much interest and, above all, to avoid confusion and possible litigation, there are several solutions.
The best is a problem that does not arise at all. Therefore, consult a lawyer when drawing up the lease agreement on the best and most advantageous way to set up the contract.
An option may be to negotiate a low security deposit and have the apartment well insured, negotiate upfront interest at a rate that is acceptable to you, or have the security deposit set off during the lease. An experienced attorney will set everything up correctly depending on the type of property and the contractual relationship.
If you are already at the stage of dealing with interest payments and cannot agree on the amount, try to reach an agreement in the first place. You certainly don’t want to increase your payment by legal fees. Even at this stage of the settlement, you will certainly benefit from the advice of a lawyer.
Tip: If a settlement doesn’t work, there is always the option of going to court. However, you will only succeed in court if the lawsuit is bulletproof. We will carefully analyze the case and take care of preparing a pre-suit notice, a lawsuit, an appeal, or straight up representation in court where we will vigorously enforce your rights.
Set-off is one of the methods of payment of claims, the essence of which is that if the parties have mutual claims against each other with the same type of performance, each of them can express a will against the other, aiming precisely at the set-off.
If, at the end of the tenancy, the landlord has any remaining claims on the tenant, the security deposit is therefore used to pay them.
In the case of arrears of rent or services, the amount of the arrears is usually clear and can be avoided without mutual contestation.
In the case of compensation for damages, the landlord should then quantify the damages and subsequently set them against the security deposit. This does not require a written acknowledgement of the debt by the tenant or any type of decision to set off. However, if the amount of the damage is disputed by the tenant, there is no option but to litigate the existence and amount of the damage.
As a precautionary measure, a detailed description of the furnishings of the apartment, including the value of the furnishings, can be included in the handover report at the commencement of the tenancy.
The security deposit in a tenancy agreement serves as protection for the landlord in case of rent arrears, utility bills or damage to the apartment. According to the Civil Code, it cannot exceed three times the monthly rent and must be returned to the tenant at the end of the tenancy, including interest. If the amount of interest is not agreed in the contract, it is based on the usual interest rates of banks in the debtor’s location. The landlord can offset his claims, such as arrears of rent, utilities or damages, against the deposit, but must be able to prove them. It is therefore advisable to regulate the amount of interest and how the security deposit is to be disposed of directly in the lease agreement in order to avoid disputes between the tenant and the landlord. If the parties do not agree on the return of the security deposit or interest, the solution may be a legal challenge or, as a last resort, legal enforcement.
Tip: You can read all about safe renting in our article.
Yes. The Civil Code states that the security is returned with interest.
Upon termination of the lease and settlement of all claims.
Yes, if the parties expressly agree to this in the contract.
Maximum of three times the monthly rent.
Yes, if it has a claim against the tenant (e.g. damage or rent arrears).
No. It is usually paid with the return of the security deposit at the end of the tenancy.
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