Interest on security deposit: what tenants and landlords should know

Recently, the rise in inflation has highlighted an issue closely related to renting: the return of security deposit with interest. This aspect is often ignored but can significantly affect both tenants and landlords. To avoid potential problems, it’s important that both parties are aware of their rights and obligations.

What is a security deposit?
A security deposit is a form of guarantee against potential damage to the property or unpaid rent. It is a sum of money that the tenant gives to the landlord at the start of the rental agreement. According to current laws, the maximum amount for a deposit can be equal to three months’ rent.
In the past, the law required landlords to keep the deposit in a separate account without being able to use it during the lease term. Currently, landlords are allowed to use these funds as they see fit. However, this change comes with a responsibility: the deposit must be returned to the tenant with the interest accrued during the lease period.

Even if not explicitly stated in the rental contract, the law provides that, in the absence of an agreement, the interest rate typically applied by banks for loans in the area where the property is located at the time of signing the lease will be applied.
Due to inflation, this right is becoming increasingly significant. In fact, even with an interest rate of five percent, tenants could receive a substantial amount.

To avoid disputes, it is advisable to clearly establish the interest rate in the rental contract. Although the law provides for a “commonly used” rate, setting a specific figure from the outset can prevent future misunderstandings.
Indeed, with the increasing demand for rental housing, landlords, being in a stronger position, are demanding more stringent guarantees or upfront payments. Students are often the victims of these practices, sometimes being required to pay up to four months’ rent in advance, including deposits and prepaid rent.

If the security deposit is not properly returned at the end of the lease, tenants have the right to take legal action. Organizations such as the European Justice Organization (EJO) can be very helpful in such cases, offering assistance and support. Alternatively, tenants can also seek help from a specialized lawyer.
The best solution is certainly prevention. Consulting a lawyer when signing the contract can help set the necessary terms correctly, including the applicable interest rate.
However, in the case of misunderstandings, it’s definitely better to try to reach an amicable agreement between the parties, as legal disputes can be very complex and expensive.

In a rising inflation and interest rate environment, it’s crucial that tenants and landlords are aware of their rights and obligations. Setting clear and transparent rules from the beginning can prevent surprises and protect both parties from future disputes.

Sources: https://www.novinky.cz/