The deposit for a residential tenancy agreement can be up to three months' rent. The tenant may pay it in equal instalments over three months. After the contract ends, the deposit must be returned if the landlord has no claims arising from the contract. If the landlord has not notified a claim within two months after the contract ends, the tenant may demand the deposit back.

What the law says about the deposit

The Law of Obligations Act sets clear rules for the deposit on a dwelling:

  • Amount: up to three months' rent.
  • Instalments: the tenant may pay the deposit in equal instalments over three months. The first instalment is due after the contract is made.
  • Keeping it: the landlord must keep the deposit in a bank, separate from their own assets, at no less than the local average interest rate. The interest belongs to the tenant and increases the deposit.
  • Protection: the deposit does not form part of the landlord's bankruptcy estate, and the landlord's creditors cannot enforce claims against it.
  • Topping up: if the landlord has already covered a claim from the deposit, they may require the tenant to top the deposit back up to the agreed amount.

By agreement the deposit can also be replaced with another equivalent security.

A deposit benefits both parties. The landlord knows that unpaid bills and damage can be covered without going to court. The tenant knows that their money is kept separately in a bank and that the law says when they get it back.

What the deposit covers and what it doesn't

The deposit is meant to secure claims arising from the contract. It can cover, for example:

  • unpaid rent;
  • unpaid running costs, such as electricity, water or heating bills;
  • damage beyond normal wear and tear: broken furniture, a hole in the wall, a door or floor scratched by a pet.

The tenant is generally not responsible for normal wear and tear, and it cannot be withheld from the deposit. For example:

  • a floor worn in the walkways;
  • curtains or wallpaper faded by the sun;
  • a boiler or fridge that broke down because of age.

Exception: when a residential tenancy agreement is made, the parties may agree that at the end of the contract the tenant also removes normal wear and tear or bears the reasonable costs of doing so. Such an agreement must be in the contract from the moment it is made.

How a commercial lease differs

The three-month limit and the instalment rule apply to tenancy agreements for dwellings. For commercial premises the parties have more freedom: the amount of the security, when and in what form it is paid, for example a bank guarantee, are agreed in the contract.

If you are renting an office, a shop or warehouse space, use a commercial premises lease, not the residential one.

How the deposit is returned

At the end of the contract it usually goes like this:

  1. The premises are handed over and a handover report is drawn up.
  2. The landlord looks at whether they have any claims: unpaid rent, bills or damage.
  3. The claims are deducted from the deposit and the rest is returned to the tenant together with the interest.

The law gives the landlord two months after the contract ends to notify their claims. If they do not notify a claim within that time, the tenant may demand the deposit back.

If the landlord does not return the deposit:

  • send them a written demand with the amount, a deadline and your bank account;
  • ask which claims they are covering from the deposit and what evidence they have for them;
  • if you can't agree, turn to the rent committee, if your municipality has one, or to a court.

For more on ending a tenancy, read How to end a tenancy agreement?

Example: how the calculation works

Say the monthly rent is 600 euros and the deposit is two months' rent, i.e. 1,200 euros. At the end of the contract it turns out that:

  • the last month's electricity bill of 45 euros is unpaid;
  • there is a large hole in the living room wall, and repairing it costs 120 euros;
  • the floor is worn in the walkways.

The landlord may withhold 165 euros from the deposit: the electricity bill and the cost of repairing the wall. The worn floor is normal wear and tear, which they cannot withhold from the deposit unless the contract says otherwise. The tenant gets back 1,035 euros plus the interest that has accrued on the deposit.

If the landlord withholds money, they should show what the amount consists of: bills, repair costs and photos. As a tenant, always ask for this in writing.

The handover report and photos

Most disputes arise over whether damage happened during the tenancy or was already there before. The best protection is a report with photos both at the start and at the end of the contract.

Under the law, if a report was drawn up at the handover, the dwelling is presumed to have been handed over in the condition described in it. Write down in the report:

  • the condition of each room and any existing defects;
  • furniture and appliances and their condition;
  • meter readings;
  • the number of keys.

Take dated photos and keep them for the whole tenancy.

Can the deposit be used for the last month's rent?

The law provides for the deposit to secure claims, not as rent paid in advance. The tenant has no right simply to leave the last month's rent unpaid and have it deducted from the deposit.

By agreement it is possible. If you are considering it, remember:

  • make the agreement in writing;
  • if damage turns up when you move out, the landlord no longer has anything to cover it from and has to claim the money separately.

That is why it is safer for the landlord if the last month is paid as usual and the deposit is returned after the handover. On rent arrears, read also What happens if a tenant doesn't pay?

What to write in the contract about the deposit

A good residential tenancy agreement answers these questions:

  1. the amount of the deposit (up to three months' rent);
  2. when and in how many instalments it is paid;
  3. the bank account it is paid into and where it is kept;
  4. which claims are covered from the deposit;
  5. how and to which account it is returned at the end of the contract;
  6. that a handover report is drawn up at the start and at the end of the contract;
  7. whether the tenant also removes normal wear and tear at the end, if you have agreed on it.

Before you pay: a tenant's checklist

Before you transfer the deposit to the landlord, check these things:

  • the amount does not exceed three months' rent;
  • you know you can pay the deposit in equal instalments over three months;
  • you pay by bank transfer and the description says "deposit";
  • the contract says how and to which account the deposit is returned at the end;
  • a report has been drawn up and photos taken before you move in.

If any of these is missing, ask before signing. It is much harder to change later.

Common mistakes

  • A deposit of more than three months' rent. For a dwelling, the law does not allow a larger deposit to be demanded.
  • Cash without a receipt. It is hard to prove later how much was paid. Use a bank transfer.
  • The deposit is kept together with other money. The landlord must keep it in a bank, separate from their own assets.
  • No report is drawn up. Then it is one word against another as to what condition the flat was in.
  • Money is withheld for normal wear and tear. Unless the contract says otherwise, this is generally not allowed.
  • The last month is left unpaid without an agreement. That creates a debt, not a set-off.