What is a security deposit? Meaning and explanation
A security deposit is an amount you pay in advance as security. It is often requested by a landlord when renting a home or by a seller when buying a home. With this payment, you show that you want to meet your obligations.
The landlord or seller can use the security deposit if there are damages, arrears or other expenses that have not been paid as agreed. This gives them more assurance that the transaction will go off without a hitch.
Whether you are renting or buying, the purpose of the security deposit is always the same: It protects both parties. When renting, the security deposit is usually one to three months of bare rent. When buying a house, you often pay 10% of the purchase price.
With clear agreements about the deposit, you can avoid unpleasant surprises. This way you know exactly when and under what conditions you will get the amount back.
How does a security deposit work?
A security deposit acts as financial security for the landlord or seller. This amount is paid in advance and can be used, for example, to cover any damages or outstanding payments. Exactly how this process works depends on the situation: rental or purchase.
Rental deposit
For rental properties, you usually pay the security deposit at the same time as the first rent. The amount is often equal to one to three months of bare rent. The landlord may use this amount if, for example, you are left with unpaid rent or cause damage to the property. To avoid discussions, it is smart to make clear agreements about the delivery of the property.
Did you leave everything clean and no rent arrears? Then the landlord must repay the deposit in full after the end of the rental period. It is wise to prepare a report prior to moving in so that it is clear how the property was delivered.
Security deposit at sale
When buying a house, you pay a deposit to give the seller assurance that you are serious about the purchase. This is usually 10% of the purchase price. The payment is recorded in the purchase contract and goes through the notary. You can also choose to take out a bank guarantee instead of the deposit.
Does the sale not go through your fault? Then the seller may have the right to keep the deposit. Therefore, it is important to be sure of your choice before signing the purchase contract.
Why is a deposit required?
A security deposit is mandatory because it gives both the seller and the landlord security. The amount acts as a guarantee that you will honor your commitments. Suppose you cause damage or fall behind with the rent during the rental period, the landlord can offset these costs against the security deposit. When buying a house, the deposit offers protection to the seller, for example, if the buyer unexpectedly withdraws from the sale.
For a landlord or seller, a security deposit is a form of security. It provides protection against financial risks, such as unpaid bills or damage to a property. This is why the security deposit is often included as a standard condition in rental and purchase agreements.
How much is a security deposit usually?
The amount of a security deposit depends on the situation: rental or purchase. Below is an overview of the usual amounts and percentages.
Rental deposit
For rental properties, the security deposit is usually equal to one to three months of bare rent. This amount is mutually agreed upon between you and the landlord and recorded in the lease. Landlords may not charge a disproportionately high amount. In some cases, it is even stipulated by law that the deposit may not exceed three months of bare rent. For example:
- With a bare rent of €900 per month, the security deposit is usually between €900 (one month) and €2700 (three months).
Tip: Always check what is in your rental contract and make clear agreements about the conditions for recovering the deposit. This prevents unpleasant surprises at the end of the rental period.
Security deposit at sale
When buying a house, the deposit is usually 10% of the purchase price. Suppose you buy a house of €300,000, you pay €30,000 as a deposit. This amount is recorded in the purchase agreement and deposited at the notary. It serves as financial security for the seller.
Can't pay this amount right away? Then a bank guarantee is a common alternative. With this, your bank guarantees the amount on your behalf.
Exceptions or rules
In some situations, different rules may apply:
- When renting, a landlord can sometimes require a lower security deposit, such as one month's rent, to attract new tenants.
- For houses for sale, you can sometimes agree on a lower percentage by mutual consent.
It is important to know that the amount of the security deposit must be set forth in an official lease or purchase agreement. Do you have doubts about the amount? Then seek advice from an expert, such as the advisors at homeup.
When do you pay a security deposit?
When you pay the security deposit depends on the situation. With a rental property, you usually pay the security deposit at the beginning of the rental period. When buying a house, you pay it later in the process, after the purchase agreement is signed. Below we explain it exactly.
At a rental property
With rentals, you often pay the security deposit at the same time as the first month's rent. This happens after you sign the lease. The exact terms and time of payment are set out in the lease, so both parties know clearly what is being agreed upon.
Tip: Get proof of payment as soon as you transfer the deposit. This will prevent problems later, such as when you need to reclaim the amount.
When buying a house
In homes for sale, you usually pay the deposit within one to two weeks after signing the purchase agreement. This is also called the "term bank guarantee in the purchase contract." The payment goes through the notary, who keeps the amount until the house is officially transferred.
Can't pay the deposit right away? Then you can arrange a bank guarantee. This is offered by many banks as an alternative, so you can still fulfill the obligation without paying the full amount out of your own pocket.
What happens if you pay late?
Failure to pay the security deposit on time may have consequences.
- When renting, the landlord may decide to terminate the lease.
- When buying, the seller may have the right to cancel the sale or charge a penalty.
So it is important to make payment on time or, if necessary, make alternative arrangements.
When do you get a security deposit back?
Getting the deposit back depends on the agreements in your rental or purchase contract. Usually, you will receive the amount back as soon as the rental period ends or when the property is officially transferred. However, there are a few conditions you must meet to get the full amount back.
At a rental property
When renting, you get the security deposit back after the end of the lease, provided you meet all the conditions. The landlord must refund the security deposit if:
- The house was neatly delivered as per the agreements.
- There is no damage to the property.
- There are no rent arrears.
Note: The landlord may withhold part of the security deposit if, for example, you have caused damage, rent arrears, or left cleaning fees. This means you will only be refunded the remaining amount.
Tip: At the start of the tenancy, prepare a completion report. This records the condition of the property. This prevents discussions when recovering the deposit at the end of the lease.
When buying a house
When you buy, the deposit is repaid once the house is officially transferred. In some cases, you can choose to offset the deposit against the purchase price. This means that the deposit is deducted directly from the total amount of the home, so you won't get it refunded separately.
If the sale does not go through for some reason, you can request a refund of the deposit. Keep in mind that this can only be done if the cancellation is not on your side. Make sure you have clear agreements in the purchase contract and consider alternatives, such as a bank guarantee, to limit risks.
What happens if the deposit is not repaid?
If you think the security deposit is being withheld unfairly, you can take action. The landlord is obliged to refund the deposit if you have fulfilled all agreements. In the case of rent, you can go to the Rent Commission, and in the case of purchase, you can seek legal help.
Always make clear agreements and check if the contract contains specific provisions, for example, about contracts entered into before July 1 or other exceptions. This may affect the timing and conditions for reimbursement.
Frequently asked questions about security deposit house
Do you have questions about the security deposit? You're not the only one. Whether it's an excessive security deposit, finding alternatives if you can't pay it, or your rights as a tenant or buyer, there are many situations where you could use some extra clarity.
In this FAQ, we answer the most frequently asked questions about the security deposit. We give you practical solutions, such as what you can do if a landlord demands a high security deposit, and explain how to deal with situations where you can't pay the security deposit right away.
What if you can't pay the deposit?
If you cannot pay the security deposit, there are alternatives. When renting, you can ask the landlord for an installment payment or a lower deposit. When buying, you can often use a bank guarantee instead of paying the deposit yourself. Read more about your options below.
Alternatives to renting:
- Ask the landlord if you can pay the security deposit in installments. This can be a good solution if you can't cough up the full amount right away.
- Discuss the possibility of paying a lower security deposit. Some landlords accept up to two months of bare rent instead of three months.
- Make sure all agreements are in writing in the lease. This prevents misunderstandings and provides clarity on payment.
Alternatives to purchase:
- Opt for a bank guarantee. With this, the bank guarantees the deposit, so you don't have to pay the amount yourself. This is a common solution when buying a house.
- Negotiate with the seller for a lower amount than the standard 10% of the purchase price. Sometimes there is room to adjust the amount of the security deposit.
Can't figure it out? Get advice from a deposit box or discuss your situation with a financial adviser. Always make sure you know what your rights and options are so you can make the right choice.
What can I do if a landlord charges an excessive deposit?
If a landlord demands a high security deposit, for example, more than three months of bare rent, you can take action. A security deposit should be reasonable and should not create unnecessary financial pressure. Here's what you can do.
Steps you can take
- Discuss the amount of the security deposit with the landlord. Indicate that a security deposit of one to a maximum of three months of bare rent is customary.
- Ask for an installment payment. If the landlord won't reduce the amount, you can ask if you can pay the security deposit in installments.
- Check the lease for agreements on the security deposit. Make sure everything is in writing, including terms about repayment at the end of the lease.
- Contact the Rent Commission or a counter for advice on security deposits. They can assess whether the requested security deposit is reasonable.
What are your rights?
- A landlord may offset some costs against the security deposit, such as damages or unpaid rent. But the amount of the security deposit must remain reasonable.
- Do you have doubts about whether the security deposit is too high? You can seek legal help or take the matter to court if the landlord refuses to reduce the amount.
