Germany: Prohibition To Offset Claims Unrelated To The Lease Against Claim For The Repayment Of The Security Deposit

Keywords: repayment, security deposit, rent deposit

BGH, decision dated July 11, 2012 - VIII ZR 36/12

When a lease is terminated, the question often arises to what extent the lessor can take recourse to the provided security deposit. High courts had so far not decided, whether the lessor may offset claims unrelated to the lease against the lessee's claim for repayment of the security deposit, if claims under the lease itself no longer exist. In its decision dated July 11, 2012, the German Federal Court of Justice (BGH) now addressed this question.

HEAD NOTE

In the absence of express agreements otherwise, the fiduciary character of the rent deposit entails an implicit offset prohibition in respect to other claims that do not originate from the lease. The lessor is unable to offset such claims against the lessee's claim for repayment of the security deposit even if at the end of the lease, the security deposit is not required for claims of the lessor under the lease.

FACTS

The parties are in dispute about the repayment of a security deposit. The plaintiffs were lessees of an apartment of the defendant for which they had provided a security deposit. At the end of the lease, the plaintiffs returned the apartment. By letters dated March and July 2010, they asked the defendant to repay the provided security deposit. The defendant refused repayment by referring to (alleged) counterclaims from an earlier lease of the plaintiffs, which the former lessor had assigned to the defendant. The plaintiffs then filed an action and successfully asserted their claim for repayment of the provided security deposit in the prior instances. The BGH upheld these decisions.

CONTENT AND SUBJECT OF THE DECISION

According to the opinion of the BGH, the plaintiffs are entitled to a repayment of the security deposit. The offset declared by the defendant had no substance, since it was not permitted to offset using claims that did not originate from the lease. It had generally been accepted insofar that the offset was not possible based on an implicit agreement or good faith, if the character of the obligatory relationship or the intent and purpose of the owed performance did not let the offset appear equitable. Therefore, it was regularly not permitted to offset a claim resulting from a fiduciary relationship against unrelated counterclaims. This also applied to the rent deposit. Unless agreed otherwise in exceptional cases, it served exclusively to secure claims of the lessor under the specific lease. The predetermination for a specific purpose did not end already when the security deposit was no longer needed for claims at the end of the lease, but rather only when the security deposit was returned to the lessee.

IMPACT ON DAY-TO-DAY BUSINESS

With the aforementioned decision, which should apply equally to residential and commercial leases, the BGH explicitly rejected an offset by the lessor using claims unrelated to the lease against the lessee's claim for repayment of the security deposit. Such an offset is therefore generally not permitted without the lessee's consent.

At the same time, the decision illustrates the importance of the existing security agreement for the use of the rent deposit. Even though the rent deposit will, if the parties did not conclude an explicit security agreement, cover all claims of the lessor under the existing lease in cases of doubt. However, lessors should absolutely insist on a clear contractual security agreement, in order to avoid disputes about which claims are secured by the security. This applies in particular if the rent deposit should in exceptional cases also secure claims from other legal relationships. If e.g. a new lease agreement is concluded between the same parties of the lease after a termination, it should be made clear in connection with the security agreement, if applicable, that the rent deposit covers all obligations both under the original and the new lease.

Originally published Autumn 2012.

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2012. The Mayer Brown Practices. All rights reserved.