Interest on security deposit

The tenant of an apartment has the right to the return of the security deposit together with interest. However, this fact is often overlooked by landlords, or even excluded in the lease agreement.

The law and interest rates

Section 2254(2) of the Civil Code provides: “The tenant has the right to interest on the security deposit from the time it is provided, at least at the statutory rate.”

Section 1802 of the Civil Code states that if interest is not determined by legal regulation, the debtor owes the customary interest charged for loans granted by banks in the debtor’s place of residence or registered office at the time the contract was concluded.

This interpretation was also confirmed by the Municipal Court in Prague in decision file no. 16 Co 107/2022 dated 24 May 2022.

For a specific interest rate, practitioners can use, for example, available statistics from the Czech National Bank (ČNB) regarding rates for unsecured consumer loans and average them for the relevant period during which the deposit was at the landlord’s disposal.

So if you are a tenant, don’t be afraid to ask for interest on the deposit. Even, for example, a major real estate player operating the Stálý nájem platform confirms in its article the existence of the right to interest on the deposit, so this is not some hidden right of the tenant.

Can interest be excluded in the lease agreement?

In practice one may encounter a lease agreement in which the contractual parties (understandably at the landlord’s instigation) exclude the tenant’s right to interest on the deposit, or agree on a very low interest rate (e.g., 0.1%).

Section 2235(1) of the Civil Code provides: “If the lease agreement obliges the landlord to provide the tenant with an apartment or house that is the subject of the lease to secure the tenant’s housing needs and possibly those of members of his household, agreements that shorten the tenant’s rights under the provisions of this sub-section shall not be taken into account.”

I therefore take the view that it is not possible to exclude interest on the deposit in a lease agreement, because the law forbids this in § 2235(1) of the Civil Code. I would apply a similar interpretation to an agreement on an unreasonably low interest rate, as in practical effect that is identical to excluding interest on the deposit.

What to do if the landlord does not return the deposit with interest?

If the landlord unlawfully withholds interest on the deposit, it is possible to pursue them in court. It is therefore advisable to seek the services of an attorney. Representation may be worthwhile in certain circumstances, because in court proceedings, if successful in the dispute, it is possible to obtain compensation for the costs of legal representation, which may cover the attorney’s fees.