GER: Can Time-Barred Claims for Damages Be Offset against the Deposit?

Jul 26, 2024 Benn-Ibler Rechtsanwälte

The German Federal Court of Justice (Bundesgerichtshof, hereinafter BGH) had to decide whether a landlord’s time-barred claims for damages could be offset against the tenant’s claim for repayment of the deposit. In principle, a claim for damage to rented property can only be made within a period of six months after the end of the rental contract.

A tenant demanded to be reimbursed the deposit she paid after terminating the lease and returning the apartment on 8 November 2019. The landlord, who was the defendant, paid the deposit by letter of 20 May 2020 and declared that it was set off against disputed claims for compensation for damage to the rented property. The former tenant claimed that the statute of limitations had run.

Claims for compensation by the landlord for deterioration of the rented property are time-barred within six months of the end of the contract, i.e. the return of the rented property to the landlord, according to Section 548 of the German Civil Code (Bürgerliches Gesetzbuch, hereinafter BGB). In this case, these six months had already been past at the time of dispatch of the letter of set-off.

The lower courts ruled in favour of the tenant. They held that the claim for damages was time-barred. The exception that already time-barred claims can be set off according to Section 215 (Old) 1 BGB, provided that the claims were not time-barred at the time they could first be set off, did not apply. There was no situation in which a set-off could be made, as the claims were not of a similar nature.

The BGB, on the other hand, held as follows:

The court of appeal had failed to take sufficient account of the mutual interests of the parties to a residential tenancy agreement when agreeing a deposit. The purpose of a tenant’s security deposit is precisely to safeguard the landlord’s claims. This is due to the fact that landlords should be able to satisfy their claims by simply offsetting them against the claim for repayment of the deposit at the end of the tenancy.

The BGH quashed the appeal and referred the matter back to the regional court.

Press release no. 144/2024 by BGH VIII ZR 184/23 (10 July 2024)