What to know about the security deposit when letting a property

A security deposit is not a formality but an important legal and financial safeguard that protects the interests of both parties. Set out properly in the agreement, it saves everyone a great deal of trouble.

What is a security deposit?

The deposit — kaució or óvadék in Hungarian — is a sum paid in advance by the tenant to the landlord when the agreement is signed. It serves as cover for any damage, unpaid rent or outstanding utility bills.

How much can a landlord ask for?

Under the Hungarian Civil Code (Ptk.) the deposit may not exceed three months’ rent, but in practice tenants in Hungary rarely accept more than two months’ worth, except in unusual cases. If the tenant has kept to the agreement, the deposit must be returned in full at the end of the tenancy — within 30 days of moving out.

What are the conditions for returning the deposit?

The landlord may deduct from the deposit:

• unpaid utility bills and common charges
• the cost of damage caused by use other than as intended
• the cost of replacing or repairing missing or damaged furnishings

It is also worth making it a condition that the tenant provides proof that everyone registered at the address under the tenancy agreement has been deregistered from the property.

When can a landlord keep the deposit?

The deposit is of course also security against unpaid rent, but if payment is late the tenant should receive a reminder promptly and be told what the consequences will be. Avoid the situation where the deposit no longer covers the costs that arise.

A fixed-term tenancy agreement can only be terminated by mutual consent. If the tenant terminates it unilaterally, the landlord is entitled to retain the deposit, potentially in full.

The deposit trap: “living out” the deposit

It sometimes happens that a tenant reasons that, having already paid two months’ deposit, they need not pay rent for the last two months. As a landlord you should do everything to avoid this. If a tenant who has always paid on time suddenly “forgets” the rent, do not wait: send a written notice, or turn to a notary.

A tip: the notarial deed

It is worth having the tenancy agreement recorded in a notarial deed, as this gives the landlord considerably stronger legal protection. If the tenant stops paying or refuses to move out, legal steps can be taken far more quickly.