Introduction
A security deposit—commonly referred to as “kauce” in the context of renting a house or apartment—is a standard practice in lease agreements. The provision of a security deposit serves two main functions. First and foremost, it serves a security function—its payment motivates the tenant to voluntarily fulfill their obligations (e.g., unpaid rent or compensation for damages) and, at the same time, gives the landlord assurance that their claims will be satisfied. In addition, the security deposit also serves a compensatory function. The landlord has the right to satisfy their claim from the security deposit if the debt is not paid properly and on time.[1] If the contracting parties agree on a security deposit, its amount, together with any agreed-upon contractual penalty, may not exceed three times the monthly rent.[2] The landlord returns the security deposit to the tenant upon termination of the lease, and is entitled to set off any claims against the tenant against the security deposit. Thus, the security deposit does not always have to be returned to the tenant in full. However, even in the event of such a set-off, the tenant is legally entitled to interest on the security deposit from the date it was provided, at least at the statutory rate. The interest rate may, however, be contractually agreed upon differently. What interest rate can the contracting parties agree upon, and how does the court proceed if the parties have not done so.
Interest on a Security Deposit according to Law and in Practice
By law, the tenant is entitled to interest on the security deposit from the time it is provided until it is returned, at a rate of at least the statutory rate. The statutory rate may generally be either set by law or determined based on the customary interest rates charged on loans provided by banks in the tenant’s place of residence or registered office at the time the contract is concluded[3].[4] Since the interest rate on a security deposit provided in connection with a residential lease is not set by any legal regulation, it is determined based on the prevailing interest rate.
The statutory provision establishing the tenant’s right to interest on the security deposit at least at the statutory rate is relatively mandatory in nature. This means that the parties may agree on their own terms regarding interest, provided that such terms do not curtail the tenant’s rights.[5] Agreements that curtail the tenant’s rights are disregarded.[6]
However, not every agreement setting an interest rate lower than the statutory rate constitutes a curtailment of the tenant’s rights. According to the case law of the Municipal Court[7], if the parties agree that the security deposit will accrue interest at the rate applicable to the landlord’s bank account into which the deposit is paid, this does not constitute a limiting provision, provided that the tenant has expressly agreed to the specific interest rate in the contract. The interest rate set in this manner (e.g., 0.01% p.a.) may fall far short of the interest rate offered by banksat the time the security deposit was made (e.g., 4.9% p.a.), and yet (at least in the opinion of the Municipal Court in Prague) the agreement will be binding.
However, if the parties agree that no interest will accrue on the security provided, this agreement will not be considered a reduction.[8] In such a case, if legal proceedings are initiated, the court will generally set the interest rate based on the interest rates applicable to bank loans provided as of the date the security was deposited.
Case law shows that the issue of interest on security deposits is not addressed uniformly. The Constitutional Court[9] has confirmed that general courts may base their determination of the interest amount on the customary rates for consumer loans. At the same time, however, it acknowledged that legal literature considers this issue problematic and that there is no clear-cut criterion for determining the interest rate.
Conclusion
It is within the contractual discretion of the landlord and tenant to agree on the method of calculating interest and the interest rate applicable to the security deposit. However, such an agreement must not curtail the tenant’s rights; in such a case, the agreement cannot be taken into account. If the parties do not agree on an interest rate, or if such an agreement is not taken into account, the court will base its determination on the customary interest rate for consumer loans as of the date the security deposit was paid.
It is common practice for landlords to wait and see whether the tenant will claim interest on the security deposit at the end of the lease. However, it is in the interest of both contracting parties and their legal certainty to agree in advance in the lease agreement on the method of calculating interest and the interest rate applicable to the security deposit. A simple agreement can prevent disputes and unnecessary litigation. This is all the more important given that courts do not take a uniform approach and the outcome of such disputes is far from clear-cut.
[1] Supreme Court Judgment of April 22, 2020, Case No. 26 Cdo 2267/2019.
[2] Section 2254(2) of Act No. 89/2012 Coll., the Civil Code (hereinafter referred to as the “Civil Code”).
[3] When renting a house or apartment, the interest rate as of the date the security deposit is paid is used as the basis.
[4] Section 1802 Civil Code.
[5] Judgment of the Municipal Court in Prague dated May 18, 2022, Case No. 62 Co 115/2022-169.
[6] Section 2235 (1) Civil Code.
[7] Judgment of the Municipal Court in Prague dated May 28, 2025, Case No. 69 Co 164/2025-190.
[8] Judgment of the Regional Court in Ústí nad Labem dated July 23, 2025, Case No. 10 Co 34/2025-49.
[9] Constitutional Court Decision dated September 6, 2022, Case No. II. ÚS 2257/22.