What rental guarantee? Payment, refund and special situations

Do you want to protect the income from your home against unforeseen circumstances? Also known as "rent guarantee" and "security deposit", rent guarantee provides financial protection in case the tenant fails to meet their obligations, such as paying the rent and maintaining the property. This article provides clear guidance, with examples, on rent guarantee practices from a landlord's perspective.

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What is a rental guarantee?

The security deposit is an amount equal to a maximum of 3 months' rent, as specified in the rental agreement. It must be paid before the start of the tenancy, effectively handing over the keys, or the landlord may terminate the contract. The landlord uses the security deposit to cover any failure to comply with the terms of the contract:

• Unpaid rents in relation to the agreed payment dates.
• Damage to the dwelling beyond normal wear and tear.
• No final cleaning at the end of the tenancy.

Rental guarantee laws

It is worth taking photographs of the property at the beginning and end of the tenancy so that any damage or wear and tear can be conclusively demonstrated when navigating the tenancy.

Here you will find the most relevant laws on rental guarantees:

The rules for rent guarantees are laid down in the Act on the renting of residential accommodation(31.3.1995/481). They avoid disputes and ensure the rights of the landlord and tenant during and at the end of the tenancy.

The terms of the security deposit, such as the amount and payment period, should always be agreed in writing in the rental agreement to avoid misunderstandings.

The maximum amount of rental guarantee is the equivalent of three months' rent. No higher deposit may be required, even if the tenant agrees.

The rent guarantee may be used for unpaid rent, damage to the accommodation or failure to carry out the final cleaning.

The rental guarantee may not be used to cover wear and tear resulting from normal occupation, in which case the landlord cannot retain that part of the guarantee. Examples of normal wear and tear are light scratches on the floor or light soiling of the walls.

It is advisable to read the law yourself and, if necessary, seek advice from an expert or lawyer to ensure your rights and obligations in the tenancy.

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The rental guarantee may be used for these

The rent guarantee can only be used for certain expenses resulting from a breach of the rental agreement. If part of the security deposit is withheld, the landlord must provide the tenant with a clear written breakdown justifying the costs for which the security deposit will be used. The landlord will not refund the deposit if:

1. Rents outstanding
   
   • The rent guarantee can be used to cover unpaid rent and other charges mentioned in the lease, such as water charges, if the tenant fails to pay them.

For example, a tenant has left without paying the last rent instalment and has also missed a water bill. The landlord can then cover the unpaid rent and water charges with a deposit and inform the tenant in writing.

2. The dwelling is damaged
   • The rent guarantee can be used to cover damage to the home that goes beyond normal wear and tear. Damage can be deliberate or caused by negligence.

For example, a tenant has damaged the kitchen cabinets so that they need to be replaced. The landlord can use the security deposit to cover the cost of repairs, as long as there are photographs of the condition of the cupboards before and after the tenancy began. It is advisable to include an estimate of the cost of the repair.

3. Failure to clean or maintain the dwelling
   • If the tenant fails to carry out the final cleaning, the landlord can use the security deposit to cover the cleaning costs. However, the cleaning costs must be justified and documented.

For example, the tenant has left the property visibly dirty or otherwise demonstrably and a it requires a thorough clean before the new tenant moves in. The landlord may ask the cleaning company for an invoice and withhold the amount as security.

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The rental guarantee may not be used for these

Normal wear and tear is part of the rental activity and is the responsibility of the landlord. It refers to changes in the day-to-day use of the dwelling that are not caused by the tenant's neglect or carelessness, but by natural wear and tear over time. The rental guarantee may not therefore be used to cover such costs, such as the following.

1. Wall fading and minor scratches: sunlight can fade. Small scratches are caused by moving furniture.
2. Wear and tear on floors and carpets: the front doors and other access routes used in the area are particularly vulnerable.
3. Ageing appliances and equipment: the performance of equipment deteriorates over time, regardless of use.
4. Small scratches, stains and fading on tiles: these are particularly common in the kitchen or bathroom.
5. Holes in the walls for paintings and shelving: it is often considered normal in tenancies to allow the tenant to install a few nails or hooks for paintings.
6. Wear on light switches and door handles: contact points in common use will wear out over time.
7. Aging surfaces and paintings: painted surfaces, parquet or flooring may need updating, regardless of the tenant's use.

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When will the rental deposit be refunded?

If the final inspection shows that the tenant has fulfilled his/her obligations regarding the condition of the accommodation and the final cleaning, the security deposit will be refunded in full, usually within 1-2 weeks of the end of the tenancy. If there is damage, you can deduct the cost of repairs and cleaning from the deposit. Be sure to document all expenses and keep proof, such as photos of the damage and any repair invoices.

The return of the security deposit in full, or in part in the event of a breach of contract, can be divided into these stages:

1. Checking the condition of the dwelling

The final inspection is an important step for the landlord at the end of the tenancy. It ensures that the condition of the property is properly documented and helps to protect your rights in case of damage or lack of cleaning later on. A well-done inspection can prevent disputes and provide clear evidence of possible compensation.

• Schedule the inspection well in advance: arrange an inspection date with the tenant, preferably when the property is completely empty and the final cleaning is finished. This will avoid any last-minute hiccups and allow you to check the condition of the property carefully.
• Check all premises carefully: Go through the condition of the dwelling room by room. Pay particular attention to the following areas:
  • Floors: any wear, scratches or water damage?
  • Walls: look for holes, cracks or other damage.
  • Appliances and fixed furniture: do appliances such as fridge, cooker, oven and dishwasher work? Are there any dirt or damage?
  • Bathroom: check for seals, water damage and possible moisture damage.
  • Windows and doors: do they work properly and are they undamaged?
• Document the condition: take photos of any damage and defects you find. Photographs and a written report will help protect your rights in the event of a dispute.

Example: damage found during an inspection of the dwelling

The landlord makes a final inspection of the empty apartment and discovers a large scratch on the living room wall, caused by the tenant's careless moving of furniture. The kitchen fridge is not working properly and there is also dirt that has not been removed by basic cleaning. With photographs and written observations, the landlord can hold the tenant responsible for these damages and withhold the cost of repairs from the security deposit.

2. Inspection of the final cleaning

Cleaning is an important part of the final inspection. The tenant must return the property in a tidy condition and the landlord must ensure that the cleaning has been carried out in accordance with the contract.

• Check for normal wear and tear vs. damage: minor scratches and scuffs are normal wear and tear from living. In contrast, major damage, such as broken furniture, marks left by holes in the walls, or sloppy cleaning, may be the responsibility of the tenant.
• Cleaning checklist:
  • Floors: have they been properly vacuumed and washed? Especially the corners and floor mouldings.
  • Kitchen: cleaned appliances, cupboards and worktops. Any food or rubbish in the fridge?
  • Bathroom: are the tile seams clean, and the taps and sink in good condition?
  • Windows: are they washed inside and out, if so agreed?
  • Other cleanliness: check all surfaces that collect dust, such as light switches, door handles and lamps.
• Insufficient cleaning: if the cleaning is not sufficient, the landlord may require additional cleaning. If the tenant does not agree to clean, you can hire a professional and charge the costs against the deposit.

Example: shortcomings in the final cleaning

The tenant has done the final cleaning, but the fridge and oven have been left badly cleaned and the kitchen cupboards are full of food waste. In the bathroom, there is visible dirt in the floor drain and grease marks on the bottom of the glass door of the shower. The landlord will take photos and ask the tenant to return to clean the areas again. If the tenant does not agree, the landlord can order a professional cleaner and charge the cost to the security deposit.

3. Final inspection report

A well-drafted final inspection report is the landlord's most important document in the event of a dispute. It verifies the condition of the property at the end of the tenancy and supports any claim for a security deposit.

• Contents of the report:
  • Date and parties: please indicate the date of the inspection and the parties involved.
  • Room by room observations: record the condition of the premises, their cleanliness and any damage.
  • Photos: attach photos of the damage you have observed.
  • Repair needs: specify any repairs, such as wall patching or professional cleaning.
  • Signatures: the signatures of the landlord and the tenant (if applicable) confirm that both parties are aware of the contents of the report.

If the final inspection report finds no problems or the tenant does not choose to withhold the security deposit, that's that.

4. Disputes and their resolution

If the tenant is not satisfied with the results of the inspection, try to resolve the disagreement in a calm and constructive manner.

• Discuss the problems: provide evidence, such as photos and reports, and listen to the tenant's views.
• Possible compromise: If there is a disagreement about the extent of the damage, you can negotiate and agree on, for example, a reduction by half or a certain amount of compensation.
• Expert advice: if the dispute is difficult to resolve, ask for an expert assessment of, for example, moisture damage. This can clarify what is normal wear and tear and what is not.
• As a last resort: if no agreement is reached, the case can be taken to a consumer dispute board or to court.

5. Repayment of the security deposit

If there are no disputes, the rent deposit will be refunded.

• Return of the deposit: if there is no significant damage to the property and no lack of cleaning, the deposit will be returned within a reasonable time, usually within 1-2 weeks of the end of the tenancy and the inspection.
• Retention of security: if there is damage, you can deduct the cost of repairs and cleaning from the security deposit. If there is damage or loss, you can keep the damage deposit to cover the costs.

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Interest on late repayment of the guarantee fee

If the landlord does not return the rent deposit within a reasonable time after the end of the tenancy, the tenant is entitled to claim interest on arrears.

• Start of accrual of interest: interest on late payments starts to accrue from the day following the end of the tenancy, unless otherwise agreed in the tenancy agreement.
• Interest rate: the interest rate is seven percentage points above the reference rate in force at the time, which is revised twice a year. This means that the interest rate may vary, but it is always the same amount higher than the reference rate.
• What the tenant should do: the tenant should contact the landlord in the first instance and ask for a refund. If these contacts are unsuccessful, the tenant can send a written request for payment, asking for a refund of the deposit within a certain period of time and stating the default interest.If the landlord does not respond to the request, the matter can be referred to the Consumer Disputes Board or, if necessary, to the District Court.

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Rent guarantee checklist for landlords

• Arrange an inspection in good time: make sure the tenant lets you know when the property has been emptied and cleaned.
• Check all the rooms: go through the condition of the property room by room and take photos of any damage or deterioration you find.
• Cleaning check: make sure that the cleaning has been done thoroughly and that all surfaces are clean.
• Report and signatures: note the date of the inspection, any damage found and any repairs needed. Sign the report yourself and ask for the tenant's signature.
• Guarantee and reimbursement: keep the guarantee only for necessary expenses and document all repairs and cleaning costs.
• Disputes: if a disagreement arises, discuss it calmly and consider seeking expert advice.

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Specific situations for the refund of security deposit

In the event of a tenant's insolvency,the landlord should contact a legal adviser who can advise on how to use the rent guarantee or what other measures may be necessary.

• For example: the tenant's financial situation deteriorates and he or she misses several rent payments. The landlord uses the security deposit to cover the rent arrears and, if necessary, can seek additional compensation through the courts if the security deposit does not cover all the losses.

Termination of the rental contract before the agreed expiry date without just cause means that the landlord is entitled to compensation. The rental guarantee can be used to cover any losses incurred as a result, such as lost income during the rental period.

• For example: a tenant moves to another city in the middle of a fixed-term contract. The landlord uses part of the security deposit to cover one month's rent after termination if a new tenant cannot be found immediately.

The death of the tenant does not automatically end the tenancy, but the responsibility for the tenancy passes to the tenant's estate. In this case, the landlord must discuss the terms and obligations of the lease with the representative of the estate.

• For example: the tenant's estate gives notice of termination after the death of the tenant. The landlord announces the termination of the tenancy after the tenant's estate has given notice of termination of the tenancy.

The security is transferred to the new owner when he or she inherits the rights and obligations of the landlord.

• For example:: The landlord sells the property to the new owner and the deed of sale states that the security is transferred to the buyer. The new owner ensures that the security deposit is properly transferred to and held by the new owner in the event of a breach of the terms of the lease.

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Interest on late repayment of the guarantee fee

If the landlord does not return the rent deposit within a reasonable time after the end of the tenancy, the tenant is entitled to claim interest on arrears after a reasonable period has elapsed since the end of the tenancy. Unless otherwise agreed in the rental agreement, interest on arrears will start to run from the day following the end of the rental period.

Determination of default interest

Interest on late payments is determined in accordance with the Finnish Interest Act. The interest rate is seven percentage points higher than the reference rate in force at the time, which is revised twice a year. This means that the interest rate may vary, but it is always the same amount higher than the reference rate.

Measures in the event of a delay

If the landlord has not returned the deposit on time, the tenant should contact the landlord in the first instance and request a refund. If these contacts are unsuccessful, the tenant can send a written request for payment, asking for the deposit to be returned within a certain period of time and stating the interest rate for late payment.

If the landlord does not respond, the matter can be referred to the Consumer Disputes Board or, if necessary, to the District Court.

Things to note about interest on late payments

• Interest on arrears is not automatic, but must be requested by the tenant.
• If the landlord has given notice of the delay before the end of the tenancy, interest on arrears will not normally apply until the agreed deadline.
• Interest on late payments is the tenant's right, and will increase over time if the refund is delayed.

The default interest rate protects the tenant, but it is important that the lease clearly stipulates the period for returning the rent deposit and any default interest to avoid possible disputes at the end of the tenancy.

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Tenant's ways of paying the security deposit

1. The Money Vault

What it is:
The most traditional form of security deposit, where the tenant deposits an agreed amount into the landlord's account. This amount acts as security to ensure the payment of the rent and the maintenance of the property. The advantages of a financial guarantee are its clarity and easy realisation when needed.

Who is eligible:
Employed tenants with a stable income and the possibility to pay the deposit directly to the landlord. This option is preferable as the money is easily available to the landlord in case of a breach of the lease terms.

2. Personal guarantee

What it is:
A third party, such as a relative or friend, guarantees the obligations of the lease. If the tenant fails to pay, a claim for payment can be made against the guarantor.

Who is suitable:
Young people, students or first-time renters who do not have capital for collateral. However, the guarantor must understand the extent of his/her responsibility and the possible financial consequences.

3. Bank guarantee

What it is:
The bank guarantees the landlord a sum if the tenant fails to pay the rent. Does not tie up the tenant's own money, but can be a more expensive option due to interest rates and fees charged by the bank.

Who is eligible:
Creditworthy tenants who do not have the cash to pay the deposit but can use a bank guarantee. This is a convenient option if the tenant cannot afford to pay the deposit immediately.

4. Community guarantee

What it is:
The employer or other entity guarantees the obligations of the lease. For example, Igglo offers a community guarantee for tenants.

Who is eligible:
Tenants who do not have a personal guarantor or financial guarantee. This form of security is particularly useful when the tenant has access to support from an employer or other community.

5. Guarantee insurance

What it is:
The insurance company guarantees the landlord a sum for any unpaid rent or damage caused by the tenant. Quick and easy, but can be a more expensive option due to interest and insurance premiums.

Who it's for:
Renters who want a quick and easy security option but are willing to pay a higher price. A good option if other forms of security are not possible.

6. Commitment (via Kela)

What it is: Can be granted in situations where the tenant is unable to pay the deposit themselves and needs assistance to obtain rental accommodation. It is granted by Kela, the municipal social services, or other similar body. Kela guarantees the landlord a sum if the tenant does not pay. Especially for students, but subject to Kela's approval and certain conditions.

Who is eligible:
People who are temporarily in financial difficulty or who do not have access to financial security or a bank guarantee may qualify for a payment guarantee. Kela can grant basic income support for rent guarantee in certain circumstances, usually for two months.

7. Bank deposit

What it is:
The tenant deposits the amount in a bank account, which acts as security for the landlord. It is important to ensure that the terms of the deposit are clear and that the bank does not use the funds for other obligations.

Who it's for:
Tenants who want to keep their money separate from their other assets and ensure the availability of collateral. This is a good option if you want to ensure that the money is not used for other purposes.

8. Composite guarantees

What it is:
A landlord may require a combination of several forms of security, such as a financial guarantee and a personal guarantee at the same time. Provides additional security for the landlord, but can be burdensome and expensive for the tenant.

Who it's for:
Landlords who want maximum security, but for tenants this can be expensive and burdensome. Composite guarantees are less common, but may be necessary, especially in the riskiest situations.

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Frequently Asked Questions

1. How much rent deposit can I ask for?

• The security deposit may not exceed the equivalent of three months' rent. By law, no higher security may be required.

2. Can I keep the security deposit if the tenant fails to do the final cleaning?

• Yes, you can use part of the deposit to cover cleaning costs. However, remember to keep a record of the cleaning costs and inform the tenant of the retention.

3. What should I do if the tenant does not pay the rent?

• The landlord has the right to use the rent guarantee to cover unpaid rent. You can then also seek additional compensation through the courts if the security deposit is not enough to cover the full amount.

4. Can the rent guarantee be used to cover the wear and tear of the dwelling?

• The rental guarantee may not be used for normal, ordinary wear and tear. For example, minor scratches on the floor and dirt on the kitchen worktops are the responsibility of the landlord.

5. What proof do I need to keep the security?

• It is advisable to take photographs of the condition of the property at the beginning and end of the tenancy. If a security deposit is withheld, record the reasons for the withholding, such as cleaning bills or repair costs, and a written notice of the withholding to the tenant.

7. When do I have to return the security deposit?

• The security deposit should normally be returned within two weeks of the end of the tenancy. If the return is delayed without a valid reason, the tenant may be entitled to interest on arrears.

8. What to do if the tenant does not accept the withholding of the security deposit?

• Explain the reasons for the arrest and include evidence such as photographs and invoices.
• Indicate the contract terms that justify the withholding.
• Propose a partial arrest or other negotiated solution.
• If no agreement can be reached, suggest the help of a consumer dispute board or consumer advisory service.
• If the arrest is significant and other means have been exhausted, you can consider taking the case to the district court.

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