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Deposits are outdated

Deposits are outdated

The use of a deposit is so yesterday, today's market standards require a different approach. This is the opinion of our Rendin experts, as well as tenants and landlords.

Recently, Postimees Kodu – a special home and furniture edition of Postimees – gave insight into the purpose and meaning of deposits and how they are used in the home rental business. Interestingly, there is also a newly developed substitute for deposits, which is much better for both tenants and owners. Our Head of Legal and Compliance, Lia Siht, explains.

One month of missed rent is enough to lose the deposit

Take, for example, an average rental apartment in Tallinn with a monthly rent of 500 euros. In Estonia, the deposit is usually equal to one month's rent, so the deposit for this apartment would also be 500 euros. This is not a particularly large amount, taking into account the potential risks that a landlord expects to cover with the deposit: repair costs, if the tenant intentionally or unintentionally causes damage to the apartment, the value of items lost from the rental property, or the possibility of payment defaults.

It is particularly telling that tenants may lose their deposit with one month of missed rent, or in other words: if they are one month in debt with rent. A survey of landlords, conducted by Rendin, revealed that almost 73% of respondents have had problems with indebted tenants in the past, and 52% of them had such problems with at least two tenants.

About 92% of these cases exceeded the amount of the deposit. We also asked the landlords to estimate the total debt of the tenants. In slightly less than half the cases, it was estimated to be in the four digits. The most extreme case was a debt of €4,000, with the average being around €1,000.

Neither party wins from the deposit

If we compare the amount of the deposit with the average debt in the example given above, the difference is double. This clearly indicates that a deposit is not a reasonable and secure solution for rental owners.

If a debt has been incurred, the rental agreement can be terminated after the expiry of two payment terms according to the law. At that point, the total debt is two months of rent plus two months of utility bills. Let’s assume that the tenant has agreed to move out and has not caused any damage to the rental property. Even in such a situation, the amount of the deposit is completely insufficient to cover the landlord's costs.

Nor is the deposit good for an exemplary tenant. The costs of moving in are quite high (first month's rent, deposit, and sometimes a broker's fee or contract fee, equaling a total of three months’ rent), yet a tenant may run into a landlord who unfoundedly refuses to return the deposit when the tenant moves out.

So, the question arises – how can people protect themselves from potential trouble? The answer is to conclude a secure rental agreement with built-in rental insurance with Rendin (guarantee of rent and utility payments and property protection for the landlord, and rental without deposit for the tenant, plus expert advice to both parties). Rendin’s two years of operation and experience with 1500+ rental cases show that it truly works.