Non-Payment of the Security Deposit (Dépôt de Garantie)

Non-payment of the security deposit (dépôt de garantie) is a worrying situation that can jeopardise the completion of a property transaction or the taking up of possession of a let property. Whether you are a buyer, tenant, seller or landlord, this default can have significant legal consequences and calls for an appropriate response to preserve your rights.

What is the security deposit?

The security deposit is a sum of money paid as security when a contract is signed. This sum is a security intended to cover any contractual breaches by the debtor.

In the context of a property sale

In a preliminary sale agreement (compromis de vente), the deposit, often called the escrow (séquestre), generally corresponds to 5 to 10% of the sale price. This sum is held by a third-party escrow agent (notary, estate agent or lawyer) until the deed of sale is finally signed.

In the context of a letting

For lease contracts, the regulations strictly control the amount of the security deposit. According to Annex III to Article R353-200 of the French Construction and Housing Code, "the landlord may ask the tenant, when the lease is signed, to pay a security deposit which may not exceed two months' rent excluding charges".

For certain specific types of housing, such as residences with services, Annex I to Article R353-165-2 of the same Code states that "the manager may ask the resident for a security deposit which may not exceed one month of the fee".

The causes of non-payment of the security deposit

Temporary financial difficulties

The buyer or tenant may encounter unforeseen financial difficulties that prevent them from raising the necessary funds within the agreed time. This situation may result from a delay in financing, a cash-flow problem or a banking incident.

Contractual bad faith

Some debtors try to gain time or to negotiate new terms by deliberately delaying payment of the security deposit. This attitude is a clear contractual breach.

Dispute over the terms of the contract

Non-payment may also result from a disagreement over the contractual terms, the amount claimed or the conditions of performance of the contract.

Technical problems

Practical difficulties may arise: a problem with a bank transfer, a blocked account, the absence of the account holder, or a failure of the banking system.

Legal consequences of non-payment

For the defaulting buyer

In a preliminary sale agreement, non-payment of the security deposit within the agreed time may result in the contract being terminated automatically (résolution de plein droit). The seller may then treat the buyer as being in default and look for a new buyer. The time limits that apply according to the type of property and the consequences of delay are set out in our article on the time limit for paying the deposit under a preliminary sale agreement.

The buyer is also exposed to damages to compensate for the loss suffered by the seller: costs incurred, lost time, loss of earnings, or the difference in price if the property is resold for a lower amount.

For the defaulting tenant

The landlord may refuse to hand over the keys to the property as long as the security deposit has not been paid. This situation may lead to the outright cancellation of the lease.

The tenant also risks losing the benefit of the property and having to look urgently for a new one, with the difficulties and additional costs that this involves.

For the creditor

The seller or landlord suffers direct economic loss: the property is tied up, additional costs are incurred, receipt of rental income is delayed, and there is uncertainty over completion of the transaction.

Legal remedies available

Prior formal notice

Before starting any proceedings, a formal notice (mise en demeure) should be sent to the defaulting debtor. This formal notice must be precise, dated, and set a reasonable period for regularising the situation.

Sending it by registered letter with acknowledgement of receipt is the safest means of notification and provides evidence of the creditor's diligence.

Action for specific performance

If the formal notice has no effect, the creditor may apply to the competent court for an order for specific performance. This procedure makes it possible to compel the debtor to pay the sum due, subject to a daily penalty (astreinte).

Termination of the contract

Where non-payment is a serious breach of contractual obligations, the creditor may apply for termination of the contract. This action releases the parties from their reciprocal obligations and allows damages to be claimed. The preconditions for the action and all the remedies open to the creditor are set out in our article on remedies for contractual non-performance.

Interim payment in summary proceedings (référé-provision)

In urgent cases, and where the debt is not subject to any serious challenge, interim payment proceedings in summary proceedings may be brought. This rapid procedure makes it possible to obtain payment of an interim sum pending the judgment on the merits.

Preventive and practical solutions

Prior checks

Before signing any contract, you should make sure of the solvency of the counterparty. For a buyer, checking the bank's agreement in principle is an indispensable precondition. For a tenant, examining proof of income and of professional situation makes it possible to assess financial capacity.

Protective contractual clauses

Including specific clauses in the contract can strengthen the creditor's protection:

• An automatic termination clause in the event of non-payment within a set period
• A penalty clause fixing the amount of damages as a lump sum
• An indexation clause in the event of late payment
• Precise terms for payment and holding of the deposit

Choice of escrow agent

For property sales, choosing a professional escrow agent (notary, lawyer) offers additional guarantees in terms of legal certainty and management of the funds.

Payment by instalments

In some cases, it may be sensible to accept payment of the security deposit by instalments, accompanied by additional guarantees (personal guarantee, pledge, mortgage).

Time limits and procedures to observe

Time limits for payment

The contract must fix precisely the time limits for payment of the security deposit. In the absence of a contractual provision, a reasonable period must be allowed, generally 8 to 15 days.

Limitation

An action for payment of the security deposit is subject to limitation under the ordinary rules. For civil claims, the limitation period is five years from the date on which the sum fell due.

Return procedure

It is important to provide, from the signing of the contract, for the terms on which the security deposit is returned at the end of the contract, in particular the time limits and the conditions for any deduction.

Special cases and particularities

Security deposit in a residence with services

For residences with services, Annex 2 to III of Article R353-159 of the French Construction and Housing Code states that "the amount of the security deposit does not bear interest for the benefit of the resident. It must not be subject to any revision".

Off-plan sale (vente en l'état futur d'achèvement)

In an off-plan sale, payment of the security deposit is governed by particular rules linked to the progress of the works and the bank guarantees required.

Commercial lease

For commercial leases, the amount of the security deposit is not capped by law, but must remain proportionate to the rent and to the risks run by the landlord. The fixing of this amount, its return and the limits identified by case law are examined in our article on the security deposit in a commercial lease.

Negotiation and mediation

Amicable solutions

Before starting court proceedings, seeking an amicable solution has many advantages: speed, economy and preservation of commercial relationships.

Mediation can be an effective tool for resolving disputes linked to non-payment of the security deposit, particularly where the parties wish to maintain their contractual relationship.

Postponement and rescheduling

In some situations, a simple postponement of payment or a rescheduling of the payment terms may be enough to resolve the difficulty, while preserving each party's interests.

Non-payment of the security deposit is a complex issue that calls for a rapid and proportionate response. Putting preventive measures in place, drafting suitable contractual clauses and using the appropriate legal procedures make it possible to limit the risks and to protect your interests effectively. In this situation, it is advisable to consult a real estate law professional promptly, who can advise you on the strategy best suited to your particular case and assist you in defending your rights.