In both residential (housing) leases and commercial leases, it is customary, for the purpose of securing the landlord, to agree on the payment of a sum of money as a security deposit prior to the commencement of the lease, upon the signing of the lease agreement. However, it must be emphasized from the outset that if the wording of the lease clauses relating to the security deposit is not correct and sufficiently specific, there is a risk that the amount of the deposit may be construed as a penalty clause forfeitable in the event of a breach. This would result in the deposit not being eligible for set-off at the end of the lease.
According to the legislation governing residential leases (Article 2(2) of Law 1702/1987), advance payment of rent is permitted only for the current rental month. The tenant is prohibited from paying a security deposit exceeding the amount of two months’ rent for the performance of the lease agreement.
This sum of money, which is paid by the tenant to the landlord upon the conclusion of the lease agreement and usually corresponds to a multiple of the monthly rent, is abusively referred to as a “security deposit.”
This is because a guarantee agreement, as regulated by Articles 847 et seq. of the Greek Civil Code, is concluded between the creditor and the guarantor, who is a third party external to the contracting parties. Its operation, and especially its fate, is governed by the specific agreement of the parties within the framework of contractual freedom (Article 361 of the Civil Code). The amount in question may have been agreed upon to secure the rent, either as an advance payment thereof, as earnest money (confirmatory or intended to cover damages arising from non-performance of the contract, etc.), as a penalty clause, or as a contractual security deposit.
In practice, it is usually provided as a security deposit (“cash collateral”) and, more specifically, constitutes an advance against a future debt of the tenant that may remain unpaid, in which case the amount of the deposit is credited against that debt (Athens Court of Appeal, Single-Member, Decision 2857/2018).
The tenant’s claim for the return of the security deposit becomes due upon termination of the lease and must be repaid if the landlord has no outstanding claims for rent or compensation for damage to the leased property, provided, of course, that no different agreement has been made.
The claim for the return of the aforementioned contractual security deposit, which becomes due upon termination of the lease and bears interest, may be lawfully set off, even if the parties have expressly agreed otherwise (Athens Court of Appeal 2199/2011). Conversely, from the combined interpretation of Articles 404, 405, and 407 of the Civil Code, it follows that if, under the lease agreement, the amount given as a monetary security for the faithful performance of the lease has the character of a penalty clause, its forfeiture in favor of the landlord may be agreed upon for any breach of the lease terms, regardless of any other damage suffered by the landlord. In such a case, the monetary amount corresponding to the penalty clause cannot be set off against other claims (Athens Court of Appeal, Single-Member, Decision 2857/2018; Athens Court of Appeal 2428/2012).
