The primary function of the 'earnest' is, however, its role in guaranteeing compensation for a non-defaulting party, covering all or part of the damages suffered by the breach. Nonetheless, if the non-defaulting party prefers to seek performance of the contract, compensation for damages are determined in accordance with the general rules on non-performance.

It should be noted that in modern tenancy contracts normally the word 'deposit' is used instead of 'earnest'88. It is widely accepted in practice that tenants provide landlord's with a deposit equivalent to one-month's rent. Certainly, other arrangements are also possible. A deposit is normally given prior to, or at the time of the hand-over of the property to the tenant, but there is no absolute rule. The parties may ascribe to the deposit any of the functions enumerated above. Typically the deposit performs the typical role, i.e. it serves to ensure compensation for the landlord if the tenant fails to perform her obligations. Practice reveals that the most frequent breaches on the part of tenants are either, a failure to make payment on time or a failure to return the property on time or in the same state as he/she found it when entering into the contract. As such, deposits are most often used to compensate landlords for unpaid rent or delayed payment or to cover repair costs. These arrangements are an effective solution, which help reduce court proceedings. Landlords, who receive even partial compensation, have little incentive to spend additional time and money on litigation.

Question 17: Utilities

What are the general rules on utilities? Which utilities may the landlord make the tenant pay by contractual stipulation? Is it legal to establish in the contract a monthly lump sum to cover certain or all utilities?

The principle of freedom of contract applies to the rules on utilities. The provisions in the LCO, relating to expenses on utilities are of non-mandatory nature and parties are free to deviate from them. Nevertheless, parties normally apply these rules, which state that the tenant is obliged to pay all the expenses that arise through the use of the premises – e.g. water, heating, electricity. The parties may agree that these expenses are payable by the tenant directly to the companies that supply water, heating and/or electricity, etc or directly to the landlord with the bills. Where the rented apartment is in a shared building, the tenant will be obliged to pay maintenance expenses for the common areas of the building, e.g. stairs, elevators, porter, electricity and heating in the common parts of the building etc.89 A term which provides for a monthly lump sum to cover certain or all utilities would not be usual, rather it would be entirely legal.

In addition, according to article 231, the tenant bears the expenses for any “small repairs” that result through conventional use of the apartment, e.g. “dirty walls in rooms, corrosion of faucets and door locks, clogging of chimneys, etc”. In sum, the tenant is obliged to repair damages, caused as a result of the normal use of the premises.

88'Earnest' is an old word, which has been used in the Bulgarian legislation during the fist half of the century (in the former Commercial Code and LCO) and which was subsequently adopted in the current Law. In the modern era, outside of the legal profession, few would be familiar with this term.

89The rules prescribing how the expenses are shared among the persons sharing the building are provided for in article 9 of the Regulation on management, order and control in condominium.