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A formal commitment from a bank to pay the landlord a specified sum if the tenant fails to fulfill their obligations under the lease.
A bank guarantee is one of the most common forms of security in rental contracts. The tenant deposits an amount equal to the guarantee's value with the bank (or a portion of it, depending on bank policy), and the bank issues a document pledging to pay the landlord if the contract is breached. The guarantee remains active throughout the lease term and is released at the end if it is not called upon.
Bank guarantees can be "autonomous" (where the bank pays on demand without needing legal proof of breach) or "conditional" (requiring proof of an actual violation). Landlords usually prefer autonomous guarantees. The tenant covers the costs of issuing the guarantee, such as service fees and foregone interest on locked funds. When the lease ends, the bank cancels the guarantee and returns the funds to the tenant, provided the landlord hasn't filed a claim.
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Related terms
Security Guarantee Cap (3 Months' Rent)
Under the law, a landlord can demand guarantees up to a total maximum value of 3 months' rent.
Promissory Note
A legal document where a tenant commits to paying the landlord a specific amount if the lease is breached, payable on demand.
Return of Security Guarantees
The legal obligation to return all financial guarantees to the tenant when the lease ends, deducting only proven damages or outstanding debts.
The information in this glossary is for general informational purposes only and does not constitute legal advice. In the event of a dispute or a specific legal question, consult an attorney specializing in tenancy law.