What you should know about bank guarantees
In most cases, the rental deposit is deposited in a deposit savings account. However, not all landlords insist on a rental deposit for Business tenants in the form of cash when signing a rental contract. The possibility is often mentioned that this can also be done by means of a deposit or bank guarantee. But what exactly does this term mean?
Bank guarantee and rental guarantee – a clarification of terms
Generally speaking, a surety bond is a type of contract between several parties in which one party (the guarantor) agrees to pay the other party (the creditor) on behalf of a third party (the debtor) if the third party cannot pay the costs themselves or want. He assures this payment of a debt in a legally binding manner to the creditor. If the guarantor has to pay, he will then claim the money back from the debtor.
It is the same in the case of a rent guarantee , also Mietaval (from Italian “avallo” = guarantee): The guarantor assures the landlord, in the event of any damage occurring to the rented property or financial damage, such as rent losses or unpaid utility bills, to step in for the debtor. The tenant does not deposit a cash deposit with the landlord, but a guarantor stands surety for him with the landlord. If damage actually occurs, the guarantor will initially pay for it and then demand the money from the debtor, i.e. the tenant.
If a bank acts as a guarantor for the tenant, this means that the bank offers its customer a contract – against payment, of course – that obliges the bank to vouch for the landlord’s demand for the rental deposit. This promise of payment is set out in a corresponding, legally binding document (the guarantee document). This document is a kind of security, because it has the value of the required deposit. It will be handed over to the landlord for safekeeping instead of cash.
Such a way of securing a tenancy is always interesting if a tenant does not want to or cannot pay the deposit required in the tenancy agreement in cash. He just has to be aware at all times that he has to reimburse the guarantor (i.e. in the case of the bank guarantee his bank) for the guarantee sum paid out at the landlord’s request later. After all, this business is about purely securing the payment and not about completely assuming payment, as is the case with liability insurance.
Bank guarantee – what do I have to pay attention to?
As with any other directly enforceable guarantee, a maximum amount should always be stated on a bank guarantee certificate. This amount is based on the tenancy agreement and tenancy law (a maximum of three months’ rent for private tenancy agreements).
Frequently there is also a time specification by reference to the date of issue of the rental agreement. In any case, both guarantor, tenant and landlord must always be listed by name, as well as the type of claim, namely “rent deposit”. This rules out the possibility that a landlord can demand payment for a car painting, for example.
What are the costs of a bank guarantee for a rent deposit?
Providing a guarantee to the landlord is a service provided by the bank, which requires a so-called guarantee commission. The cost of a bank guarantee is influenced by the interest rate charged by the provider and the deposit required by the landlord. Furthermore, the term of the contract plays a role in relation to the fees.
According to tenancy law, a tenancy deposit serves as security to secure claims by the landlord against the tenant, should these arise after the end of the tenancy. If, for example, there is damage to the apartment when the tenant moves out or an invoice is outstanding, the deposit paid can be used to meet such claims and to cover the costs. Especially if the tenant is unable or unwilling to accept the landlord’s claims or if he has simply disappeared. In principle, the rental deposit can therefore also be used to settle rent arrears.
If the rental deposit has been paid in cash, the landlord must deposit the full amount in a separately managed rental deposit account or savings account at the start of the rental period.
In the legal sense, however, this use is opposed to the tenant’s claim to have the money repaid. However, the landlord must always prove his claim, for example with invoices for tradesmen or cost estimates that clearly refer to the rented property.
However, if the tenant has presented a guarantee document when moving in, the respective text on the document (and thus also in the guarantee contract) is very important in the event of claims by the landlord.
For example, many landlords value the fact that the guaranteeing bank undertakes to pay out the deposit amount “on first demand”. In the event of damage, you want to be able to get your money as quickly as possible.
Background: With the wording “payment on first demand” in the contract, the landlord is guaranteed that the deposit will be paid out to him immediately as soon as he demands it. The formulation thus excludes in a legally binding manner that the bank may first of all demand that the landlord take legal action against the tenant before a payment is made.
In the case of a payment on first request, there is also no check before the payment to the landlord as to whether his claims are lawful, for example whether damage was really caused by the tenant or already existed when the tenant moved in.
There is no express statutory regulation behind the wording of the contract “payment on first demand”. The passage usually appears as the text of the contract on the document and is then valid in the sense that the landlord is bindingly promised faster access to payment.
In contrast to payment on first request, the claims of the landlord are checked in the case of a guarantee without first request and the tenant has the opportunity to take a position before the payment to the landlord and to present his point of view. However, banks usually do not offer a guarantee without first requesting it. It is advisable to take out rental deposit insurance with this protective function instead.