Bank Guarantee: Rules for Use When Renting an Apartment

The Essence

A bank guarantee (in Hebrew: "Arvut Bankait") is one of the most reliable forms of security deposit for a residential lease. The bank freezes a specified sum in your account and issues a document to the landlord, which allows them to claim these funds if you breach the terms of the lease agreement. For the tenant, it is a means to secure the lease agreement; for the landlord, it provides maximum protection against risks.

Who is Eligible?

Both parties to a lease agreement have the right to use a bank guarantee as a security instrument.

• Tenant (Socher): Any individual with an account in an Israeli bank and sufficient funds to be frozen for the entire term of the agreement.
• Landlord (Maskir): Any property owner who seeks reliable security against non-payment of rent or property damage.

Who typically does not use this type of security deposit:

• Individuals who do not have available funds to freeze for a long term (typically one year or more).
• Tenants who can offer other, less "burdensome" forms of security (e.g., checks, promissory note).

Your Rights

Although the guarantee grants the landlord significant power, your rights as a tenant are protected.

• Limitation on the Amount: The amount of the guarantee is limited by law. Typically, it cannot exceed the sum of 3 months' rent or one-third of the total annual rent, whichever is less.
• Clear Conditions: The landlord may only activate the guarantee upon the occurrence of events explicitly specified in the lease agreement (e.g., non-payment of rent, refusal to vacate, causing damage).
• Prior Notification: Before activating the guarantee, the landlord is obligated to notify you in writing and provide a reasonable period to rectify the breach.
• Return of Funds: At the end of the lease term, in the absence of claims, the landlord must return the original guarantee letter to you. You then present this letter to the bank to unfreeze your funds.

Step-by-Step Guide

1. Agreement: Agree with the landlord on the amount of the bank guarantee. Ensure that this amount and the conditions for its activation are clearly stipulated in the lease agreement (hoze schirut).
2. Bank Visit: Go to your bank branch with your identity card (teudat zehut) and the lease agreement.
3. Application: Inform the bank representative that you require an "Arvut Bankait" for a rental apartment. Specify the exact amount and the landlord's details.
4. Freezing Funds: The bank will freeze (place in a "pikadon") the agreed-upon sum in your account. The bank charges a fee for this transaction.
5. Receiving the Document: The bank will issue an official guarantee letter in the landlord's name.
6. Delivery to the Landlord: Deliver this letter to your landlord upon signing the agreement and receiving the keys.
7. End of Lease: Upon the expiration of the lease term and fulfillment of all obligations, retrieve the original guarantee letter from the landlord. Present it to the bank to unfreeze your funds.

List of Documents

To arrange for a bank guarantee at the bank, you will likely need:

• Identity Card (Teudat Zehut).
• Lease Agreement (Hoze Schirut) that specifies the requirement for a bank guarantee.
• Your bank account details.

Pitfalls

• Frozen Funds: You will not have access to this sum for the entire duration of the lease. It is "dead" capital.
• Bank Fees: Banks charge a fee for issuing and annually maintaining the guarantee. Clarify the fee amount in advance.
• Risk of Activation: The primary risk is that the landlord can claim the funds directly from the bank without going to court. Therefore, it is crucial that the agreement specifies, as precisely and narrowly as possible, the conditions under which this can be done.
• Vague Wording: Avoid general phrases in the agreement such as "in case of breach of contract." Insist on specifics, for example: "in the event of non-payment of rent within 14 days after the due date."
• Agreement Renewal: If you renew the lease, the guarantee must also be extended, which may incur a new fee.

Contacts and Links

This service is provided by commercial banks, not government agencies. For all information regarding terms, conditions, and fees, contact your bank directly (e.g., Leumi, Hapoalim, Discount). There is no centralized government portal for this service.

Dictionary