Guarantee

Guarantee - A guarantee is a commitment in which a bank (guarantor) assumes liability for a debt owed by its customer to a third party. In the real estate sector, guarantees are frequently used as rental deposits, warranty guarantees, or bid bonds. The bank does not disburse funds immediately but instead provides its creditworthiness as collateral-the guarantee borrower pays an annual guarantee fee in return.

Types of Guarantees in the Real Estate Sector

Depending on the intended use, different types of guarantees are employed:

• Rental guarantee (rental deposit guarantee): The bank guarantees the rental deposit to the landlord. The tenant does not have to deposit a cash security and retains their liquidity. The guarantee fee typically amounts to 2-5% of the deposit amount per year.
• Warranty guarantee: A construction company has its bank issue a guarantee that assures the client of the fulfillment of warranty claims-typically 5% of the contract amount for the duration of the warranty period (usually five years according to the German Civil Code (BGB) or the German Construction Contract Procedures (VOB)).
• Contract Performance Bond: Ensures proper contract performance in construction contracts-the client can make a direct claim against the bank in the event of non-performance.
• Bid Bond: In public tenders for construction projects, the client requires a security to ensure that the bidder maintains its bid and enters into the contract if awarded the contract.
• Completion guarantee: Ensures the completed handover of a construction project - relevant for real estate development contracts under the MaBV when the buyer makes advance payments.

Costs and Accounting

The guarantee commission is calculated as a percentage of the guaranteed amount and is payable annually to the bank. The amount depends on the customer’s creditworthiness, the type of guarantee, and the term:

Guarantee Type	Typical Commission	Typical Term
Rent Deposit Guarantee	2.0-5.0% p.a. of the deposit amount	Lease term
Warranty guarantee	0.5-2.0% p.a. of the guarantee amount	5 years (VOB/B)
Contract performance guarantee	1.0-2.5% p.a. of the contract amount	Construction period + warranty period
Bid bond	0.5-1.5% p.a.	Until the award decision

Since the bank does not disburse any funds, the guarantee does not impact the borrower’s liquidity-however, it does impact their credit line, as the bank must account for the default risk on its balance sheet. For companies, guarantees must be reported off-balance sheet as contingent liabilities (Section 251 HGB).

Rental Guarantee vs. Cash Security Deposit - A Comparison

From the tenant’s perspective, the rental guarantee offers a clear liquidity advantage: Instead of depositing three months’ rent (e.g., 2,400 euros for a base rent of 800 euros) as a security deposit, the tenant pays only an annual fee of, for example, 3% = 72 euros. The tied-up capital remains available for other purposes.

From the landlord’s perspective, however, there are differences: The landlord can use the cash security deposit immediately in the event of damage; with a guarantee, they must involve the bank and comply with the guarantee terms. Formal errors when making a claim can result in the loss of the claim.

Guarantee in the Developer Contract

For developer contracts, the MaBV stipulates that the developer must provide either a release statement from the mortgage creditors or, alternatively, a completion guarantee. This guarantee protects the buyer in the event that the developer becomes insolvent and the house cannot be completed. The guarantee must be payable on first demand and must correspond to the buyer’s advance payments.

Practical Tip for Property Owners in Nuremberg and Franconia

For landlords in the Nuremberg metropolitan region, we recommend insisting on a directly enforceable guarantee waiving the defense of prior action when accepting a rent guarantee in lieu of a cash security deposit. Only then can you directly claim against the bank in the event of a loss without first having to sue the tenant.

Also check the following points before accepting a rental guarantee:

• Is the guarantee open-ended, or does it automatically expire with the tenancy?
• Does it cover all claims arising from the tenancy (rent, utilities, damages)?
• Is the claim subject to formal requirements-and do you know the exact requirements?
• Is the bank providing the guarantee properly licensed (authorized by BaFin)?

For builders and clients: Only accept warranty guarantees from banks with a sufficient credit rating-a guarantee from a weak financial institution does not offer reliable security.

Frequently Asked Questions

Is a rental guarantee just as secure for the landlord as a cash deposit?

A bank guarantee generally offers a high level of security, as the bank acts as a solvent debtor. However, the guarantee amount is limited to the sum specified in the guarantee, whereas a cash deposit can grow with interest. In addition, if the landlord makes a claim, they must strictly adhere to the terms of the guarantee-formal errors such as a missing justification, an incorrect mailing address, or an expired guarantee document can result in the loss of the claim. In practice, we recommend carefully reviewing the guarantee document and consulting a lawyer in the event of a claim before filing it.

Can the tenant unilaterally terminate the security deposit guarantee?

The tenant can terminate the guarantee agreement with their bank-however, this does not automatically terminate the guarantee vis-à-vis the landlord. The guarantee vis-à-vis the landlord only ends when the bank receives the guarantee document back or when the landlord waives their rights under the guarantee in writing. In practice, the tenant must therefore first provide alternative security (e.g., a cash deposit) before the bank withdraws the guarantee. Landlords should not simply accept the tenant’s termination of the guarantee without demanding substitute security.

How is a guarantee enforced in the event of warranty claims?

The principal submits their claim in writing to the bank and presents the original guarantee document. In the case of a guarantee on first demand, the bank must pay immediately without verifying the validity of the claim-such verification may take place in a subsequent recovery proceeding. In the case of an ordinary directly enforceable guarantee, the bank may verify the validity of the claim; but it is not required to demand a prior action against the principal debtor (this is precisely the difference from a simple guarantee with a defense of prior action under § 771 BGB). The exact requirements are set forth in the guarantee document-please read it carefully before accepting it.

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