Guarantee

Guarantee - A guarantee is a contract whereby a third party (guarantor) undertakes to the creditor to ensure the fulfillment of a debtor’s obligations (Section 765 of the German Civil Code). In the real estate sector, guarantees are primarily encountered as rent guarantees, bank guarantees for real estate financing, and as a security instrument for construction projects.

Types of Guarantees in Real Estate Law

The German Civil Code recognizes various forms of guarantees, which differ significantly in real estate practice.

The ordinary guarantee (default guarantee) obligates the guarantor to pay only after the creditor has unsuccessfully pursued the principal debtor. The guarantor may invoke the so-called defense of prior action (Section 771 BGB)-meaning the creditor must first attempt enforcement against the debtor before being allowed to seek recourse from the guarantor.

In the case of a direct guarantee, the guarantor waives this defense. The creditor can immediately turn to the guarantor without having to go through the primary debtor. This form is the norm in the real estate industry-both for rental guarantees and for bank guarantees in construction financing.

The maximum amount guarantee limits the guarantor’s liability to a contractually specified maximum amount. This limitation is required by law, particularly for rental guarantees: According to Section 551(1) of the German Civil Code (BGB), the security deposit-whether in the form of a cash deposit or a guarantee-may not exceed three months’ net rent.

Another variant relevant in practice is the guarantee on first demand, under which the guarantor must pay upon the mere request for payment by the creditor, without the creditor having to prove that the event giving rise to the security has occurred. According to prevailing case law, this form is invalid in residential lease agreements with consumers, but it is found in commercial lease law and in construction contracts.

Rental Guarantee as an Alternative to a Cash Security Deposit

In residential tenancy law, the guarantee has established itself as a popular alternative to the traditional cash security deposit. Instead of depositing three months’ rent as a cash security deposit in a security deposit account, a guarantor-often a parent, a security deposit insurance provider, or a bank-issues a guarantee certificate for the corresponding amount. For tenants, this has the advantage that no capital is tied up. For landlords, a bank guarantee often offers even greater security than a cash deposit because the creditworthiness of the financial institution backs the obligation.

Important for landlords: A guarantee that is required in addition to a cash security deposit of three months’ rent that has already been paid is invalid under Section 551(4) of the German Civil Code (BGB). If, on the other hand, the guarantee is offered voluntarily and without a request from the landlord-for example, by a student’s parents-it may remain valid beyond the three-month limit according to the case law of the Federal Court of Justice (BGH).

Practical Tip for Nuremberg and the Metropolitan Region

In the Nuremberg metropolitan region, the rental market is noticeably tight in sought-after neighborhoods such as St. Johannis, Gostenhof, or the Südstadt. Especially for younger tenants-such as students at the Technical University of Nuremberg (TH Nürnberg) or the University of Erlangen-Nuremberg (FAU)-landlords often require a parental guarantee as additional security. We recommend that landlords carefully review the guarantee agreement and ensure that it is structured as a directly enforceable guarantee and specifically references the relevant lease agreement. Tenants should insist that the guarantee be limited to the statutory maximum amount of three months’ net rent (excluding utilities) to keep the guarantor’s liability risk manageable. If you have any uncertainties, it is worth seeking advice from the Nuremberg Tenants’ Association or a lawyer in the region who specializes in tenancy law.

Frequently Asked Questions

What is the difference between a deficiency guarantee and a directly enforceable guarantee?

With a deficiency guarantee, the creditor must first exhaust all legal remedies against the principal debtor before they can seek recourse from the guarantor. With a directly enforceable guarantee, this defense of prior action does not apply-the creditor can immediately turn to the guarantor. In the real estate sector, the directly enforceable guarantee is the standard form because it allows the landlord or the financing bank to enforce the claim more quickly.

Can a landlord require both a security deposit and a guarantee at the same time?

No, according to Section 551 of the German Civil Code (BGB), the total security may not exceed three months’ net rent. If the landlord already requires a full cash security deposit, any additional guarantee demanded is invalid. The only exception: If the guarantee is offered voluntarily and without a request from the landlord-for example, by the tenant’s parents-it may be valid alongside an existing security deposit according to the case law of the Federal Court of Justice (BGH).

What form must a guarantee declaration take?

According to Section 766 of the German Civil Code (BGB), a guarantee must be in writing. The guarantee declaration must be signed by the guarantor in their own handwriting or bear a qualified electronic signature. A verbal guarantee commitment or a declaration via email without a qualified signature is void. We recommend that the guarantee document specifically reference the relevant lease agreement or loan agreement to avoid future disputes regarding the scope of liability.

Guarantees in Real Estate Financing: Can a Bank Guarantee Serve as a Substitute for Equity?

In addition to rental guarantees, guarantees also play a role in real estate financing. Parents or other wealthy relatives can provide a guarantee to the financing bank for their child’s loan-in the hope that the bank will thereby grant a higher loan amount or better terms. In such cases, banks generally require a directly enforceable guarantee and scrutinize the guarantor’s creditworthiness just as carefully as that of the primary debtor. An important difference from a rental guarantee: There is no statutory upper limit on the guarantee amount for loan agreements. In the event of default, the guarantor is liable with their entire personal assets up to the agreed guarantee amount. Before signing a bank guarantee for real estate financing, we recommend carefully calculating the liability risk and seeking legal advice-especially for large loan amounts, which are typical for many properties in the Nuremberg metropolitan area.

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