Security Deposits in Commercial Properties: Completely Free Market

For property owners in Israel arriving from the investment field of residential apartments (where the state ties their hands to up to 3 months of bank guarantee only), the transition to the commercial segment (office/shop) is a liquid blessing: The State of Israel does not limit by a cent the amount of bank guarantee a property owner can request from a company to cover risks.

Legal Disclaimer: The limiting regulations (Section 25M of the law protecting clients) were explicitly written for the property's purpose – 'residential'. In an office or commercial warehouse, one may also request coverage of two years forward rent cost if the client agrees. (Updated for March 2026).

1. Commercial Reality (Market Standard) in Guarantees

The risk in a commercial property is ten times greater than the total monthly rent: a hi-tech entrepreneur renting a floor in a Tower invests in fixing ACs and breaking floors. If the company (Ltd.) goes bankrupt, dismantling the cooling and returning the property to a reasonable state will cost the building owner hundreds of thousands of shekels.

• The Practice: In commercial contracts, it is common to ask for between 4 months to half a year (6 months) of rent (net + VAT + projected management fees and Arnona for half a year) as an autonomous renewable bank guarantee.
• Linked Autonomous Guarantee: The commercial trick in Israel is to demand that the renting company issue the bank guarantee while it is "linked to the Consumer Price Index (CPI)". If the rent increases during the 5 years following the national price index, the value of the guarantee in the bank held by the landlord rises along with it!

2. Unrestricted Forfeiture (Withdrawal) of the Guarantee

In residential, there were explicit legal limits on 'when it is permissible to run to cash it'. In commercial leasing – the contract text is Sultan. Commercial lawyers spit "fire" and insert a sharp and smooth clause: "The Landlord shall be entitled to forfeit the bank guarantee, in whole or in part, in any event of breach of contract, without having to justify their demand to the Bank, and without being obliged to notify the Tenant thereof or to obtain their prior consent."

This gives absolute power to the landlord to park disputed money against a company that delayed rent or didn't fix a service elevator it broke. Naturally, a court can retroactively demand indemnification if the move was without proof of damage (unjust enrichment), but day-to-day, the money is in the owner's account in a moment!

3. "Corporate Guarantee" and Personal Guarantees of the CEO Lifting the Veil

The companies renting offices (Ltd. / P.C. in Israel) constitute a corporate veil. If the startup collapses there is no one to take from, the Ltd. business is declared bankrupt.

1. Personal Guarantee (of the shareholders/founders): A smart property owner demands that beyond the company's bank guarantee, the company's founders sign a "Personal Guarantee / Directors' Guarantee" letter. Meaning - if the company closes down, the property owner can personally sue the private bank account of the startup's CEO! Mandatory to enforce this in a tough market.
2. Parent Company Guarantee (Corporate Guarantee): If an international company sets up a "shell branch" in Israel to absorb employees. The shell branch will ask to rent an office, but the landlord has no security. establishing a "Cross-Guarantee" demand on the global parent company! The parent company issues a Letter of Guarantee undertaking that should the Israeli branch fall behind on its payments, the debt is to be collected from the headquarters in Berlin/USA.

A Digital Securities Portfolio Without an "Expired" Date

The great disaster of an owner of a fleet of commercial buildings: a hi-tech entrepreneur who rented for five years went bankrupt as expected in the statistics of Year-4. The office building owner took down the bank guarantee from the safe to automatically run to the bank to collect 50,000 ILS... and then discovered that the bank clerk smiles and says: "The validity of this guarantee expired three weeks ago - the tenant was supposed to renew it, he didn't do it, the money returned to him and we have no authority." Cash lost to terrible negligence! Don't rely on elastic folders. Landager's Deposits Tracking feature brings the validity scanning from the court to a monthly follow-up. Two months before the expiration of an Israeli tenant's bank document, your system flashes loud red to the dashboard and produces a "Commercial Legal Notification" to the tenant - threatening closure of the premises if a signed and scanned PDF confirming the annual validity extension (their obligation) at their bank is not uploaded to the system. Manage wealth, don't manage senility!

Back to B2B Overviews: Commercial Leasing in Israel.