Commercial Security Deposits and Bank Guarantees in Finland
How to secure B2B real estate leasing in Finland? A guide to bank guarantees, advance rents, and maximum deposits under LHVL.
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Because significantly larger capitals roll in commercial property leasing than in residential, the impact of a company's bankruptcy on the landlord can be devastating without a massive financial buffer. Although the Commercial Leases Act (LHVL) provides broad freedom of contract in the B2B market, there are certain legal ceilings regarding the setting of deposits.
Commercial Bond Process in national
Negotiate Bond
Agree on bond type and amount during commercial lease negotiations.
Collect Security
Receive bank guarantee or cash bond before the tenant takes possession.
Hold During Lease
Hold the bond securely for the full commercial tenancy duration.
Release or Claim
Return the bond at lease end if no outstanding obligations, or make claims for documented breaches.
The 3-Month Maximum Rule (Deposit / Vakuus)
Contrary to illegal urban legend, LHVL (Section 8) sets the same maximum limit for a commercial deposit as for residential housing:
- The deposit may be a maximum amount equivalent to three (3) months' rent.
- If the contract requires the transfer of a four-month cash deposit to the landlord's account, the clause is directly void for the exceeding one-month part.
Why then do large companies constantly demand "6-month" or even year-long guarantees? This is managed through mechanisms outside the deposit legislation (E.g., "Advance Rents", "Parent Company Guarantee", or a strong "On-Demand Bank Guarantee").
Securing Options in Commercial Premises (B2B)
Professional real estate investors keep several tools in their arsenal when operating with risk companies, where protection is needed beyond the level of a mere 3-month cash pledge.
1. Bank Guarantee (On-Demand Bank Guarantee / Omavelkainen Pankkitakaus)
By far the industry standard and safest practice is to demand an On-Demand Bank Guarantee from the tenant.
- How does it work? The tenant does not transfer money directly to the landlord, but the tenant's bank (e.g., Nordea, OP) writes a commitment guaranteeing the payment of a certain sum to the landlord entirely without objections (On-Demand) immediately against the document, if the landlord notifies in writing that the tenant has breached the contract.
- Validity of the contract period: The bank guarantee must absolutely be valid for the entire duration of the tenancy PLUS generally at least 4 - 6 months after the expected end of the contract (Example: "The guarantee is valid until Dec 31, 2030, and 6 months thereafter"). If the bank guarantee expires, the landlord is left completely without a safety net.
- The amounts here often exceed that 3-month spirit of the law by ordering larger voluntary deposit credits as attachments from the bank.
2. Parent Company Guarantee (Konsernitakaus)
If the tenant is a small subsidiary, but the whole is backed by a massive listed company or international chain, a Parent Company Guarantee is often ordered. In this case, the large corporation "personally" guarantees all obligations arising from the subsidiary's original commercial lease agreement, such as rent arrears and demolition costs from the floor.
3. Cash Deposit (Pledged Account / Käteisvakuus)
Transferring money from a corporate account to the landlord's account as funds. Typically this is only used in smaller local matters because companies want to keep their cash assets in business use instead of tying them up. The sum must not exceed three (3) months' rent here under LHVL.
Back to Commercial Leases Act (Overview).
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