Commercial Security Deposits and Bank Guarantees (Turkey B2B)

Plazas, Shopping Mall (AVM) investors, or owners of Logistics warehouses leasing commercial (roofed workplace) real estate in Turkey can negotiate bond amounts freely. While the law generally limits deposits to three months, TCO Article 342/3 explicitly exempts commercial tenancies where the tenant is a merchant or a legal entity from this cap.

1. The Conflict of the Legal "3 Months' Rent Limit" (B2B Cash Deposit)

Turkish Code of Obligations Article 342 generally states that "If the tenant's giving security has been agreed upon, this security cannot exceed three months' rental fee." However, per paragraph 3 of the same article, this limitation does not apply to leases where the tenant is a merchant or a legal entity. Therefore, a Shopping Mall fund leasing a shop to a corporate tenant can legally negotiate a 6-month or 8-month upfront deposit; the parties are free to determine the amount in their B2B contract.

If the company tenant (Merchant) is providing a cash "Security Deposit," the requirement to deposit funds in a joint "Deposit Account" can also be waived or modified by the parties under the freedom of contract provided by Article 342/3.

2. Solution in the Market: "Bank Letters of Guarantee"

Seeing the cash devaluation risk or the inadequacy of the 3-month limit, corporate investors (Property owners) and foreign tenant companies have completely transitioned to the Bank Letter of Guarantee argument instead of cash deposits in the Turkish market.

• How Does It Work?: The Tenant Company goes to its bank and gets a "Definite and Indefinite Bank Letter of Guarantee" from its bank in favor of the property owner (Lessor AVM) over its own credibility or collateral (block). (E.g.: "If my tenant does not pay their debt, withholding tax or damage, the bank branch will give that invoice and rent to me upfront in cash from the desk without asking On First Demand").
• Freedom of Exceeding Limits: Because Bank Letters of Guarantee are not solely a "Cash Deposit" and are considered a separate Surety/Guarantee contract (Supreme Court decisions), in practice they have provided the basis for the 3-month limit to be easily bypassable via bank letters of guarantee with 6-month or 1-year amounts. While there are 3 months in the cash limit, limits are stretched in determining the amount of the Letter of Guarantee and it is strongly used as security in B2B.

3. Suretyship and the Personal Suretyship of the Company Manager (Joint and Several Surety)

Corporate "Limited Liability Company" (Ltd. Şti) commercial enterprises, which are usually not gigantic in Turkey, are risky because they have limited company capital behind them (E.g., 10,000 TL capital) and they can be hollowed out. Because if the company goes bankrupt and is closed (if the Ltd. legal entity disappears), even 15 months of damages that the Property Owner will incur with a 3-month cash deposit cannot be salvaged and remain unpaid. In leasing from enterprises that are not Joint Stock Companies (A.Ş.), this standard is stipulated as a condition in the Turkish commercial market:

"Joint and Several Suretyship (Personal Surety)": Under the signing of the legal entity company (tenant firm), the owner of the enterprise, to the Limited or corporate contract as "Tenant: XYZ Company"; it is obligatorily requested that the shareholder or the general manager of the company "sign with the title of Joint and Several Surety" personally with their own name-surname + TC ID number (also putting their own personal car and house in pledge for the debt). Furthermore; in order for this suretyship not to be invalid (void) before the TCO, the Surety must state by writing personally with their handwriting under the contract: "The Type of Suretyship of this debt (Joint and Several/Müteselsil), its Maximum Amount (1 Million TL in figures) and its Dates". If there is no handwriting, the suretyship is invalid. The written consent of the spouse is also required via Notary certification.

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