Bank Guarantee, Deposit, or Promissory Note? The Complete Israeli Lease Security Guide
✍️ RentMate Research Team | Updated:
Choosing the right security package in an Israeli residential lease requires balancing the landlord's need for rapid protection against unpaid rent or property damage with the legal caps established under the 2017 Fair Rental Amendment (Section 25י [25J] of the Hire and Loan Law / Tenancy Law).
The Crucial Legal Distinction Under Section 25J(b)
Israeli law draws a strict boundary between two categories of lease guarantees:
Guarantees Involving Financial Expense to the Tenant (Bank Guarantee, Cash Escrow/Deposit, or Paid Third-Party Guarantee): Under Section 25J(b), the cumulative total of all such financial guarantees is capped by law at the LESSER of:
Rent for one-third (1/3) of the lease period, OR
3 times the monthly rent.
Guarantees NOT Involving Upfront Financial Expense (Promissory Note / Shtar Chov or Third-Party Personal Guarantee): Because signing a promissory note does not require the tenant to freeze cash or pay bank fees, it is not subject to the 3-month cap of Section 25J(b).
💡 How the Financial Guarantee Cap Works in Practice:
For an apartment rented at 6,000 ILS/month:
12-Month Lease: One-third of the lease period is 4 months (24,000 ILS), so the lesser cap applies—3 months' rent (18,000 ILS maximum).
6-Month Short-Term Lease: One-third of the lease period is 2 months (12,000 ILS), which is lower than 3 months' rent—so the legal cap is 12,000 ILS.
Comparing the Main Lease Security Instruments
Security Type
Landlord Liquidity & Speed
Cost to Tenant
Subject to Sec. 25J(b) 3-Month Cap?
Autonomous Bank Guarantee
Very High (Direct bank demand without prior court litigation)
High (Annual bank fee + frozen cash collateral)
Yes
Cash Deposit / Escrow
Very High (Immediate access subject to statutory notice)
Moderate (Ties up liquid cash)
Yes
Promissory Note (Shtar Chov) + Guarantors
Moderate (Enforced via Execution Office / Hotza'a LaPoal)
Zero upfront cost
No
The 4 Exclusive Grounds for Realizing a Guarantee & Mandatory Return Rules
Under Section 25J(c) of the Tenancy Law, a landlord may realize a security guarantee only in four specific circumstances and strictly up to the actual unpaid debt or damage:
Unpaid Rent: Up to the unpaid rent plus linkage and interest stipulated in the lease.
Failure to Repair Tenant-Caused Damage: Up to the cost of repairing defects for which the tenant is legally/contractually responsible.
Unpaid Utilities & Ongoing Bills: Unpaid Arnona, electricity, water, gas, or building committee (Vaad Bayit) fees.
Failure to Vacate on Time: In accordance with the liquidated damages terms of the contract.
Prior Notice & 60-Day Return Mandate: Under Section 25J(d), the landlord must give the tenant reasonable advance notice before realizing any guarantee to allow the tenant to cure the breach. Under Section 25J(e), the landlord must return the guarantee (or its remaining balance) within 60 days after the property is vacated or all tenant debts are settled, whichever is later.
Track Guarantee Expiry Dates and Guarantor Details in One Place
RentMate lets you store digital copies of bank guarantees, promissory notes, and guarantor IDs while sending automatic reminders before expiry.
⚖️ Legal & Tax Disclaimer: The information in this guide is provided for general educational purposes only and does not constitute legal advice, tax advice, or a substitute for professional consultation with a qualified attorney or CPA tailored to your specific circumstances.