Bank guarantee

Bank guarantee

A bank guarantee is a statement in which the bank issues a guarantee for the amount of the deposit that the buyer must pay to the seller. A deposit is often included in the real estate purchase agreement. The deposit for the purchase of real estate often amounts to 10% of the agreed purchase price. The buyer pays this deposit to the notary. If financing with personal funds is not possible or not desired, a bank guarantee is a possible alternative.

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Bank guarantee or deposit: what is the difference?

When purchasing real estate, the seller almost always requires assurance that the buyer will fulfill their obligations. The purchase agreement offers the buyer two options for this: depositing a security deposit or providing a bank guarantee. With a security deposit, the buyer actually transfers 10% of the purchase price to the notary's escrow account. With a bank guarantee, that money remains with the buyer, and the bank instead issues a written statement that it will pay this amount to the seller if the buyer defaults. A bank guarantee is therefore an attractive alternative when a buyer does not wish to tie up their assets or does not (yet) have the amount available in liquid form. The bank does charge fees for providing a bank guarantee, usually a percentage of the guaranteed amount.

The bank guarantee in the purchase agreement (NVM model, Article 5)

In the standard NVM purchase agreement, the provision of security is regulated in Article 5. Typically, the buyer must deposit a security deposit or provide a bank guarantee amounting to 10% of the purchase price no later than one week after the expiration of the financing condition. The bank guarantee must be unconditional and remain valid until at least one month after the agreed date of transfer of ownership. Providing a security deposit or bank guarantee constitutes, alongside the payment of the purchase price and cooperation in the transfer, one of the core obligations of the purchase agreement. We advise buyers and sellers, from an international real estate fund to the baker on the corner purchasing his business premises, on the proper wording of these agreements and the associated time limits.

Invoking the bank guarantee: the 10% penalty

If the buyer fails to fulfill one or more of their obligations, the seller may, after a proper notice of default, choose between performance or dissolution of the purchase agreement. Furthermore, virtually every purchase agreement contains a penalty clause: the defaulting party forfeits an immediately payable penalty of typically 10% of the purchase price. The seller can recover this penalty from the provided bank guarantee or deposit. The notary then invokes the bank guarantee, and the bank pays the amount directly to the seller. If the seller demands performance instead, a penalty payment of 0.3% of the purchase price per day can often be claimed, with a maximum of 10%. A valid notice of default is crucial in this regard: if it is missing or defective, the penalty cannot be collected. Our lawyers and in-house counsel assess whether a notice of default holds up and act in disputes regarding the invocation of the guarantee.

Abstract guarantee on first demand versus suretyship

Legally, a bank guarantee is typically an abstract “on first demand” guarantee: a self-contained, independent obligation of the bank that is separate from the underlying purchase agreement. The bank must pay as soon as the conditions of the guarantee text have been met, without substantively examining the underlying claim. This distinguishes the bank guarantee from suretyship (Article 7:850 of the Dutch Civil Code), which is a dependent security: a surety can invoke the defenses of the principal debtor, whereas the bank under an abstract guarantee generally cannot. Therefore, a buyer can only prevent the invocation of an abstract bank guarantee in exceptional cases, for example through summary proceedings in the event of a justified suspicion of fraud or arbitrariness on the part of the seller. We advise on the choice between these forms of security and litigate regarding their enforcement where necessary.

Bank Guarantee and Real Estate: Our Approach

A bank guarantee rarely stands alone; it is linked to the purchase agreement, the financing clause, the deed of transfer, and sometimes to broader real estate transactions. At MKB Juristen, lawyers and in-house counsel work together in mixed teams, ensuring we master both the contractual and procedural aspects. We assist both sellers and buyers, from listed companies and real estate investors to the independent entrepreneur purchasing their first property. Read more about our full range of Real Estate, or contact us directly for advice on a bank guarantee.