November 7, 2012 - Yoni Van-Leeuwen

Most Israelis, at some point in their lives, will sign their names on a real-estate rental contract.  Besides the monthly rent itself, the next most common issue for the parties to discuss before signing is which securities the landlord receives from the tenant.  There are various types of securities, and in this article we will regard the ones most commonly used in Israel today.

Since we believe that to sustain long term relations between two parties the contract must be reasonable and fair, we design our contract to be just that.  Therefore, although this article is written from the landlord's point of view, tenants coming to sign contracts will benefit from the information here as well.   

It is important to note that there is no one better security, rather a situation which calls for specific securities.  In other words, the landlord needs to ensure that the securities received best befit the situation, the property and especially the tenant.  One should consult a lawyer specializing in this field to better relate the situation at hand to the general information provided here.

Another point is that from our experience, in order to decrease chances of future conflict, it is recommended that landlord’s lawyer, as opposed to the landlord himself, holds on to the securities.  Securities are to be returned to tenant within a certain time from the end of the contract term (usually 60 days), or when it becomes clear the tenant has no more outstanding debt, whichever occurs sooner.      

Postdated checks

In Israel, it is fairly common for landlord to ask for postdated checks for the entire rent term.  When payments are to be made via bank transfers, this is sometimes substituted by receiving checks for the first and last months of rent at the time of signing.

In commercial rentals, landlords usually request payment of 3, 6 or even 12 months' rental in advance.  This is not the usual practice for residential rentals, although we have met landlords who demand more that one month of payment in advance. 

Utility/Municipality securities

Another common security is checks made out to the municipality and to the different utility providers - gas, water and electrical companies.  These will be used in case the tenant leaves the apartment without paying his city taxes or any outstanding utility bills.

Promissory note

It is common for a landlord to demand that a promissory note, written by the tenant based on the request of the landlord, be held by the landlord's lawyer for the duration of the rent term.  This note, as specifically mentioned in the rental contract, will only be used in the event the tenant has outstanding debt towards the landlord (for rent, damages, etc.).

Some landlords request a security check instead of the note.  We feel that holding on to a note rather than a check makes for a stronger position. This is both because of the additional steps that may be required in order to execute the check if the tenant cancels it following a dispute, and because of the fact that a note can be executed against guarantors (see next section) as well as against the tenant.  

The amount on the note is typically around 5 times the monthly rent, so usually between 20,000 and 50,000 NIS.  When tenants find this excessive, we explain that a) in realty it is very simple to cause damage to an apartment that would cost that much to repair and b) the note stays in the lawyer's hands and will be used only in accordance with the contract.

The tenant may also attempt to negotiate certain restrictions on the execution of the note, such as that he is given the opportunity to repair the damage himself, or that a third party (mediator/Rabbi) approves the note's execution beforehand.      

Bank guarantee

Although this is not as common, some landlords do require a bank guarantee covering several months of rent from the tenant's bank.  From our experience, most tenants will not agree to this demand, which in effect locks the said monies in their bank account and prevents them from using it.

One suggested compromise in case the parties are at a dead lock over this issue, is for the tenant to present the landlord with a bank statement showing his current financial situation.  This could help reassure the landlord that the tenant can keep his part of the agreement, as well as be instrumental in case the landlord ever has to pursue action with the execution office in order to collect any debt from the tenant.

Guarantors

It is fairly common for the landlord to request that one or two guarantors sign a Guarantee Agreement as an appendix to the contract, as well as co-sign the promissory note.  If these documents are drafted correctly, the landlord should be able to redeem any contract-related debt from the guarantors as well as from the tenants.  In effect this doubles the landlord's chances of actually receiving what he is owed.

Since "chasing down" the guarantors will happen when the tenant turns out to be more problematic than landlord originally suspected, the identity of the guarantors is crucial.  For instance, if the landlord feels student tenants are a certain risk, and may not be able to pay the rent, having another student as a guarantor obviously makes no sense.  From our experience, parents make better guarantors than friends, since they are less likely to leave their children "hanging" with the debt. 

Copy of bank statement and pay slip

As previously mentioned, knowing the tenant's bank account information can be instrumental in case the landlord ever has to pursue action with the execution office in order to collect any debt from the tenant.  The same is true for knowledge of the tenant's workplace.  If action ever needs to be taken with the execution office, these documents hold information which can make the difference between the landlord's success and failure in collecting debt from the tenant.

Although some tenants refuse to present both these documents on account that the information is private, most understand the landlord's right to make sure he is signing an agreement with a person who has some money in the bank and/or a decent job which will enable him to uphold his side of the contract.

Tenant's prior record

By prior record we do not mean criminal record (for, if the tenant has one, one may choose to rethink the whole agreement altogether…).  Previous landlords' impression of the tenant may be significant information for the landlord.  People tend to repeat themselves when it comes to behavior in a similar situation.  Therefore, asking the tenant to provide two or three names of previous landlords is completely legitimate before signing the contract.

This last suggested "security" may not even be one, literally, but it may just be the best security the landlord will ever get.