When renting retail space, tenants are generally required to provide a bank guarantee as security for the landlord. In the Dutch retail market, the amount almost always falls between three and six months’ rent, depending on the location, the lease agreement, and the risk profile of the tenant. The questions that follow are equally practical: how do you apply for such a guarantee, when is a landlord allowed to call on it, and what happens when you leave? This article answers those questions step by step.
How many months’ rent do you need to provide as a bank guarantee?
The bank guarantee when renting retail space in the Dutch retail market is standardly three months’ rent including VAT and service charges. For starting entrepreneurs, new brands without a track record, or locations on prime A-locations, a landlord may request six months. The amount is negotiable, but three months is considered the common market standard.
In practice, the amount requested depends on a number of factors. Landlords look at the financial solidity of the tenant: if you have a proven operating history, annual accounts, and equity, three months is almost always the starting point. If you are a starting entrepreneur or opening your first physical store after a period as an e-commerce brand, a landlord may request more security.
The location also plays a role. On the most sought-after shopping streets in cities such as Amsterdam, Rotterdam, Utrecht, or Groningen, competition for space is fierce. Landlords in those locations have a stronger negotiating position and are less inclined to make concessions on the security requirement. Those who know the rental market well and understand what is customary per location type are in a stronger position at the negotiating table. Guidance when renting retail space helps precisely in moments like these: knowing what is normal and being able to act on that.
What is the difference between a bank guarantee and a security deposit?
A bank guarantee is a written payment promise from a bank to the landlord, whereby the bank guarantees that it will pay out a certain amount if the tenant fails to meet their obligations. A security deposit is an amount that the tenant pays directly to the landlord as a deposit. The difference lies in who holds the money and who bears the risk.
With a bank guarantee, the money is not held in the landlord’s account. The tenant arranges the guarantee through their bank, pays an annual fee for it, and the landlord can only call on the guarantee under the conditions set out in the document. The tenant keeps their own liquidity intact, but does pay for the guarantee arrangement.
With a security deposit, the tenant pays the amount directly. That money is then held by the landlord or in escrow, and the tenant has no access to it during the rental period. In the commercial retail market, the bank guarantee is the most commonly used form. A security deposit is more common in smaller or private landlord-tenant relationships. In lease agreements for retail space drawn up in accordance with the ROZ models, the bank guarantee is the standard form of security.
How do you apply for a bank guarantee at your bank?
You apply for a bank guarantee at your own business bank. The bank assesses your creditworthiness and, on that basis, draws up a guarantee document for the benefit of the landlord. The process typically takes one to two weeks, but may take longer if the bank requests additional financial information.
In practice, the application proceeds through a number of steps:
- Request the exact wording that the bank guarantee must contain from your landlord. Landlords often have specific requirements regarding the wording, the amount, and the term.
- Submit this wording to your business bank, along with your lease agreement and financial details.
- The bank assesses your application and may request additional documents such as annual accounts, forecasts, or collateral.
- Upon approval, the bank draws up the guarantee document and sends it directly to the landlord or hands it to you.
Please note that the bank guarantee for a retail space lease must generally have a term covering the rental period, plus a margin of three to six months. Some banks require a counter-security or a block on your account as a condition. This can affect your working capital, so discuss this with your bank in good time before signing a lease agreement.
When is a landlord allowed to call on the bank guarantee?
A landlord may call on the bank guarantee if the tenant fails to meet their contractual obligations. The most common ground is non-payment of rent. In addition, enforcement may occur when other obligations under the lease agreement are not met, such as failing to repair damage upon departure or failing to comply with the usage provisions.
The bank guarantee is a so-called abstract guarantee: the bank pays out upon first request from the landlord, without the landlord having to prove that a breach has actually occurred. This makes the bank guarantee more attractive to landlords than a security deposit held in escrow. For tenants, it means that the landlord can enforce the guarantee relatively easily, even if there is a dispute about whether there is actually a case of default.
In practice, landlords do not call on the bank guarantee lightly. An unjustified enforcement can lead to legal proceedings and reputational damage. But the risk exists, and it underlines the importance of a well-drafted lease agreement with clear mutual obligations. When assessing available retail spaces and the associated contracts, it is advisable to have the guarantee provisions thoroughly reviewed.
Can you reduce or release the bank guarantee during the rental period?
It is possible to negotiate a reduction or partial release of the bank guarantee during the rental period, but this is not an automatic right. It requires the landlord’s consent and is generally only considered if the tenant has built up a proven payment history and the relationship is stable.
Some lease agreements contain a so-called step-down clause: the bank guarantee decreases after a number of years of timely payment from a higher to a lower value. This is sometimes agreed upon at the start of the lease as part of the negotiations, particularly if the landlord initially requests six months but the tenant finds this too burdensome.
If you want to arrange a reduction mid-term without it being contractually established, you will need a strong negotiating position. A demonstrably strong operating performance, timely payments, and a solid financial position are your strongest arguments. It is advisable to record this in writing as an addendum to the lease agreement, so that the arrangements are legally enforceable.
What happens to the bank guarantee when you vacate the retail space?
When you vacate the retail space and have fulfilled all obligations, the landlord must release the bank guarantee. This means the landlord returns the guarantee to the bank or declares in writing that they no longer make any claim. Only then can your bank formally terminate the guarantee and your fee obligation lapses.
In practice, this does not always go smoothly. Landlords sometimes retain the bank guarantee longer than necessary, for example while awaiting the final handover or a dispute about the condition of the space. It is therefore important to go through a formal handover process at the end of the lease, with a written inspection report and a signed acknowledgement from the landlord.
Make sure you know when the guarantee expires and when your bank will automatically withdraw it. Some bank guarantees have a fixed end date. If the rental period is extended, the guarantee must also be extended. If you forget this, the landlord may consider the guarantee as lapsed and push for a new arrangement, which will again incur fee costs.
Arranging a bank guarantee is one of the practical steps in a larger process: finding the right retail space, assessing the rental price, and negotiating contract terms. KroesePaternotte guides retailers and entrepreneurs through all these steps, with market knowledge dating back to 1984 and lease contract data covering virtually the entire Dutch retail market. Whether you are opening a store for the first time or expanding to a new city, a specialist retail agent ensures that you not only find the right space, but also know what you are signing. Get in touch for a no-obligation conversation about your search.
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