Quick Answer: A bank guarantee (michtav achrayut bankait) in Israel is an undertaking by a licensed Israeli bank to pay a named beneficiary a fixed sum on demand, independently of any dispute between the underlying parties. The beneficiary calls it by presenting a written demand to the issuing bank — no court order required. Israeli courts apply a strict autonomy principle and will block payment only in cases of clear fraud. Bank guarantees are mandatory under Section 2 of the Sale (Apartments) Law 5733-1973 for off-plan property purchases, widely used in commercial leases as an alternative to cash deposits, and common in construction contracts, tenders, and commercial agreements throughout Israel.

Walk into any transaction involving Israeli real estate, a commercial lease, or a government tender, and you will encounter a michtav achrayut. The term is usually translated as "letter of guarantee" or "bank guarantee," but it operates quite differently from the guarantees foreign nationals are familiar with from the US, UK, or Europe.

An Israeli autonomous bank guarantee works like this: the bank pays the beneficiary on demand, without investigating whether the underlying claim is valid. The guarantee document is the bank's promise, not the debtor's. If the conditions stated in the document are met — typically a signed written demand from the beneficiary — the bank pays. Disputes about the underlying contract are fought out afterwards between the parties; they do not stop the payment.

For foreign nationals buying apartments off-plan, renting commercial property, entering into construction contracts, or doing business with Israeli companies, understanding how bank guarantees work in Israel can mean the difference between recovering your money quickly and spending years in litigation.

1. What Is a Bank Guarantee (Michtav Achrayut) Under Israeli Law?

Israeli law does not have a single dedicated statute governing bank guarantees. The legal framework draws from the Contracts (General Part) Law 5733-1973, the Guarantee Law 5727-1967, and a substantial body of Supreme Court case law that has crystallised the autonomy principle over decades.

A bank guarantee in Israeli practice has three parties:

  • The applicant (hamevakesh): the party who instructs their bank to issue the guarantee — typically the debtor, buyer, contractor, or tenant.
  • The issuing bank (hahavtacha): the licensed Israeli bank that issues the guarantee and undertakes to pay.
  • The beneficiary (hamistafed): the party in whose favour the guarantee is issued — typically the creditor, seller, employer, or landlord.

The guarantee document sets out the conditions under which the bank will pay: the maximum amount, the expiry date, and what the beneficiary must present to trigger payment (usually a written demand, sometimes also a certificate or declaration). Once a beneficiary makes a valid demand before expiry, the bank pays — typically within 3 to 14 days as specified in the document.

This differs from a personal guarantee (arevut ishit), where the guarantor's own creditworthiness is in play and the Guarantee Law 5727-1967 gives the guarantor procedural rights. A bank guarantee is a clean, documentary obligation of the bank. The bank's financial standing — not the applicant's — backs the payment.

In Practice: Banks charge a commission to issue a guarantee — typically 0.5% to 1.5% of the guarantee amount per year. A NIS 200,000 guarantee running for two years costs approximately NIS 2,000 to 6,000 in bank fees. The applicant must also maintain collateral: the bank will either debit a blocked account (*pekudon*) or require that the applicant have sufficient credit facilities. For a foreign national with no Israeli banking history, getting a bank to issue a guarantee requires opening an Israeli account first and demonstrating creditworthiness — a process that typically takes 4 to 8 weeks at Bank Hapoalim, Bank Leumi, Bank Discount, or Mizrahi-Tefahot.

2. The Autonomy Principle: Why Israeli Courts Almost Never Block Payment

The governing legal principle for bank guarantees in Israel is the autonomy principle (ikaron ha'atzma'ut). A bank guarantee is an independent undertaking by the bank, separate from the underlying contract between the applicant and the beneficiary. In its 1987 ruling in Discount Bank v. Levenstein, and confirmed in numerous subsequent decisions, the Israeli Supreme Court held that courts will not interfere with payment under an autonomous bank guarantee except in very narrow circumstances.

The rationale is commercial: the entire value of a bank guarantee as a credit instrument rests on the certainty of payment. If beneficiaries could be blocked from collecting by a debtor who simply claims the underlying contract was breached, no bank guarantee would ever be worth issuing. Israeli commercial practice — and international banking practice generally — depends on the guarantee being as good as cash.

The fraud exception

Israeli courts will enjoin payment under a bank guarantee only where the beneficiary's demand is fraudulent — meaning the beneficiary knows with certainty that they have no right to payment and is calling the guarantee in bad faith. This is an extremely high bar. Courts have held that:

  • A genuine dispute about whether the underlying contract was performed does not constitute fraud sufficient to block a guarantee.
  • The beneficiary's belief (even if mistaken) that they are entitled to payment is not fraud.
  • Unfairness or hardship in the outcome does not reach the threshold.
  • Only knowing, dishonest misuse of the guarantee mechanism — a call the beneficiary knows has no conceivable basis — will persuade a court to intervene.
In Practice: Applications to enjoin payment on bank guarantees in Israel are filed in the Magistrates Court or District Court depending on the value. Under Regulation 362 of the Civil Procedure Regulations 5744-1984, the court can grant a temporary injunction within 24 to 48 hours in urgent cases. However, judges are acutely aware that every such injunction undermines the value of bank guarantees as instruments. In practice, courts grant fewer than 15% of injunction applications against bank guarantee calls, and those that succeed almost always involve evidence of clear fraud — a forged document, a knowingly false certification, or a call made after the parties settled the dispute in writing. If you are the applicant seeking to block a call, you need a very strong case to have any realistic chance.

3. Types of Guarantee Used in Israeli Practice

Practitioners distinguish between several categories based on the calling conditions and the underlying transaction. Understanding which type you are dealing with shapes how you call it and how you defend against it.

Autonomous "on-demand" bank guarantee

Payment is triggered by a written demand alone — no additional evidence, certification, or court order needed. These guarantees use language such as "we undertake to pay on your first written demand without any right of set-off, objection, or defence." They are standard in commercial leases, construction contracts, and government tenders. The bank cannot look behind the demand.

Conditional bank guarantee

Requires the beneficiary to present specified documents in addition to the demand — for example, a court judgment, an arbitral award, or an engineer's certification of defects. These are less common in Israeli commercial practice because they slow down enforcement, but they appear in some construction and procurement contracts. The benefit to the applicant is that a fraudulent call is harder to execute without the supporting documents.

Statutory guarantee under the Sale (Apartments) Law

A specific statutory obligation on developers under Section 2 of the Sale (Apartments) Law 5733-1973. The developer must provide the buyer with a bank guarantee covering all payments made before the apartment is registered in the buyer's name at the Land Registry (Tabu). The guarantee tracks every payment — it must be updated as the buyer makes further instalments. These guarantees are called when the developer defaults on completion, becomes insolvent, or breaches the contract in a way that justifies cancellation.

Tender guarantee (*aravut makhraz*)

Required by the Israeli government and many large corporations as a condition of submitting a bid. It ensures the bidder will execute the contract if awarded. Tender guarantees typically run 2% to 5% of the contract value and expire once the contract is signed. A successful tenderer who then refuses to sign the contract faces a call on the guarantee.

Performance guarantee (*aravut bitzua*)

Issued to secure performance of a contract — typically a construction or supply agreement. If the contractor fails to complete on time or to specification, the employer calls the guarantee to fund completion by another contractor or to cover losses. Performance guarantees in Israeli construction contracts typically run 5% to 10% of the contract sum.

4. How to Call (Enforce) a Bank Guarantee in Israel

Calling a bank guarantee is a straightforward process if you follow the document's prescribed conditions. Most enforcement failures happen because the beneficiary makes a procedurally defective demand — wrong format, wrong address, wrong signatory, or wrong timing.

Step 1: Read the guarantee document carefully

Every guarantee sets out the exact conditions for a valid demand. Check:

  • The maximum amount payable (and whether partial calls are permitted).
  • The expiry date — this is a hard deadline. A demand received by the bank after expiry will be refused without exception.
  • The required form of demand: must it be in Hebrew? Must it be signed by a specific person or title? Does it require any accompanying documents?
  • The delivery method: by hand to a specific bank branch? By registered mail? Most Israeli bank guarantees require physical delivery to a named branch.

Step 2: Prepare the demand

Draft a written demand that exactly mirrors the conditions in the guarantee. State the guarantee number, the maximum amount you are claiming, and the basis for the call (typically a single sentence: "The conditions entitling us to call this guarantee have been met."). Don't explain the underlying dispute — the bank does not need reasons, and extra context only creates grounds for questions.

Step 3: Deliver the demand before expiry

Present the demand to the issuing bank branch named in the guarantee document, before the expiry date and time. Keep a stamped receipt or equivalent proof of delivery. If the expiry is imminent and you are acting from abroad, use your Israeli attorney to make the delivery in person. Do not rely on international post.

Step 4: Receive payment or challenge a refusal

The bank will typically pay within 3 to 14 days as specified in the guarantee. If the bank refuses — claiming the demand was defective, the guarantee has expired, or that it received a court injunction — your Israeli attorney should immediately send a formal letter demanding payment and threatening summary court proceedings. The bank's obligation is clear-cut; wrongful refusal exposes it to a fast-track claim and a cost award.

In Practice: If you are a foreign national managing this from abroad, the demand must still reach the issuing bank's specified branch in Israel before expiry. Bank Hapoalim, Bank Leumi, and Mizrahi-Tefahot each have specific procedures for guarantee claims and may require the beneficiary's attorney to appear in person at the branch with original documents. Allow at least 7 to 10 business days before the expiry date to instruct Israeli counsel, prepare the demand in the correct format, and arrange delivery. Guarantees expire at midnight on the specified date — there is no grace period and Israeli courts have consistently refused to extend expired guarantees even where the delay was caused by postal services or administrative error.

5. Blocking Payment: When Can a Guarantor or Bank Resist?

As a rule, neither the applicant (the person who instructed the bank to issue the guarantee) nor the bank itself can resist a valid demand. But there are narrow situations where a call can legitimately be challenged.

Defective demand

If the beneficiary's demand does not strictly comply with the conditions stated in the guarantee — wrong signatory, missing document, delivery to the wrong branch, submission after expiry — the bank may refuse. This is the most common legitimate basis for refusal. Courts will generally uphold a refusal based on a material defect in the demand, though they apply a reasonable construction approach to minor, obviously non-prejudicial errors.

Court injunction on fraud grounds

As discussed above, the bar is very high. The applicant must file an urgent injunction application with the Magistrates or District Court, demonstrating that the call is clearly fraudulent — not merely that the underlying claim is disputed. Courts typically require the applicant to post a significant security deposit (often equal to the guarantee amount) to compensate the beneficiary if the injunction turns out to have been wrongly granted.

Settlement or waiver

If the parties have settled their dispute in a written agreement that explicitly releases the beneficiary's right to call the guarantee, the bank may refuse to pay if it receives a demand after such a waiver. The bank will need clear written evidence of the release. Any ambiguity about whether the guarantee was released will be resolved in favour of the beneficiary.

In Practice: Tenants in Israeli residential and commercial leases regularly attempt to block their landlord from calling a bank guarantee after a dispute arises. Typically the tenant files an urgent application to the Magistrates Court claiming the guarantee is being called in bad faith. The court will hear both sides, usually within 5 to 10 days under the urgent application procedure. In the majority of cases, if the landlord has a colorable (arguable) basis for the claim — unpaid rent, damages to property, early exit without notice — the court will allow payment to proceed. The tenant's remedy is to sue the landlord for the money back after the fact if the claim was unfounded. This sequence — guarantee called, payment made, lawsuit filed — is the normal resolution path for disputed guarantee calls in Israel, not an injunction blocking payment in advance.

6. Bank Guarantees in Property and Rental Transactions

Most foreign nationals encounter Israeli bank guarantees in two contexts: buying an apartment off-plan, and renting property.

Off-plan purchases: the statutory guarantee

Under Section 2 of the Sale (Apartments) Law 5733-1973, any developer who takes a payment exceeding 7% of the purchase price before the apartment is registered at the Land Registry must provide the buyer with a bank guarantee covering the full amount paid. This is not optional — a developer who fails to provide the guarantee commits a criminal offence under Section 16A of the law, punishable by up to two years' imprisonment and a fine of NIS 226,000.

Key points for foreign buyers:

  • The guarantee must be from a licensed Israeli bank, not a financial institution abroad.
  • The guarantee amount must be updated to reflect each additional payment made. Your attorney must verify the guarantee is updated and valid before authorising each payment.
  • The guarantee can be called if the developer is declared insolvent under the Insolvency and Financial Rehabilitation Law 5778-2018, if a court rescinds the contract, or if the apartment is not delivered within specified periods after the contractual completion date.
  • Some developers substitute an insurance policy (*bituach achrayut*) for a bank guarantee. This is permitted under Section 2(4) of the law but gives the buyer marginally less certainty — verify the insurer is licensed by the Capital Market, Insurance and Savings Authority (CMISA) and that the policy covers the full amount paid.
In Practice: In developer insolvency cases, calling the bank guarantee is usually the fastest recovery path. When a developer enters receivership or liquidation proceedings at the Economic Affairs Court, the process of proving your debt and recovering from the insolvent estate can take two to five years. The bank guarantee bypasses this entirely: you call the guarantee directly against the bank, receive full payment for every installment you paid, and then the bank steps into your shoes as a creditor against the insolvent estate. If your off-plan purchase involved payments exceeding NIS 500,000 and the developer is in financial difficulty, instruct an Israeli attorney immediately to verify your guarantee is current and valid before calling it — guarantees that were never updated to reflect all payments made are the most common failure point.

Commercial leases: the guarantee as rent security

For commercial tenants in Israel, landlords almost universally require a bank guarantee as security for the lease obligations — covering unpaid rent, property damage, and costs of reinstating the premises at the end of the lease. Typical amounts run three to six months' rent, adjusted over time to reflect rent increases.

Under the Housing Tenancy Law 5777-2017 (Hok Schirut Dira), residential landlords are limited to a cash security deposit of three months' rent. However, the law does not prohibit landlords from asking for a bank guarantee in addition to, or instead of, cash. In practice, many Israeli landlords prefer bank guarantees for foreign tenants precisely because they are harder to dispute.

For landlords calling a guarantee at the end of a tenancy:

  • The call must be made before the guarantee expiry date — make sure the guarantee runs at least 60 days beyond the lease end date to allow time for assessing the premises and making any claim.
  • A demand can be for the full amount or a partial amount. Document the damages or arrears before calling the guarantee to withstand any subsequent challenge by the former tenant.
  • Israeli courts have held that a landlord who calls a guarantee for more than the provable loss is acting in bad faith and may be ordered to return the excess. Keep the call amount proportionate to your actual claim.

7. Using Bank Guarantees as a Foreign Business or Creditor in Israel

Foreign companies contracting with Israeli parties frequently deal with bank guarantees on both sides of the transaction — as the party required to provide security and as the beneficiary entitled to call one.

When you are the applicant: providing a guarantee from abroad

Israeli counterparties typically require guarantees from Israeli-licensed banks, not from foreign institutions. An Israeli business asked to deal with a guarantee issued by a US, UK, or European bank will generally refuse — partly because their lawyers cannot advise on enforceability and partly because Israeli courts have no jurisdiction over foreign banks. If you need to provide a guarantee, your options are:

  • Open an account with an Israeli bank and ask them to issue the guarantee backed by your deposit or credit facility.
  • Use a counter-guarantee structure: your foreign bank issues a guarantee to an Israeli correspondent bank, which issues a back-to-back local guarantee to the beneficiary. Major Israeli banks maintain correspondent relationships with international banks for precisely this purpose.
  • Negotiate a cash deposit as an alternative — some Israeli counterparties will accept this for smaller amounts.

When you are the beneficiary: enforcing from abroad

The mechanics of calling a guarantee do not change because you are based abroad — the demand still goes to the Israeli bank branch. You do not need an Israeli court order. What changes is the logistics: you must act through your Israeli attorney, and you must ensure the demand reaches the bank in the correct form before expiry. Once the bank pays, the funds are deposited in the account you designate — which can be your Israeli bank account or an account abroad, depending on the bank's wire procedures and any currency exchange requirements.

Using a bank guarantee as a substitute for Section 353A security

Foreign companies that file debt claims in Israeli courts face a potential application by the defendant under Section 353A of the Companies Law 1999 for security for costs. Courts have accepted a bank guarantee from an Israeli bank as a valid alternative to a cash deposit. If Section 353A is a concern in your case, consider obtaining an Israeli bank guarantee in the anticipated security amount before filing — this avoids the cost and delay of opposing the application and reassures the court that costs can be recovered if the claim fails. For more on the Section 353A issue, see our guide on collecting commercial debt from an Israeli company.

In Practice: Transferring the proceeds of a called bank guarantee out of Israel is straightforward but requires compliance with the Prohibition on Money Laundering Law 5760-2000. When you instruct the Israeli bank to wire the guarantee proceeds abroad, the bank will ask for documentation of the transaction that generated the guarantee — the lease agreement, purchase contract, or supply agreement — and may ask for a brief explanation of why the call was made. This is standard bank compliance procedure, not a legal barrier. Prepare a one-page summary of the transaction and keep your underlying contract available. The transfer itself is typically processed within 3 to 5 business days once the bank's compliance team is satisfied.

Frequently Asked Questions

Yes. An autonomous bank guarantee (michtav achrayut bankait atzmai) in Israel is called by presenting a written demand to the issuing bank, together with any documents specified in the guarantee text — typically a signed statement that the conditions have been met. The bank then pays within the period stated, usually 3 to 14 days. No court order is needed unless the bank refuses.

Only in very narrow circumstances. Israeli courts apply the autonomy principle strictly: a tenant seeking to block payment must prove fraud or a fundamental illegality, not merely that the landlord's underlying claim is disputed. An injunction based on a disagreement about whether rent was owed, or whether there were defects in the property, will almost certainly fail. The tenant's remedy is to sue the landlord for the money back after payment is made.

A bank guarantee (michtav achrayut bankait) is issued by a licensed Israeli bank and enforceable directly against the bank — independently of any dispute between the contracting parties. A personal guarantee (arevut ishit) is issued by an individual or company and is governed by the Guarantee Law 5727-1967, which gives guarantors specific procedural protections including the right to require that the creditor pursue the principal debtor first. Bank guarantees are far stronger for the beneficiary and much harder to resist.

Under Section 2 of the Sale (Apartments) Law 5733-1973, a developer who takes payments exceeding 7% of the sale price before delivering the apartment must give the buyer a bank guarantee covering all sums paid. The guarantee can be called if the developer fails to complete and transfer the apartment on time, goes insolvent, or breaches the contract in a way that justifies cancellation. The guarantee must be updated to reflect each additional payment made and must remain valid until the apartment is registered in the buyer's name at the Tabu.

If the bank wrongfully refuses to honour a valid call, you can file a summary judgment application against the bank in the Magistrates Court. Because the bank's obligation is documentary and clear-cut, courts typically grant summary judgment within 60 to 90 days. In urgent cases, a temporary mandatory injunction requiring the bank to pay can sometimes be obtained within days. Attorney fees for a routine enforcement action typically run NIS 8,000 to 20,000, and are generally recoverable as part of the judgment.