Bank guarantee letter (teminat mektubu) is a written undertaking by a bank to pay a stated sum to a beneficiary on first demand if the bank’s customer fails to perform a defined obligation. The Court of Cassation characterises it as a guarantee contract rather than a suretyship, which gives it two decisive features: independence from the underlying debt and payment without proof of loss.
Legal nature under Turkish law
The Code of Obligations has no chapter on bank guarantees. The letter rests on the undertaking for a third party’s act: whoever undertakes towards another the act of a third person must compensate the loss arising from non performance (TCO Art. 128(1)). In unifying decisions of 1967 and 1969 the Court of Cassation held that the bank’s undertaking is a guarantee that stands on its own, independent of the customer’s debt; the decision of 11 June 1969 (E. 1969/4, K. 1969/6) applied this to customs guarantees. The bank therefore cannot raise the customer’s defences, and a conforming demand is paid even if the underlying contract is disputed; a suretyship (kefalet), by contrast, is accessory. Where the letter runs for a fixed term, the parties may agree that the bank’s liability ends unless a written demand is made before expiry (TCO Art. 128(2)).
Types of guarantee letter
- Bid guarantee (geçici teminat mektubu): secures that a bidder will sign if awarded; in public tenders at least three percent of the bid (Public Procurement Law No. 4734, Art. 33).
- Performance guarantee (kesin teminat mektubu): secures performance of the signed contract; in public contracts six percent of the contract price (Art. 43). Bank guarantee letters are accepted security (Art. 34).
- Advance payment guarantee (avans teminat mektubu): secures repayment of a prepayment if the work is not delivered.
- Other uses: rent deposits, supplier credit lines, customs duties, litigation security.
Letters are time limited (süreli) or open ended (süresiz); an open ended letter stays in force until returned, so beneficiaries prefer it and banks price it higher.
Counter guarantees and foreign banks
Turkish beneficiaries and public authorities rarely accept a foreign bank’s guarantee directly. The usual structure is a counter guarantee (kontrgaranti): the foreign bank guarantees a Turkish bank, which issues the local letter. A foreign parent supporting a Turkish subsidiary therefore arranges a counter guarantee line with a Turkish bank. Law No. 4734 accepts letters issued by Turkish banks on a foreign bank’s counter guarantee (Art. 34), in the form set by the Public Procurement Authority (Art. 35).
Cost: commission and BSMV
The bank charges a periodic commission on the guaranteed amount, set by credit standing, collateral, term and type of letter. Commissions are subject to the banking and insurance transactions tax (BSMV) under the Expenditure Taxes Law No. 6802, currently applied at the general rate of five percent (Art. 33 and the rate decree) and passed on to the customer, so the all in cost is commission plus BSMV.
Where a startup meets guarantee letters
Founders encounter the instrument early: an office lease where the landlord wants a guarantee instead of a cash deposit; a first tender; a distributor or marketplace asking for a performance guarantee; customs guarantees for imported hardware; and later a master services agreement with an enterprise client wanting security for service credits. Because a first demand guarantee is paid before any dispute is resolved, the letter should state the secured obligation precisely, cap the amount, set a term and define a valid demand.
Frequently asked questions
Can the bank refuse to pay because the customer disputes the contract?
Generally no. The letter is an independent guarantee (TCO Art. 128), so the bank pays against a conforming demand; only a clearly abusive demand can be stopped, usually by court injunction.
What happens when a time limited letter expires?
If the parties agreed that liability ends unless a written demand is made before expiry (TCO Art. 128(2)), the beneficiary loses the right to call it. Beneficiaries therefore ask for open ended letters or diarise renewal.
Can a foreign bank’s guarantee be used in a Turkish tender?
Not directly in public tenders. The foreign bank issues a counter guarantee to a Turkish bank, which issues the letter in the standard form (Law No. 4734, Arts. 34-35).
Sources. Turkish Code of Obligations No. 6098, Art. 128; Court of Cassation Unification of Judgments decisions of 13 December 1967 and 11 June 1969 (E. 1969/4, K. 1969/6); Public Procurement Law No. 4734, Arts. 33-35, 43; Expenditure Taxes Law No. 6802, Art. 33.