What payment guarantees can be agreed in a lease contract?

What payment guarantees can be agreed in a lease contract?

Security and additional guarantees

Redacción CIM Tax & Legal

Yes, it is legal to agree on any additional guarantee that provides greater peace of mind to the landlord.

The Urban Leases Law of September 24, 1994, establishes, according to Article 36, a guarantee which is the security deposit. This article regulates that for residential lease contracts, one month's rent should be deposited, and for leases for uses other than housing, two months' rent should be deposited.

As these amounts are not sufficient to provide peace of mind to the property owner, other options are sought to guarantee payment. The law establishes that both parties can agree on any additional guarantee to the cash deposit for the tenant's fulfillment of their lease obligations.

The main options presented to us within the framework of additional guarantees (Article 36.5 LAU) are:

1. Security Deposit

It is an amount of money that the tenant delivers to the landlord at the time of signing as a guarantee for the fulfillment of the contract's obligations. This deposited amount is held by the owner until the end of the lease, with the advantage for the tenant that it will not cost them more money than the loss of the returns they could obtain from that amount. This deposit amount must be indicated in a separate clause from the minimum legal deposit.

2. Bank Guarantee

It is a document in which a bank guarantees the payment of the agreed rent in the contract in case the tenant does not pay.

A bank guarantee can be on first demand or on first requirement when the bank has to pay at the time the beneficiary requests it, without the need to prove non-payment.

The amount of the guarantee is usually 3 to 6 months' rent, an amount that is pledged in the tenant's account. In addition, the bank guarantee has associated other expenses; the bank will charge an opening and quarterly maintenance commission.

The security deposit will be used to compensate for possible damages to the property, although it is evident that if the tenant stops paying, it will be compensated with it. However, as it is only one month, it is usually an insufficient guarantee.

3. Rent Guarantee Insurance

It involves taking out insurance that covers the supposed non-payment of the lease. It emerged later but is growing rapidly. The advantage of this insurance is that, in addition to being a guarantee of payment for rent arrears, it also covers damages that may have occurred and legal defense if necessary.

The insurance is contracted by the landlord; generally, an agreement is reached with the tenant for them to pay the insurance amount to the landlord. Rent guarantee insurance has an advantage over bank guarantees in that the landlord only has to pay the insurance premium, instead of the bank guarantee that requires a larger amount of money.

4. Personal Guarantee

It is when one or more third parties are responsible for fulfilling the tenant's obligations. It is often used in student rentals, as parents generally have enough liquidity to ensure compliance with contractual obligations.

Its advantage over bank guarantees and rent guarantee insurance lies in cost, as in both cases, it represents an increase in costs. On the other hand, it is less practical in guaranteeing payment to the landlord. In addition, pursuing the guarantor to demand compliance with contractual obligations presents a series of problems inherent to claiming against an individual: guarantor insolvency, difficulty in claiming when their residence is in another part of the country, etc.

5. "Avalloguer"

It is a coverage scheme provided by the Generalitat de Catalunya that insures landlords of homes, with contracts formalized under Article 2 of the LAU 29/1994, urban lease law, for the receipt of an amount in case of initiating a judicial eviction proceeding due to non-payment of rent in accordance with the conditions and requirements established by the regulations. "Avalloguer" coverage is for unpaid monthly rents from the start of the judicial action, with a limit of three months.

The requirements for admission are:

  • The monthly rent must not exceed €1,500 in the city of Barcelona, and for municipalities and surrounding areas, the rent to exceed is lower.
  • Having deposited the security deposit in the deposit registry within the specified period.
  • Not having demanded any other security deposit, guarantee, or additional guarantee.
  • Not having demanded a security deposit exceeding two months' rent.
  • Having signed the commitment document regarding "Avalloguer" between the landlord and tenant.

Subsequently, to process the payment, the landlord can request payment of "Avalloguer" six months after obtaining the judicial sentence, accompanying the request with the requested information and documents."

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