The following article is taken from Eye on Spain, www.eyeonspain.com

Bank Guarantee For Renting Your Property

The Bank Guarantee is a typical way of legal security, it is legally independent from the principal or main obligation, which is being guaranteed by this, therefore needs to be considered as a separate, different and autonomous contract but linked to the principal by the fulfilment or breaching of the payment obligation of the principal contract. The fulfilment of the obligation is not going to depend on the financial situation as if there is a breach of contract, the bank guarantee can be directly executed and the money can be recovered without judicially executing the main contract.

You all already know that the bank guarantee is a legal obligation to developers for the consumers securing the amounts paid in off-plan purchases in Spain since 1968. Today, I want to show another useful way to use the Bank Guarantee, this time for lettings or renting:  

A bank guarantee can be used for renting in order to secure the result and execution of the obligations included in the rent contract either as the guarantee which is legally prescribed in provision 36.1 of General Renting Act or, as a compliment, which is allowed by provision  36.5 of that General Act. This last modality is experiencing a very widespread use as a personal complimentary guarantee which is constructed as a means of immediate availability.

This has been declared by Decision of the Supreme Court dated the 15th in April of 1988.

This way, if there is a breach of contract, the landlord can claim against the bank (guarantor) the execution of the bank guarantee and he must obtain automatically and without any opposition, the amount which has been fixed in the Bank Guarantee. The Bank will then have the possibility to go to Court afterwards and claim the amount back from the tenant. Tenant will have this same means if he considers that the execution of the Guarantee was not justified. 

The guarantee deadline needs to be fixed in the same rental contract, determining the time for the landlord to execute the guarantee before the guarantor bank. If that deadline passes without executing it, the guarantee will be terminated.
 


Comments:

CommentDateUser
What an excellent piece of information. I am looking at the potential of renting my properties in Spain and this is the first I have heard of this. Many Thanks Maria Jack26/06/2007 14:52:00jackamo
WE WERE PLEASED TO SEE THE ARTICLE ON BANK GUARANTEES, SEPTEMBER 2005 WE STARTED THE PURCHASE OFF PLAN OF A VILLA, GIVING OVER 30% TO OUR SOLICITOR WE SOON FOUND THINGS GOING WRONG, HOWEVER WHEN FINDING THE DEVELOPER HAD BREECHED THE CONTRACT WE REQUESTED OUR MONEY BACK TO BE TOLD BY THE SOLICITOR THAT THERE WAS NO BANK GUARANTEE. CAN YOU CONFIRM THAT THIS IS AGAINST THE LAW, AS WE HAVE SINCE PUT THE CASE INTO ANOTHER SOLICITORS HANDS, AND TO DATE AFTER 5 MONTHS HE SAYS THE ONLY OPTION IS TO GO TO COURT, WHICH HE IS IN THE PROCESS OF DOING. WE FEEL HE IS COVERING FOR THE OTHER SOLICITOR AND AFTER READING YOU ARTICLE FEEL THIS IS CORRECT. WE WOULD APPRECIATE YHOU COMMENTS.24/09/2007 17:28:00WINIFRED1
Dear Maria That's a really great suggestion that can offer peace of mind to landlords - do you know, typical bank charges per month - for example on a rental of 500 euros per month; or as a % of rental income? Many thanks Maria Alan09/06/2010 04:07:00Alan
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