Recent Spanish Court ruling On Lease Deposits: the Purpose Is Not Always Payment For Back Rent

3 May 2010

The recent ruling exposes the widespread belief that the deposit can always be used as payment for overdue amounts as erroneous. If the clause is murky or its interpretation is open to debate, the deposit can only be used as payment for damages and/or deterioration to the property and not for the debt.

The specific factual basis refers to the leasing of business premises for non-housing purposes, and the matter under examination is the purpose of the deposit provided by the lessee/user of the premises to the owner /lessor and the scope of what it “covers”.

In short, and for precautionary measures, the conclusions to be borne in mind by the parties to a property lease are the following:

1.- all leasing agreements should include a very clear clause or agreement as to the grounds for and purpose of the deposit and the potential required use of same;

2.- in the event of any doubt, case law –current rulings most often applied by the courts- tend to favour the lessee by stating that the deposit cannot be used as payment for back rent, only for damages to the property. Understandably, this is a topic of much dispute, and

3.- although it is not always easy, all owners/lessors are advised that, when negotiating and signing a leasing agreement, they ask for and obtain a bank guarantee to cover amounts due, and a deposit to cover damages.

Since all legal rulings are a matter of opinion, it is essential to proceed cautiously and obtain, from the outset, a clear and safe agreement, with sufficient guarantees for both parties. This calls for the preventive action of an attorney in order to avoid later legal disputes which are as drawn out as they are expensive.

For further information, please contact: Alex Ensesa: