Commercial Leases in the Balearics: Overview

Renting a commercial space in Palma, a restaurant in Ibiza, or an industrial warehouse in Menorca falls under the category "Lease for Use Other Than Housing" regulated by Title III of the Spanish LAU (effective 1 January 1995). Unlike the residential market, the commercial lease in the Balearics is based on the principle of contractual freedom.

Freedom of Agreements: The B2B Norm

The hierarchy sequence to resolve disputes in Balearic premises (Art. 4.3 LAU) establishes that first commands the will of the parties dictated in the contract, then Title III of the LAU will prevail supplementarily, and finally, the Civil Code will apply. Thanks to this flexibility:

• It is legal to transfer 100% of all maintenance responsibilities to the tenant.
• The parties are free to negotiate the duration of the lease and any potential extensions, as the mandatory 5-year extension for residential leases does not apply here.

VAT (IVA) and IRPF (Inescapable Tax Tie)

Commercial lease agreements in the Balearic Islands involve specific tax obligations:

• Invoicing with 21% VAT (IVA): The landlord must charge 21% VAT on the rent and remit these sums to the Spanish Tax Agency (AEAT).
• IRPF Withholding (19%): If the tenant is a legal entity or a professional, they must withhold 19% IRPF (Personal Income Tax) from the rent payment to the landlord and deposit it with the AEAT as a payment on account of the landlord's tax liability.

The Deposit at the Balearic Housing Institute (IBAVI) and Free Guarantees

Ignoring the regional rules regarding the official security deposit carries significant sanctioning risks:

1. The landlord must collect a legal deposit (fianza) of exactly two (2) months' rent, as mandated by Art. 36.1 of the LAU.
2. Depositing with IBAVI: This amount must be deposited with the Balearic Housing Institute (IBAVI) within one month of the contract's effective date (Art. 55.1 Ley 5/2018).
3. Sanctions: Under Ley 5/2018 (Art. 83 & 87), failure to deposit the fianza is a serious infraction, punishable by fines between €3,001 and €30,000 (capped at 75% of the deposit amount). Late or formally incorrect deposits are minor infractions, punishable by fines between €60 and €3,000 (capped at 35% of the deposit amount).
4. Additional Guarantees: Beyond the legal deposit, landlords may demand additional guarantees (such as bank guarantees or cash deposits) without the caps applicable to residential housing.

Subrogation and Commercial Subleasing

Unless expressly prohibited in the contract, a tenant conducting a business activity has the right to sublease the premises or assign (traspaso) the lease without the landlord's consent (Art. 32 LAU). However, this grants the landlord the right to a rent increase:

• A 10% increase of the current rent in the case of a partial sublease.
• A 20% increase of the current rent in the case of an assignment (traspaso) or total sublease. The landlord must be notified of the sublease or assignment within one month of it taking place.