Security Deposits and Guarantees in Balearic Commercial Rentals

Since the Spanish Urban Leases Act (LAU) came into effect on 1 January 1995, commercial lease agreements in the Balearic Islands (Mallorca, Menorca, Ibiza, and Formentera) have been subject to a strict dual regime: a mandatory statutory fianza and freely negotiated additional guarantees.

1. The Statutory Fianza: Mandatory 2-Month Deposit (Art. 36 LAU)

For leases for "use other than housing" (uso distinto del de vivienda), which includes commercial premises, offices, and seasonal rentals, Article 36 of the LAU establishes a mandatory cash security deposit:

• Mandatory Amount: The tenant must provide a cash deposit equivalent to two (2) months' rent.
• Calculation: The amount is based on the initial rent agreed upon, excluding VAT or additional expenses unless otherwise stipulated, though the law refers strictly to "rent."
• No Cap on Additional Funds: While the fianza is fixed at 2 months, this does not prevent parties from agreeing on further financial security.

2. Mandatory Lodgment with IBAVI (Ley 5/2018)

In the Balearic Islands, the landlord does not keep the statutory cash fianza. Regional legislation, primarily Ley 5/2018, de 19 de junio, de la vivienda de las Illes Balears, mandates its external custody:

1. Deadline: The landlord has 30 business days from the signing of the lease to deposit the funds.
2. Custodian: The funds must be lodged with the Instituto Balear de la Vivienda (IBAVI).
3. Sanctions for Non-Compliance: Failure to deposit the fianza is considered a serious infraction. Sanctions include surcharges of up to 20% for voluntary late filing, and fines that can range from €60 to €3,000, plus interest, depending on the severity and whether the administration has already initiated a claim.

3. Additional Guarantees in B2B Contracts

Unlike residential leases (where additional guarantees are capped at one month's rent), commercial rentals enjoy total freedom of contract regarding additional security.

• Bank Guarantees (Aval Bancario): It is standard practice in the Balearics to request an unconditional bank guarantee covering 6 to 12 months of rent.
• Cash Guarantees: Parties may agree on a "contractual guarantee" in cash in addition to the statutory fianza.
• Custody: These additional guarantees (unlike the statutory 2-month fianza) are held privately by the landlord and are not deposited with IBAVI.

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