LEASES IN SPAIN: Payment Guarantee Insurance vs. Guarantor

The property owner who is going to rent out a property is concerned about the possibility of the tenant not paying rent and is considering requesting guarantees.


What do they cover?

Guarantee: Both insurance and a guarantor are additional assurances alongside the security deposit. They both provide financial backing in case of tenant breaches. The difference lies in who assumes responsibility:

Insurance: The insurance company responds, ensuring solvency.

Guarantor: In the case of a bank guarantee, the bank responds, offering more guarantees than a personal guarantor, where a third party assumes responsibility.

Breach of Agreement: Both mainly ensure the tenant's breach of financial obligations in the contract. Insurance often includes legal defense and legal advice.


Contracting and Costs:

Guarantor: The tenant must obtain it and bear the costs, which may include an opening and quarterly commission.

Insurance: The landlord must purchase it and cover the cost, which can vary between 4% and 5% of the annual rent, depending on various factors.


In practice:

If you prefer peace of mind, you can purchase payment guarantee insurance with the necessary coverage. This provides peace of mind but comes with a cost.

Alternative: If you want to avoid passing the insurance cost onto the rent, you can request a bank guarantee, which is secure and doesn't require actions from the landlord. Personal guarantees are used as a last resort, only if you are confident in the guarantor's solvency.


Final Considerations:

Insurance offers more than just financial coverage, such as legal defense, but it comes with additional costs.

With a guarantor, you receive the money up to a limit, but in case of a dispute, the landlord must handle it independently.


REAL ESTATE PROPERTY: If you take anti squatter insurance


Protection with anti-squatter insurance:

Many insurance companies offer policies with coverage to minimize damages in the event of illegal occupation of a property.

These coverages usually focus on legal aspects, without assuming responsibility for economic losses or property damage.

However, specific anti squatting insurance has recently begun to be marketed, which may provide more complete protection.


Minimum necessary coverage:

- Good anti-squatting insurance should cover at least the following aspects:

- Loss of income in the event that the owner uses the property for rent.

- Payment for supplies, especially important if utilities are active on the property. It is not recommended to cut off supplies to force occupants to vacate.

- Damage sustained to property, particularly from acts of vandalism.

- Coverage of legal expenses related to the vacancy process.


In summary, it is important to have anti squatter insurance to protect real estate and in addition to legal coverage, it should include aspects such as loss of rent, payment of supplies and repair of property damage as the minimum necessary coverage.

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