The Provincial Court of the Balearic Islands has ruled that landlords can legally require a €240,000 bank guarantee as part of certain long-term rental agreements in Ibiza, a decision that could have significant implications for the island’s property and rental market.

The case centered on a residential lease in Ibiza Town (Vila) and reached the Provincial Court of the Balearic Islands after a dispute between a landlord and a tenant over the validity of several contractual clauses.

The court partially overturned an earlier ruling issued by Ibiza’s Court of First Instance, which had declared invalid both a clause preventing the tenant from terminating the lease early and another requiring a bank guarantee equivalent to ten years of rent, totaling €240,000. The lower court had also ordered the landlord to return €10,000, plus interest, paid by the tenant when signing the agreement.

However, the Provincial Court reached a different conclusion regarding the financial guarantee.

Court Rejects Early-Termination Restriction but Validates Bank Guarantee

Judges upheld the decision to strike down the clause that prevented the tenant from ending the tenancy before the contract expired. According to the ruling, the provision conflicted with Spain’s Urban Leases Act (LAU), which grants tenants the right to terminate a rental agreement after six months, provided they give at least 30 days’ notice.

The court concluded that any contractual term removing that right is incompatible with mandatory housing legislation and therefore unenforceable.

At the same time, the judges ruled that the €240,000 bank guarantee was legally valid. The guarantee represented the total value of rent payments over the contract’s ten-year duration, based on a monthly rent of €2,000.

According to the ruling, Spanish law allows landlords and tenants to negotiate additional rental guarantees beyond the standard security deposit, particularly in long-term agreements.

Ten-Year Rental Agreement at Below-Market Rates

The landlord argued that the contract, signed in March 2024, was clear and transparent from the outset. He maintained that the agreement was structured around a ten-year commitment, offering the property at €2,000 per month, significantly below prevailing market rates in Ibiza.

According to court documents, the landlord claimed that comparable properties on the island were renting for approximately €4,000 per month, and that the reduced rent was justified by the tenant’s commitment to remain in the property for a decade.

The bank guarantee, he argued, was intended to protect him against financial losses if the tenant left the property before the agreed term.

The court accepted this reasoning, noting that the contract exceeded the duration thresholds under Spanish rental legislation where limits on additional guarantees typically apply. As a result, the judges found no evidence that the guarantee requirement was abusive, disproportionate, or unlawful.

Tenant Loses €10,000 Reservation Payment

The Provincial Court also overturned the order requiring the landlord to return the €10,000 reservation deposit.

According to the ruling, the payment was made as a reservation fee to secure the property and remove it from the market while the agreement was finalized. At the time, other prospective tenants had reportedly expressed interest in renting the home.

The court determined that the tenant had agreed to provide the €240,000 bank guarantee when receiving the keys but ultimately failed to do so. Because this condition was never fulfilled, the rental agreement did not proceed.

Judges concluded that the tenant was fully aware the €10,000 payment constituted a reservation or holding deposit rather than a standard rental security deposit. Consequently, the amount was forfeited when the agreed conditions were not met.

The ruling ultimately confirms that the landlord is entitled to retain the payment and is under no obligation to return the funds.