I. General Aspects.

Lease legislation provides for several mechanisms to guarantee compliance with lease agreements, both with respect to rent payments and other ancillary obligations, such as common charges, utility consumption, and taxes.

When choosing which type of guarantee to use for a property being leased, it is important to bear in mind certain aspects that determine the legality — and therefore the effectiveness — of the chosen guarantee.

The regulations governing guarantees apply to all properties to be leased, regardless of whether the intended use is residential, industrial, or commercial, and are considered a matter of public policy, meaning the parties may not agree to terms other than those set out in the law.

Accordingly, only the guarantees expressly established by law are valid and enforceable, and they must be constituted in the manner set out therein.

II. Security Deposit.

The first type is the commonly known security deposit: when the leased property is intended for residential use, a deposit of up to 5 times the monthly rent may be required, whereas for commercial or industrial use, a deposit of up to 10 times the monthly rent may be required.

If this limit is exceeded, the landlord will be subject to a fine set by a judge of between 1 and 5 times the deposit amount, and risks being unable to enforce the guarantee in the event of default.

Recent amendments to the lease law established that security deposits must be constituted in Indexed Units (Unidades Indexadas) at any bank or other financial intermediation institution offering this service. Previously, the only bank authorized to accept such deposits was the Banco Hipotecario del Uruguay, and deposits had to be constituted as Adjustable Mortgage Bonds (Obligaciones Hipotecarias Reajustables).

This amendment benefits both landlords and tenants: first, because the deposit is made in an inflation-indexed unit, meaning the deposited funds do not lose purchasing power, and second, because it allows the parties to work with any bank, including whichever one is most convenient or trusted by the landlord or tenant.

III. Surety Bond (Fianza).

A surety bond basically means that a third party unrelated to the lease agreement undertakes to pay on the tenant’s behalf if the tenant fails to do so.

This guarantee is usually accompanied by a notarial certificate attesting to the guarantor’s assets, though this does not mean the guarantee is limited solely to the assets declared — the landlord may, if desired, attach other assets in the guarantor’s estate.

If a debt arises for rent or other amounts, payment may be demanded from both the tenant and the guarantor; however, if they do not pay voluntarily, judicial collection proceedings must be initiated, potentially followed by attachment of assets belonging to either party.

As mentioned above, the public-policy nature of the regulations governing lease guarantees prevents the establishment of other types of guarantees beyond those named (e.g., bank guarantees). As a result, if a lease agreement establishes a different type of guarantee, or if the established limits are exceeded, the landlord will be subject to a fine, and the guarantee will be absolutely void — equivalent to having a lease agreement with no guarantee at all.