The Loan for Use Agreement and its differences with the Precarious Agreement

What is a loan for use Agreement?

The Loan for Use is a legal concept defined in the Spanish Civil Code, specifically in article 1740, which states that:Under a Loan Agreement, one party delivers to the other either a non-fungible item for use for a certain period, after which it must be returned—in which case it is called a loan for use (comodato)—or money or another fungible item, with the condition of returning the same amount of the same kind and quality, in which case it is simply called a Loan. A Loan for Use (comodato) is essentially gratuitous. A simple Loan may be gratuitous or with an agreement to pay interest.

Therefore, the borrower acquires the right to use someone else’s property for a specific period of time, with the obligation to return it once the period ends.

If the person acquiring the item pays money for it, then it ceases to be a loan for use and becomes another Legal arrangement. A Loan for Use does not allow for any remuneration; it is entirely incompatible with receiving monetary compensation.

Can the Loan for Use be transferred?

It can only be transferred if the owner grants authorization for transfer to another person; otherwise, the borrower is completely prohibited from transferring the property.

Who pays the expenses of the property in a Loan Agreement?

The borrower (person who receives the item) must take care of the borrowed item and pay and cover its ordinary expenses derived from its use and preservation.

If the item is used for a different purpose or for a longer period than agreed, the borrower will be responsible for the loss or deterioration of the item.

The owner will pay any extraordinary expenses that are necessary for the use and preservation of the loaned item.

When does the Loan agreement end?

The owner/lender may reclaim the item once the agreed-upon term has expired or when the purpose for which the loan was agreed upon has ended. The loan may also be terminated due to misuse of the item or its loss or destruction.

If the duration of the loan for use was not agreed upon, nor the intended use of the loaned item, and this use is not determined by local custom, the lender may reclaim it at will. In case of doubt, the burden of proof lies with the borrower.

Can a Loan Agreement be terminated early?

The lender cannot reclaim the loaned item unless the use for which it was loaned has been completed. However, if the lender has an urgent need for it before this period, they may demand its return, thus justifying the urgent need.

What does it mean that a Loan for Use Agreement can have an intuit personae character?

This means that a loan for use agreement can be made with a specific person due to that person’s particular characteristics or qualities, and therefore, that person cannot be substituted by anyone else to fulfill the contract’s obligations. Consequently, in that case, the rights and obligations under this agreement would not be inherited.

What is the difference between a Loan for Use and a Precarious Situation?

The difference between the two can be minuscule, so you have to be very precise when comparing the two figures.

As previously stated, a loan for use (comodato) is established for a specific purpose, for a defined period, and with a specific person. The legal claim process follows ordinary legal proceedings.

However, precarious possession is primarily a passive or tolerant situation on the part of the property owner, where no specific use, duration, or rent is established—in other words, without a proper title. The appropriate procedure in this case for claiming the property is a verbal one. Of course, precarious possession is also considered to exist when a tenant continues to occupy a property after the lease has expired and has occupied the property without the owner’s permission.

Extensive case law has defined precarious possession as “a factual situation that implies the free use of another’s property, whose legal possession does not correspond to us, even though we are in possession of it and therefore the lack of title that justifies the enjoyment of possession, either because it has never been had, or because having had it it is lost or also because it grants us a situation of preference, with respect to a possessor with a worse right” (judgments 110/2013, February 28; 557/2013, September 19; 545/2014, of October 1, and 134/2017, of February 28).

Furthermore, Supreme Court ruling 691/2020, of December 21, points out in reference to the figure of precarious possession that “it does not refer exclusively to the gracious concession to the holder and at his request of the use of a thing while the granting owner allows it (…), but extends to all those who without paying a fee use the possession of a property without title for it or when the one invoked is ineffective to invalidate the qualified one held by the plaintiff.”