Private Residential Leases Act

HOW HAS THE PRIVATE RESIDENTIAL LEASES ACT IMPACTED LONG-TERM RENTALS?

The 2020 law helped protect tenants in Malta but what about landlords?

Undoubtedly the Act has gone a long way in protecting tenants’ rights which is an important step forward, after all, the residential space a tenant leases on a long-term let constitutes their home even if temporary and such reform was necessary and successful in bringing about stability and peace of mind for prospective tenants. Unfortunately, the law in some instances seems to forget the importance of also protecting landlord’s rights and the fact that hard-earned revenue received from a lease constitutes part of a landlord’s livelihood. Most landlords are hard-working individuals who have serious financial commitments and provide decent, well-maintained properties. Most landlords are committed to acting in their tenants’ best interests and should also be afforded certain important rights.

The legislation needs to be updated to ensure that it is fairer and works in both the landlord’s and tenants’ favor, which is no doubt the position that the legislator sought to achieve when drafting such laws. Contract law is based on the principle of contractual freedom which should allow both the landlord and tenant to agree on certain salient terms and conditions without too much interference. The new legislation has proved to achieve a lot however it is still too restrictive in some instances having a negative impact on negotiations and in some cases precluding the parties from reaching a mutually beneficial lease agreement. Below are some of my observations following three years of long-term residential lease contract negotiations since the new laws came into force:

Registration of lease agreements and the need to make data available

The new Act obliges landlords to register a lease agreement with the Housing Authority within ten days of the commencement date. While the registration is essential for the authority to scrutinise lease agreements and ensure that leases are drafted in a manner that is compliant with the new laws, this ten-day period has proved to be insufficient in many instances especially since the landlord often relies on the tenant to return a fully counter signed lease agreement and inventory before being able to follow through with this mandatory process. It is often the case that a tenant is overseas or indisposed and although such a tenant agrees to proceed with a lease, they understandably refuse to sign the inventory before checking its contents in person, inhibiting the landlord from registering such a lease within the stipulated time and causing the landlord to be liable to pay a further fee. Once the minimum period for a long let is one year, this period of registration should be increased to allow landlords to register lease agreements within the first month from the commencement date.

The very valuable and accurate data on market rents being collected by the Housing Authority through rent registrations could be put to good use and should be made easily available in real-time to the benefit of both landlords and tenants. Such data should indicate the rents being achieved in different localities for different-sized properties (normally determined by the number of bedrooms) and for different types of properties – apartments. Maisonettes, penthouses, villas etc. This will finally allow landlords to determine instantaneously the amount he/she could reasonably expect to receive as rent and likewise, a prospective tenant can promptly get a clearer indication on what he/she may reasonably be expected to pay for comparable properties. This would be an invaluable resource to determine the market value that could not be used alone and should include the lower, median, and higher rents being achieved for each property type and size in each location. As the market could be volatile at times statistics of no more than the last six months should be provided and made available on the housing authority portal or a dedicated website. We are often asked for official statistics especially by foreign clients moving to the island and this service would go a long way in creating more transparency and confidence in the market.

Termination of long private residential leases

Under the new laws, a tenant can give notice of termination of a lease at any time during the duration of the lease agreement while the landlord is prohibited from giving notice of termination and is unilaterally bound to honour his/her commitment on the agreed term. The landlord is further obliged to inform the tenant of his/her intention to terminate a lease at the end of its term at least three months before the end date or be forced into another year’s lease. A private lease agreement should simply cease to have effect upon the expiration of its term unless an extension is agreed to by the parties at least two months before termination which would give a tenant sufficient time to find alternative accommodation and a landlord to find a new tenant.

While the law stipulates that the tenant may not withdraw from a lease before the lapse of six months where the lease is of less than two years; nine months in the case where the lease is for a period of two years or more and twelve months where the lease is for a period of three years or more, seemingly guaranteeing a minimum ‘di fermo’ or definite period for the landlord, the law absurdly goes on to state that the tenant can actually withdraw even during these minimum periods stated above, and that the landlord can only retain an amount not exceeding one month’s rent as compensation for such early termination. The loss of such a negligible deposit hardly serves as a deterrent for a tenant to dishonour his commitment to a landlord and such a clause allowing tenants to simply terminate without a cause could easily be abused of.

From the lapse of the periods above mentioned onwards a tenant may unilaterally withdraw at any time by giving notice to the landlord by registered letter and by giving at least one month’s notice in the case where the lease is for less than two years; two months where the lease is for two years or more and three months where the lease is for three years or more without any consequences for the tenant and without the need to site any genuine cause. Parties are unreasonably able to agree to termination clauses which are more favourable to the tenant but not to the landlord. Such a condition also inhibits a prospective tenant from using withdrawal clauses which are more favourable to the landlord to gain extra leverage in a negotiation.

Once a mutual commitment on a lease term is made, it should be adhered to by both parties. Both landlords and tenants make serious commitments based on the duration of the lease agreed upon. To protect both the landlord’s and tenants’ interests, the law should lay down specific instances when it would be allowable for a tenant to terminate a lease unilaterally and as stipulated above. Long-term leases for an agreed number of years should require a legitimate cause to terminate prematurely. Such causes could include for instance: Uninhabitable conditions such as infestations of cockroaches, mice or rats; death or severe hospitalisation of the tenant or an immediate member of the family residing at the property, Bankruptcy of the tenant or loss of permanent job and income in Malta; earthquake, flooding or other natural disaster; serious defects in the building such as dangerous structures, severe illegalities etc.

Rent increases of long private residential lease agreements

The new laws prohibit rent increases that go beyond the annual variations recorded in the property price index and in no circumstance may increases exceed 5%. While it is fair to prohibit a landlord from increasing rent well beyond what is agreed contractually, it is sometimes necessary for parties to be able to agree to a significant increase in rent after some months, in cases where for instance the property may be offered unfinished and the only way for a lease negotiation to succeed is to allow the parties to agree to a prolonged period when rent would be reduced, to give the landlord the chance to finish certain pre agreed tasks or improvements – an example would be upgrading the furnishings of certain rooms, adding certain amenities such as a swimming pool or approved extension to the property etc. which may still be under ‘works in progress’ at the commencement of the lease. Rent increases should be allowable if mutually agreed and by giving proper notice before increases take effect. A tenant may also be willing to increase the rent being paid beyond what is allowable by law in order to secure his/her home well into the future with the knowledge that he/she may already be paying an old rent which they agree to be well below market value. A landlord may also want to reward a tenant for agreeing to a very long-term rent by beginning the tenancy with a low rent and then increasing it at pre-agreed percentages over time. Again, the law could stipulate legitimate causes to increase rent upon mutual agreement.

The minimum duration of the lease

The law stipulates that long-term private residential leases must be entered into for a minimum period of one year. Any agreement stipulating a period which is for a shorter period shall be deemed to be agreed for a period of at least one year. A lease negotiated for six months or less is considered to be a short private residential lease. This condition has proved to be very restrictive and without much logic as parties would often like to agree to a long lease of anywhere between seven to twelve months and are prohibited from doing so. While the prospective tenant may enter a lease with the knowledge that he/she can use the ‘escape’ clauses granted to tenants by virtue of the favourable termination clauses cited previously, the landlord is irrationally obliged to guarantee a one-year lease on an intended seven, eight nine etc month rental period. It is sometimes the case that the negotiation cannot succeed because for instance the landlord knows that a family member would need to move into the property after seven months and although the intention of the parties is for a lease of this duration the law unilaterally obliges the landlord to commit to a year with the risk that the tenant will not vacate should he/she exercise his/her right to remain residing in the property for the compulsory twelve month period prescribed by law.

Overholding of rented premises by a tenant

This clause contemplates a very serious scenario and simply states that a tenant in default of his obligation who remains in occupation of the leased premises beyond the lapse of the agreed term shall be bound to pay the landlord an amount equivalent to the rent to date of eviction and does not exclude the lessor’s entitlement to further compensation. However here again there should be a concrete deterrent to a tenant residing in a landlord’s private property unlawfully and besides allowing the landlord the obvious right of recovering the equivalent rent and any losses or damages sustained as a result of the tenant who is virtually squatting in one’s property, the legislator should introduce an obligation that the tenant pays 1.5 to two times the base rent for each month beyond the expiration date of the lease as is seen in other reputable jurisdictions. Such penalties may be negotiable between the parties and capped according to the law.

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