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Rental Reform: A Closer Look Towards the Laws Set to Come into Force on the 1st of January 2020

New rental laws intending to start regulating ‘private residential leases’ have been put into motion after a Bill was tabled in Parliament on the 26th of June 2019, with the objective of heightening the stability of the rental sector. The Prime Minister of Malta Dr. Joseph Muscat earlier this month held that ‘The rental sector is a small portion of the property sector, but one that was causing disproportionate social problems and others of competitiveness.’

All residential leases entered into after the date of entry into force of the new law will be regulated by the ‘Residential Leases Act of 2019’ (hereinafter referred to as “RLA”). Leases which were granted after the 1st of June 1995 and which are still in force on the day of the entry into force of the new law shall continue to be regulated exclusively by the provisions of the Civil Code.

The provisions of the RLA shall not apply to tenements belonging to the government, tenements rented exclusively for tourism purposes, tenements rented for a secondary residential purpose or a summer residence and tenements leased before the 1st of June 1995. The RLA will also not be applicable to the letting of urban tenements where contracts of emphyteusis or sub-emphyteusis have been or are about to be converted by virtue of the law.

Below are some of the pertinent legal changes to be introduced in the RLA, which is set to come into force on the 1st of January 2020.

Registration of Lease Agreements

A new legal obligation is being imposed on the lessor to register any private residential lease contract within 30 days from the commencement of the lease with the Housing Authority. In the case where the lessor fails to register such lease agreement, the lessee may proceed to register the contract himself, at the expense of the lessor. Each registration shall require a declaration of the amount deposited by the lessee by way of security and the presentation of an inventory. Legally speaking, the registration procedure is a crucial process since all lease agreements which are not registered with the Housing Authority within the given timeframes shall be considered to be null and void. 

In addition to the above, all lessors who have entered into an agreement after the 1st of June 1995 but before the coming into force of the new law and which would still be in force on the 1st of January 2021, shall have an obligation to register such lease agreement with the Housing Authority by January 2021.

Forbidden Clauses

Given that all private residential lease agreements are now subject to registration, there are a number of clauses which are prohibited from being inserted. Some of these clauses include, namely; (a) clauses which provide for the automatic termination of the contract other that the non-fulfilment of the lessee’s obligations under the provisions of the Civil Code, (b) clauses which authorise the lessor to reduce (without equivalent consideration), any benefits stipulated in the contract, (c) clauses that exempt the lessor from any of the responsibilities to which he is bound by law, (d) clauses which impose the payment of additional considerations (other than the rent, the deposit etc.), (e) clauses which impose on the lessee any additional consideration for the use of the movables beyond the payment of rent, (f) clauses which stipulate the payment of a fixed amount for the consumption of water, electricity or other utility service if such amount does not reflect the actual consumption of such utility services by the lessee and lastly (g) any clauses which limit the use that one is expected to make of a residence.

Minimum Contractual Duration for Short- Term and Long-Term Leases

As one may have already noticed, the new law distinguishes between ‘short’ and ‘long’ term leases. A short private residential lease refers to a lease with a duration of less than 6 months while a long private residential lease refers to any lease longer than 1 year.

Withdrawal by the Lessee in the Case of Short-Term and Long-Term Leases

The new law sets out new time frames when the lessee may withdraw from both short-term and long-term leases.

Permissible Increases with Regards the Rate of Rent

As the law currently stands, the rate of rent is to be freely stipulated by the parties. However, the RLA has introduced a number of new concepts in relation to what it considers as permissible vis-a-vis the increase of rental income on a yearly basis.

With the RLA in place, yearly rental increases may not exceed the annual variations recorded in the Property Index published by the National Statistics Office. The annual variation shall be understood as the average of the previous four quarters recorded until the date of the increase. What is of importance here is that such an increase may never exceed the previous rent by more than 5%.

Room Rental

The RLA introduces the concept of ‘Room Rental’ which (as the name describes) recognises the possibility of a lessor to freely rent out a room for a period of not less than 6 months. Such rental agreement would also be subject to the rules of registration.

Monitoring and Enforcement

The RLA introduces new rules on the monitoring and enforcement of lease agreements which primarily include (i) the Right of Entry and a new (ii) Enforcement Procedure. The former gives the right to the Chairperson of the Housing Authority and such officer, employee or any other person authorised by him very strong powers which include the right to enter any private premises at all reasonable times to inspect or verify the tenement. On the other hand, the latter transfers special powers to the Housing Authority, one of which is possibility to issue an Enforcement Notice to a person granting a de facto lease and who has not yet come to terms with the registration procedure that is required under this new law, in writing. In the event that a person served with an enforcement notice fails to comply with any of the requirements of such notice, the Housing Authority may file an application before the board demanding a written contract to be entered into. Such contact must be entered into for a period 3 years at a rent which does not exceed 75% of the market rental value. Any person that fails to comply with the terms of the Enforcement Notice shall be guilty of an offence and will be liable on conviction to a fine.

Adjudicating Panel for Private Residential Leases

The new law has introduced a new decision-making body to be able to decide on disputes relating to private residential leases. This body will mainly handle disputes relating to particular sections within the Civil Code dealing with repairs and similar related issues. It is interesting to note that whereas previously the Rent Regulation Board was responsible for the majority of such provisions, now we can see the introduction of a new Adjudicating Panel which will take over the helm in terms of decision making over certain disputes.  Another very important point to note is that any decision of the Adjudicating Panel for Private Residential Leases shall now carry with it the weight of an Executive Title as stipulated under Article 253 of the COCP which in practise means that any such decision may be directly enforceable against the party against whom the action was made. Lastly, any party who feels aggrieved from a decision taken by the panel always has the right of appeal to the Court of Appeal which must be filed within 20 days from the date of the decision.

As a final remark, it is of importance to note that all prospective lessors and lessees who intend to sign a private residential lease agreement, upon the presentation of a draft lease agreement, may have access to a register that shall be maintained by the adjudicating panel with all the final judgments given by such panel relating to contractual defaults and offences in relation to arbitrary or forced eviction of occupants of leased properties.

Article written by Dr Sean Xerri de Caro.

For more information on the new rental laws set to come into force, kindly contact Dr Robert Tufigno on rtufigno@gtgadvocates.com , Dr. Ivan Gatt on igatt@gtgadvocates.com or Dr Sean Xerri de Caro on sxerridecaro@gtgadvocates.com .

This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.