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Future of residential leases - Charlene Camilleri-Zarb

With the proposed new law, rent prices are being capped to a maximum five per cent increase from the previous rent. Photo: Chris Sant Fournier

The future rests with those with an ability to communicate. Just as an architect should possess the skills to convey and translate assessments and ideas into workable designs, an advocate should have the innate ability and the art to use verbal and written language to construct and express arguments. Similarly, a legislator should have the ability to understand and to assess the market, to come up with economic solutions and to reflect them in legal regulation which protects the interests of all stakeholders. Legal regulation needs to be drafted in an intelligible manner to avoid the legal foibles of the past.

Bill 91 of 2019 on Residential Leases has recently been placed before Parliament for a second reading. A declared goal of this Bill is “to promote standards of fairness, clarity and predictability” and “to safeguard and protect the right to adequate accommodation”. 

This parlance must be put into context. In the last five years, the property market has endured many changes and challenges. There has been an exponential increase in both sale and lease prices. The market has been left to its own devices, in the hope that the forces of supply and demand would automatically equilibrate the price mechanism. There has been an increase in population and consequently a bigger demand for accommodation. The drastic increases in residential leases and the low interest rates have attracted many to purchase property for rental purposes, and to knock down villas and terraced houses to make way for apartment blocks. 

The lease market grew, but so did problems between lessors and lessees. Since it is known that some players cannot or will not use good judgment and deliver what they promise, laws must be designed to effectively and efficiently protect parties and enforce rights. 

With the proposed new law, rent prices are being capped to a maximum five per cent increase from the previous rent, and in any case may not exceed the annual variation recorded in the Property Price Index published by the NSO during the term of the lease. The annual variation is computed by taking the average of the previous four quarters recorded until the date of the increase. Rent can only increase once in a year, and if there is no express agreement, the rent cannot be revised during the term of a lease. 

Long-term residential leases are defined in the Bill as being those leases that carry a term of one year or more. Any leases that fall outside the short-term lease six-month parameter will be considered by law to be long-term leases. 

For a long residential lease to terminate at the end of the term, the landlord has to notify the tenant by registered mail at least three months before expiry. Otherwise, the lease is considered to have been renewed for a further period according to the terms of the original contract. 

This approach creates the opportunity for circumvention by tenants not acting in good faith. The lessee is placed in a position where he can play games, avoid notification and insist that he was never notified, thus usurping this clause to his own benefit at the expense of the landlord. In this sense, the legislator should consider stipulating that the dispatch of registered mail to the address of the leased property should constitute proper notification for the purposes of the relevant provision. 

Clauses that stipulate a priori payment by the lessee to the lessor of a fixed amount for the consumption of water, electricity and other utility services are forbidden if such amounts do not reflect the actual consumption of the utility service. Moreover, the lessor cannot refuse to sign any relevant declaration on the number of people residing in a tenement or any other Form entitling the lessee to verify any pending water and electricity dues. The installation of devices which forbid the direct supply of water and electricity services to the property is forbidden.

The legislator is demanding that the lessor registers contracts with the Housing Authority within 30 days of the commencement of the lease, subject to an administrative fee, and an additional administrative fee, if the lessor lets the 30-day time frame elapse. In the case of residential leases contracted after June 1, 1995 up until this law comes in vigore that will still be in force on January 1, 2021, the legislator is mandating that the lessor registers such contracts with the Housing Authority by January 1, 2021. 

It is yet to be determined if the goal of this Bill ‘to promote standards of fairness, clarity and predictability’ would be reached

The Bill seems to suggest that whoever avoids the constraints of the law by not registering new residential lease contracts, renewals, and residential leases that were contracted post June 1, 1995, would not find any solace and comfort in the law if relations with the lessee turn sour at some point thereafter. 

With the proposed new law, Housing Authority officials would have a right of entry and a right of inspection to any private residence. They would also be authorised to take photos of the premises, and to issue Enforcement Notices if it appears to them, that a tenement is occupied without there being a written lease agreement, or if such tenement was granted on a residential lease but its written agreement was never registered. This could be problematic in the context of Article 38 of the Constitution which provides for the fundamental human right to protection for privacy of home and other property.

In a de facto lease scenario, the Housing Authority would engage an architect to establish the rental value of the property and may require the lessor to conform with lease obligations for a minimum of one year, at a rent which is less or equal to 75 per cent of the evaluation given by the architect. 

In the event of non-compliance with the directions stipulated in an enforcement notice, the Housing Authority may file an application before the Rent Regulation Board demanding that a written contract be entered into for a period of three years at a rent which is less or equal to 75 per cent of the rental value of tenement. Moreover, any person who fails to comply with the requirements of an enforcement notice, would be guilty of a criminal offence and shall be liable to a fine (multa) ranging from €2.5k to €10k.

The Bill still has to pass through further stages to become law, and will only come into force on the day that the Minister for Housing by order so determines in the Government Gazette. 

The legislator may still wish to explore and address the one-sidedness and the in-exigibility of certain provisions in this proposed law. How would the lessor be protected: when a lessee defaults, when a lessee damages property, when a lessee circumvents notification and fails to pay utilities? The Bill is silent on this, and landlords know that judicial remedies are long, arduous and often benefit the lessees. Would this inequality between the parties see many lessors withdraw from the market, thus making it harder for tenants to find residences?

It is yet to be determined if the goal of this Bill “to promote standards of fairness, clarity and predictability” and “to safeguard and protect the right to adequate accommodation” would be reached. Over-regulation and price-caps can be counterproductive in the long run. 

Dr Charlene Camilleri-Zarb is senior legal adviser at AX Group.


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