A landlord and tenant’s guide to Maltese rules on residential leases

INSIGHTS

11 May 2020

The Private Residential Leases Act (Cap. 604 of the Laws of Malta) (“Act”) has been drafted in a manner that provides for a stronger bias in favour of tenants over landlords. This is what the legislator set out to do in an attempt to intervene in what it perceived as a rental market spiraling out of control, with rental prices sky-rocketing over a relatively short period of time. Intervening in market dynamics is always a complex matter, and no system that does so is perfect. The objective of this guide is not to comment on the validity or otherwise of the Act, but to provide a guide which is useful to landlords and tenants seeking to understand and navigate Malta’s private residential rent laws. There are several areas still unclear or left subject to one’s interpretation, which is why it is advisable both for landlords and tenants to seek advice prior to entering into rental agreements, particularly for long term leases, or when leasing to sub-lease, or otherwise by way of investment.

The Act, which came into force on 1 January 2020 (“Applicable Date”), is applicable to private residential leases entered into or renewed after the Applicable Date. It is not applicable to leases granted after 1 June 1995 which are still in force on 1 January 2020. These will continue to be regulated by the Civil Code (Cap. 16 of the Laws of Malta), with the exception of certain cases, as specified in Article 5 of Act – which provides that private residential leases which were entered into after 1 June 1995, but before the Applicable Date and which would still be in force on or after 1 January 2021, whether in their original or renewed term shall also be governed by the Act.

Non-Applicability of the Act

The Act is not applicable to (i) tenements belonging to the Government of Malta; (ii) tenements let to any tourist, exclusively for tourism purposes – provided that although a property is registered as holiday furnished premises, the Act will apply and govern instances where the tenant is not actually a tourist as defined in the Act; (iii) tenements which are not let for a primary residential purpose; (iv) tenements let before 1 June 1995; and (v) the letting of urban tenements where contracts of emphyteusis or sub-emphyteusis have been or are about to be converted into leases by virtue of law.

Registration of Private Residential Lease Contracts

The provisions of the Act stipulate that all private residential lease contracts (“PRL”) entered after the Applicable Date and their renewals are to be registered. In the absence of registration, a PRL would be deemed to be null and void. This includes PRLs which were entered into after 1 June 1995, but before the Applicable Date and which would still be in force on or after 1 January 2021, whether in their original or renewed term.

The lessor is duty bound to register a PRL with the Housing Authority (“Authority”) within ten (10) days of the commencement of the lease (i.e. not from the PRL’s date of signature). If a PRL is not registered, the lessee may proceed to register the PRL himself, at the expense of the lessor and the lessee is entitled to the right to retain part of the rent as reimbursement for PRL registration fees.

Registration is made via the Housing Authority’s Private Residential Leases Portal.

Regulations made under the Act (SL. 604.02), (“Regulations”) provide model contracts for PRLs and require that a person making use of any other form of contract must attach to it the ‘standard form’ which is also contained in the Regulations.

Compulsory Clauses

All PRL contracts made after 1 January 2020 are to include the requirements listed below, in the absence of which they will be deemed to be null and void, and non-registrable:

  • the tenement to be leased;
  • the agreed use of the tenement;
  • the period of the lease;
  • whether the lease may be extended and in what manner;
  • the amount of rent to be paid and the manner in which rent must be paid;
  • any amount deposited by the lessee by way of security for payment (“Deposit”); and
  • an inventory, in the form of documentary evidence, attesting the condition of the tenement as well as of any furniture and other fittings.

Forbidden Clauses

The Act forbids the use of certain types of clauses in PRLs. Registration does not serve to ratify these clauses and their use. These are:

  • clauses which provide for the early termination of the contract (excluding those resulting from the non-fulfilment of the lessee’s obligations) – this does not refer to clauses stipulating that an LPRL is renewable or non-renewable;
  • clauses allowing the lessor to reduce any benefits stipulated in the contract;
  • clauses exempting the lessor from any responsibilities imposed on him by law;
  • clauses which impose payments other than rent, deposit, insurance and contributions in accordance with agreements between the condominus and the condomini in relation to common parts/services – thus, clauses governing rent, deposit, insurance and costs necessary for the (i) preservation; (ii) maintenance; (iii) ordinary and extraordinary repairs; (iv) enjoyment of the common parts; (v) and for the rendering of services in the common interest and for the alterations agreed upon by the condomini are not prohibited;
  • clauses which require payment of a fixed amount, separate from the rent, for the consumption of water, electricity or other utilities such that the amount does not reflect actual consumption – thus, any clause governing water and electricity expenses must be written in a manner that reflects payment of the actual consumption;
  • clauses which limit the use which one is expected to make of a residence – this is not to be interpreted as a clause which provides for limitations such as clauses stipulating that the tenant cannot have any animals in the premises, as an example; but this should be understood to prohibit clauses which would limit the tenant’s use of the tenement, such as the closing off of a particular room, resulting with the tenant not being able to have access to such room.

The 3 types of private residential leases 

The Act provides for three (3) types of PRL:

  • long private residential leases (“LPRL”);
  • short private residential leases (“SPRL”); and
  • the letting of shared residential spaces (“LSRS”).

Long Private Residential Leases

LPRLs must have a term of at least one (1) year and any agreement on a shorter term will be deemed by law to mean a term of one (1) year. The law contains a presumption of renewal for LPRLs, by a further period of one (1) year, unless the LPRL itself provides otherwise, and unless a notice of termination is sent by the lessor to the lessee.

In any event, the landlord is obliged to give the tenant under an LPRL at least three (3) months’ notice of termination by way of a registered letter. If this does not take place, then the PRL shall be automatically renewed for a further period of one (1) year.

The Act also provides for when a lessee can terminate an LPRL, that is, not before:

  • six (6) months from where the lease is for a term of less than two (2) years, provided he has given at least one (1) month’s prior notice to the landlord;
  • nine (9) months where the lease is for a term of over two (2) years, but less than three (3) years, provided he has given at least two (2) months’ prior notice to the landlord; or
  • twelve (12) months where the lease is for a period of three (3) years or more, provided he has given at least three (3) months’ prior notice to the landlord.

Should the lessee terminate an LPRL before the lapse of the above-mentioned periods, the landlord may retain up to one (1) month’s rent from the Deposit.

From the lapse of the above-mentioned periods, the lessee may withdraw at any time by giving notice to the lessor by registered letter:

  • at least one (1) month before in the case where the lease is for a period of less than two (2) years;
  • at least two (2) months before in the case where the lease is for a period two (2) years or more but less than three (3) years; or
  • at least three (3) months before in the case where the lease is for a period of three (3) years or more.

No penalty may be imposed on the lessee for exercising his rights of withdrawal in accordance with the above-mentioned periods.

Short Private Residential Leases

An SPRL is a lease of a term of six (6) months, which is intended cater for (i) non-resident workers who are employed either for a period of less than six (6) months or only to complete a specific task within a maximum period of six (6) months; (ii) non-resident students who are enrolled in courses in Malta of a duration of less than six (6) months; (iii) residents who need to rent an alternative primary residence for a period of less than six (6) months; (iv) non-residents who need to rent a tenement for a period of less than six (6) months, provided that they would not be seeking to establish themselves as long term residents in Malta.

The Act requires that the SPRL itself identifies within which of these specific categories the lessee falls into and that documentation substantiating this must be attached to it. In the absence of either of these requirements the contract would be deemed to be an LPRL. Any lease agreement purporting to be an SPRL but with a term in excess of six (6) months will also be regarded as an LPRL.

Contrary to the situation applicable to LPRLs, no formalities are required to terminate an SPRL. An SPRL will simply cease to have effect on expiration of its term.

However, the lessee may terminate an SPRL after one (1) month from commencement of the term as long as he gives one (1) week’s prior written notice to the landlord by means of a registered letter. The landlord cannot impose a penalty or obtain any form of compensation from the lessee for terminating an SPRL in accordance with the above.

Letting of a Shared Residential Space

LSRS are contracts of lease for separate space in an apartment or building, with shared amenities, such as kitchen and bathroom facilities of a duration of six (6) months or less. A lessee may terminate an LSRS at any time, by giving one (1) week’s prior written notice to the landlord by means of a registered letter. Once again, the landlord cannot impose any form of penalty or obtain compensation for early termination if a lessee terminates in accordance with the above.

An LSRS cannot be renewed once its term is up and no formality is required to be observed upon expiry of its term. Once the term is up an LSRS simply expires, with no roll-over continuation rights.

Rent regulation

Rent payable under a PRL can be freely agreed between the landlord and the tenant. Unless otherwise agreed, rent is deemed to be due monthly. Moreover, a landlord cannot require advance payment of more than one (1) month’s rent.

The Act allows rent to be increased only once a year if this is agreed upon in the contract. However, rent may not exceed the annual variations recorded in the Property Price Index published by the National Statistics Office, which is capped at a maximum limit of five percent (5%) over the original rent.

Authority’s Right of Entry

A controversial provision found in the Act is that it grants the power of entry to certain authorised persons, including the Chairperson of the Authority and other authorised persons, which may also be assisted by the Police, in order to inspect or verify whether a tenement being occupied for a residential purpose by person/s not being the owners of such tenement, who would be occupying said tenement with an invalid title of lease or with no title at all (“Occupation Without Title”). It is also provided that a warrant signed by a Magistrate must necessarily be present prior to such entry. Furthermore, in such an event, a notice must be given to the occupant at least twenty-four (24) hours prior to entry.

Sanctions

Persons making a false report regarding the violation of any of the provisions of the Act, knowing the same to be false, shall, on conviction be liable to imprisonment for a period not exceeding three (3) months or to a fine (multa) not exceeding five hundred Euro (€ 500), or to both.

In cases of Occupation Without Title, an enforcement notice shall be issued to the lessor, requesting such to comply with the rules established in the Act within such time as specified by the Authority. In such cases, the Authority may order the lessor to conform with the obligations contained in the Act for a minimum period of one (1) year, whilst having a rent which does not exceed seventy-five percent (75%) of the tenement’s rental value. The Authority may also request that the agreement solely be registered if the conditions in place are deemed to be on par with average market conditions.

Should there be a case where the lessor served with an enforcement notice fails to comply with the Authority’s requirements within the specified time, the Authority may file an application before the Rent Regulations Board (the “Board”), demanding that if the Board is satisfied that an Occupation Without Title is in existence, a written contract shall be entered into for a period of three (3) years at a rent which does not exceed seventy-five percent (75%) of the market value of the tenement.

Persons found guilty of granting any tenement, or any separate space therein, for a residential purpose which is not in accordance with the Act, amongst other persons denoted in Article 22 of the Act, shall be guilty of an offence against the Act and shall be liable, on conviction, to a fine (multa) of not less than two thousand and five hundred Euro (€ 2,500) and not exceeding ten thousand Euro (€ 10,000). However, if the person in violation conforms with the Authority’s terms within the specified time following the receipt of an enforcement notice, such person shall be liable, upon conviction, to a fine (multa) which shall not exceed five thousand Euro (€ 5,000). Such issues shall be heard before a Court of Magistrates.

Contrarily, an Adjudicating Panel, established for the purposes of PRLs, shall have exclusive disputes relating to claims, which must necessarily be made in writing, not exceeding the value of five thousand Euro (€ 5,000), with respect to issues concerning, inter alia: (i) the delivery of a thing in a good state of repair; (ii) situations when the lessee may be authorised to carry out repairs; (iii) lessor’s liability due to delay; (iv) urgent repairs; (v) lessor’s liability with respect to defects or faults of the thing let; (vi) lessor’s liability for damages due to latent defects; (vii) lessee to suffer the execution of urgent repairs; (viii) improvements; (ix) disputes relating to the retention or reimbursement of any amount left by way of security deposited; (x) issues, solely between the lessor and the lessee, concerning water and electricity services.

The Act also provides for the possibility for a party who feels aggrieved by a decision of the Adjudicating Panel to appeal such a decision on a point of law before the Court of Appeal.

Final Comments

The Act currently leaves some issues left subject to interpretation or otherwise unclear.

Crucially, a term which is yet not defined is the term ‘primary residential purpose’. This may be interpreted as being a person’s ‘main place of abode in Malta’; however, such a term is still subject to interpretation and further clarification on this term should be given, especially given that Article 3 of the Act provides that the Act shall not apply to “tenements which are not let for a primary residential purpose”.

As already discussed, the Act stipulates that certain provisions are forbidden. One of such prohibited clauses is that which is found in Article 7 of the Act. This has to do with “clauses which provide for the automatic termination of the contract”. Although, the intent of the legislator was to prohibit clauses which would provide for an earlier termination of a contract depending on a condition being satisfied (or not), the way this clause has been drafted outright causes confusion. At first glance, one might see this to be in conflict with having the parties agreeing upon a non-renewable contract. Thus, this article should be amended in order to provide further clarity and to do away with any possible misinterpretations that may manifest.

Moreover, there seems to be a lacuna when it comes to clauses which are to govern expenses that may relate to internet/tv service provider bills and other fees of a similar nature. Clauses which do not reflect the actual consumption of electricity and water bills or which do not regulate the rent, deposit, insurance and contributions having to do with common parts are prohibited by the Act. So, how can one regulate such expenses? Are the parties free to enter into separate private agreements governing these? Once again, amendments in the law are to be made to provide tenants and landlords with clarity on these situations. 

Another concern that one may point out is that having to do with the termination of a non-renewable LPRL. The Act provides that in absence of a notice to be sent by the lessor to the lessee (at least three (3) months prior to the termination date), the LPRL will be further renewed by a period of twelve (12) months. This requirement defeats the scope of having a non-renewable contract, where failure to serve notice would result with a renewal which both parties have not consented to. What then? There are enough judgements on the subject of “consent” to write multiple theses, but for this guide, suffice to say that there are a number of judgements that have stated, unequivocally, that consent to enter into an agreement must be given freely, or voluntarily, and correspond to the party’s intention. Consent is vitiated if given in error, and our courts have on numerous occasions declared agreements which were vitiated by error in the consent given by one or more parties, null and void. Consequently, although one can understand that the Act was drafted with the intent to restore the balance between landlords and tenants which, as stated at the beginning of this guide, was lost over the years,  this clause was drafted in the vacuum of addressing a problem, or achieving a scope, without considering the much bigger picture of Maltese law and jurisprudence. It was ill-thought and unsophisticated and we hope it will be properly revised together with all the other clauses which allow for interpretation.