Ganado Advocates submits comments on the renting as a housing alternative white paper

GANADO Advocates welcomes the Parliamentary Secretary for Social Accommodation’s efforts at developing a regulatory framework to reform the rental sector, particularly in light of the current social and economic realities.

The feedback submitted by GANADO Advocates to the Renting as a Housing Alternative White Paper is reproduced hereunder.

Applicability of the Proposed Regulatory Framework

Though the White Paper proposes a number of important reforms to the rental sector, the scope of the White Paper has been limited to “rental agreements negotiated for a primary residential purpose”, such that “these will not be binding on premises leased for commercial or secondary residential use, short lets or tourist lets”.

One should however consider the possibility of having certain aspects of the proposed regulatory framework being applied to all leases (i.e. including commercial leases), though this may not necessarily be imposed mandatorily.  The main reasons for this are the following:

  1. Both landlords and tenants of leases which are not established for a primary residential purpose may wish to have their relationship regulated further in order to safeguard each party’s rights at law, and to possibly benefit from certain rights which the proposed regulatory framework may give rise to;
  2. Certain leases may not be clearly defined as being for a “primary residential purpose” or for a “secondary residential use”.

In addition, it is also worth considering including a list of non exhaustive indicators of what constitutes one’s “primary residence”. Whilst the White Paper proposes that the scope of the regulations be extensive so as to also include certain short term agreements (which would have otherwise been outside of the scope had it not been for their specific underlying nature), it may be worth setting out guidelines as to what constitutes one’s primary residence in order to prevent landlords from attempting to circumvent mandatory provisions of the proposed regulations by disguising certain agreements as being for a non-primary residential use.

Promoting a Longer Contractual Term

The White Paper considers the need of promoting longer contractual terms, through possibly “establishing a minimum compulsory duration”.

One should here keep in mind that both landlords as well as tenants have different requirements, and which requirements may also vary from time to time, and according to their particular circumstances.  Consequently, establishing a minimum compulsory duration will limit the freedom of parties to contract, since there may very well be instances where landlords or tenants will, due to their circumstances at a specific point in time, only be able to enter into a lease agreement for a specific duration.

Establishing a minimum compulsory duration for lease agreements will consequently not change the actual demand for property certain tenants may have, or the actual needs landlords may have, and consequently only lead to the possibility of landlords and tenants trying to find ways in order to avoid the restrictions imposed by the law.

One amendment which may however be essential in promoting longer contractual terms, and limiting abuse, is that of amending the provisions of Article 1233(1)(e) of the Civil Code (Chapter 16 of the laws of Malta), which states that a private writing is only required for a lease for a period exceeding two years, in the case of urban tenements, or four years, in the case of rural tenements.  The possibility of extending the requirement of having a private writing to all leases should therefore be given serious consideration.

Notice of Withdrawal by the Tenant

The White Paper considers that the tenant should “remain free to withdraw unilaterally from the contract”, and also refers this as a “right” of the tenant.

This proposal however needs to be clarified further since the underlying basis of any proposal should remain that of allowing freedom to contract.  Consequently, one may consider the possibility of a tenant having a unilateral right to terminate a contract, by giving adequate notice, during a “di rispetto” period.  However, having the possibility of a tenant unilaterally withdrawing from a lease during a “di fermo” period would go against fundamental legal principles.

Automatic Renewal of Leases

The White Paper considers the possibility of a contract of lease being automatically renewed in the event of a landlord not giving notice of his intention to renew the lease.

One must here keep in mind that both the term of a lease, as well as the way in which a lease may be extended, are essential elements of any lease agreement, and if a lease agreement does not contain any of these two elements, then this will be considered to be “null” pursuant to Article 1531A of the Civil Code (Chapter 16 of the laws of Malta).

The term of a lease may therefore be seen as already providing a “notice” to both the landlord as well as to the tenant as to when the said lease agreement would be expiring.

Consequently one should also consider whether any such automatic renewal would only take place within a “di rispetto” period of a lease agreement.

Increments in Rent

The two proposals put forward refer to the rent being “Pegged to Property Price index although increases cannot exceed x% per year”.

Given that the proposals consider the possibility of there being a cap on the increase in rent throughout the period of the lease, one must carefully consider what the proposed ceiling is to consist of.

Consideration should be given to the possibility of the ceiling being set at a specific percentage above the rate of inflation, in the event of the Property Price Index being above the rate of inflation.

Eviction Process

The eviction process faced by landlords continues to be problematic, and one can also safely assume that “only 184 cases” were brought before the Rent Regulation Board in 2017 only as a result of the hesitation of landlords in bringing their claims before the Rent Regulation Board.

One must here also keep in mind that though the White Paper states that “the present mechanism allows for a case for eviction to be decided in as little as 36 days”, this would most probably be after months of trying to reach an amicable solution with tenants and trying to get tenants notified of judicial proceedings.  Furthermore there are a number of instances where cases for eviction took much longer than the 36-day period referred to in the White Paper.

One of the main issues which needs to be considered is that of facilitating the Court notification process adopted, as this will reduce drastically the time period of any eviction process.  Since the White Paper is considering:

  1. the possibility of having mandatory registration of leases; and
  2. the establishment of a private agency to handle, inter alia, all matters related to registration of contacts and enforcement;

one should consider the possibility of judicial notifications being sent by the aforementioned private agency, and with a notification being sent to an address (or an e-mail address) specifically indicated in the lease agreement for receipt of notices, as deemed to be a sufficient notification.

This will ensure that tenants will not be in a position to delay judicial processes by avoiding notification.

Security Deposit

The possibility of security deposits being administered by a Government agency should be considered.  In such a system the security deposit can be retained for a specific time period (e.g. 30 days) after the termination of the lease agreement, and with either party being able to submit claims as to whether the full amount or otherwise should be returned to the tenant.

It may also be worth considering setting a cap on the security deposit amount which a landlord may request. Whilst it is market practice for tenants to typically pay the first month’s rent up front as a cover for any loss or damage during the rental period, it may be worth crystallising this practice in order to curtail potential abuse from landlords demanding higher than normal deposits.

This would not only allow more certainty to tenants when analysing the feasibility of renting out a property, but would also provide tenants with less of a cost burden when renting out a new property for the first time, whilst taking into account other costs including agency fees.

Water and Electricity Services

In addition to the proposals which have been put forward by the White Paper, consideration also needs to be given to certain practices which have been adopted by the Automated Revenue Management Services Limited (ARMS).

There is currently lack of trust by each of landlords and tenants due to the fact that ARMS has adopted practices whereby landlords may be kept responsible for amounts which would have been incurred by their tenants, and similarly whereby tenants may be affected due to actions which would have been taken by their landlord.

Property Market Value Index – Article 1531D of the Civil Code

In considering a reform to the rental market, the Government of Malta should give serious consideration to promulgating regulations in order to establish the Property Market Value Index, as required by Article 1531D of the Civil Code.

Though the 2009 amendments to the Civil Code had sought to create a level playing field for tenants through the establishment of the Property Market Value Index, which should have taken effect as from the 1st January 2014, regulations for this purpose are yet to be promulgated.