The Residential Leases Bill

The Residential Leases Bill (the “Bill”) was published in the Government Gazette on the 2nd July 2019.

The Bill follows on a White Paper which had been issued by the Parliamentary Secretary for Social Accommodation in October 2018. GANADO Advocates’ comments to this White Paper can be found here.

The Residential Leases Act (the “Act”) will apply to leases of residential property that are entered into or renewed after the entry into force of this Act. Furthermore, leases entered into after June 1995 and before the entry into force of this Act will also need to be registered by the 1st January 2021 (and a number of restrictions which will be imposed by the Act will also apply to these leases with effect from registration).

The Bill also specifies that leases of the following tenements will not be subject to the provisions of the Act:

  • tenements belonging to the government;
  • tenements rented exclusively for tourism purposes;
  • tenements rented for a secondary residential purpose or as a summer residence; or
  • tenements leased before the 1st June 1995.

All private residential leases entered into after the Act enters into force, will need to be registered (upon payment of a fee to the Housing Authority), and the Bill states that private residential leases which are not registered in accordance with the provisions of the Act shall be considered null.

The obligation of registering such lease will rest with the lessor, though the lessee will also be given the opportunity of registering such lease in the event that the lessor does not fulfill the registration requirements.

The Bill specifies that any private residential lease contract will need to be made in writing.  Any such contract will also need to specify the amount of deposit paid by the lessee to the lessor by way of security for the performance of his obligations, as well as an inventory of the premises.

The Bill also enlists a number of clauses which will be deemed to be without effect if inserted in a private residential lease contract.  These restrictions include provisions whereby the contract will be automatically terminated on the non-fulfillment by the lessee of his obligations (other than in very limited instances); and clauses which exempt the lessor from any of the responsibilities to which he is bound by law; amongst others.  The Act will also prohibit clauses which stipulate the payment of a fixed amount for the consumption of water, electricity or other utility service, unless any such amount reflects the actual consumption incurred.

Long private residential leases will need to be for a minimum period of 1 year.   Notwithstanding that the contract will have a termination date, the lessor will only be able to enforce this upon sending a notice to the lessee, by registered letter, not later than 3 months before the said date of expiration (in the absence which the contract will be deemed to have been renewed for a further term).  On the other hand, notwithstanding that the contract may stipulate a termination date, the lessee will be entitled to terminate a long private residential lease as from a few months after the commencement of the lease (with the specific time period depending on the term of the lease), and this by giving notice to the lessor by means of a registered letter.

The Bill also permits short private residential leases to be entered into in limited instances, with these leases typically being for a 6 month period and which cannot be extended beyond the agreed period.  The lessee will here, however, also be entitled to terminate any short private residential lease after the lapse of 1 month, provided that the lessee gives the lessor 1 week prior notice by means of a registered letter.

Similarly, the Bill also caters for the rent of rooms, which will be considered to have a 6 month duration, with the lessee being given the option to terminate any such lease after 1 month, by giving the lessor 1 week prior notice by means of a registered letter.

Though the amount of rent will be freely agreed to by the parties to the private residential lease, rent increases will be capped by the greater of the property inflation rate as determined by the Property Price Index (as published by the National Statistics Office), and 5% per annum.

The Residential Leases Bill does not provide for any tax incentives, though any such incentives, as have been reported in the media, will presumably be introduced through separate amendments to the tax laws and regulations.

Further Discussion

Whilst the above has given a summary of the main provisions of the Bill, a number of items merit further discussion from a legal point of view:

  • Throughout the Bill reference is continuously made to “private residential lease contracts”. Though one would assume that this term encompasses contracts for each of “long private residential lease”, “short private residential lease”, and “room rentals”, there is no definition of the term “private residential lease contracts” in the Act.
  • The definition of “residence” excludes “shared bedroom space” or “dormitories”. The Bill is however not clear as to what constitutes a “shared bedroom space” and how this should be distinguished from the rental of a “room”.  Clarifying this distinction is important given that the Act will not apply to the former, but will apply to the latter.
  • The definition of “residence” is ambiguous when stating that “any property or part of a property used as a residence must be fit for habitation”. This seems to imply that if a contract of lease is entered into in relation to a property which is not fit for habitation, then this will fall outside the scope of this Act, and will fall to be regulated exclusively by the provisions of the Civil Code.  Presumably this is not what the legislator would like to achieve.
  • For the avoidance of doubt, legislators ought to clarify that the provisions of the Civil Code will continue to apply to any residential lease, where these do not conflict with the provisions of the Act.
  • It would also be helpful for the Bill to specifically exclude commercial leases from the scope of the Act and this in order to give certainty on this matter.
  • The Bill does not give any consideration to situations where residential leases are entered into by a sub-lessor, for the benefit of a sub-lessee who will be using the leased property as his residence.  In such an event there will be clear conflicts arising between the rights of the owner/ lessor, and the rights of the person using this property as his residence (i.e. sub-lessee).
  • The Bill neither gives any consideration to situations where there is a change in the status of the leased property throughout the term of the lease. Consequently, if a property used for a primary residential purpose stops being used for such purpose, will the restrictions imposed by the Act still apply?  Similarly there might be situations where, for example, summer residences start being used for primary residential purposes throughout the term of the lease.
  • Sub-article 4(1) and sub-article 4(2) of the Bill seem to be contradictory in that it is unclear as to what the status of the leased property would be if the lease is not registered within the 30-day period. If any such private residential lease is considered to be “null”, then one should not be given the opportunity to register such lease at an “additional fee” (since registration on payment of the said additional fee would then presume that the lease agreement would not be “null”).  Furthermore, since the lessee is also given the opportunity to register the lease “if the lessor fails to comply”, then this seems to imply that the lessee will be registering a lease which would have already been considered to be “null” by the current provisions of the Bill.
  • Consideration should be given to the possibility of amending Article 1233(1)(e) of the Civil Code, in that this provision allows the possibility of lease agreements to be entered into without the need of a private writing.
  • Article 6(2) of the Bill is ambiguous when it states that if the essential requirements listed in Article 6(1) are not followed, the “contract shall not be registrable”.  A better option might be that of taking the same approach as in Article 1531A(2) of the Civil Code and stating that in such event any such contract would be “null”.
  • Article 7(1)(a) of the Bill limits clauses which provide for the automatic termination of the contract to instances arising from Articles 1554, 1555 and 1614. This therefore implies that though the lessee may in breach of other obligations, such as failing to carry out ordinary repairs, the basic principle of inademplendum non est ademplendi will still not apply.  The very specific reference to Articles 1554, 1555 and 1614, and the specific omission of other Articles, such as Article 1555A, can also give rise to questions as to whether a private residential tenement can be terminated as a result of non-use by the lessee.
  • Article 7(1)(g) states that clauses which limit the use which one is expected to make of a residence, subject to the observance of the provisions of the Civil Code and the rules of good neighbourliness, will be deemed to be without effect.  Whilst this Article limits the parties’ contractual freedom, it will certainly also limit the possibility of lessors imposing conditions on the lessees in order to ensure the proper upkeep of their property.  Furthermore, this Article also ignores the fact that the lessor may already be faced with a number of limitations and restrictions, as these may possibly arise from his contract of acquisition of a property, or even from the condominium rules which may be in place.  This might therefore give rise to a situation where a lessor will be required to abide by a certain set of rules or conditions, but without the lessor being able to impose any such conditions on the lessee of the property.
  • Termination of a lease will now become very much dependent on one party notifying another party by means of a registered letter. The Bill however does not contemplate situations where notwithstanding the fact that one tries to notify another party through a registered letter, the other party refuses to collect this.  A more pragmatic approach could have been that notification would be able to take place in any means as may be agreed to between the parties in their contract of lease, and with the use of e-mails (as may be agreed to on the contract by the parties) also being sufficient for this purpose.  The consequences of one party avoiding receipt of a registered letter should be given serious consideration given that the consequences might entail that the lease is automatically renewed, or that a lessee would not be able to withdraw from a lease.
  • Article 18 of the Bill states that a tenant in default of his obligations, who remains in occupation of the rented tenement beyond the lapse of his title, shall be bound to pay the lessor an amount equivalent to the rent until the date of the effective eviction of the property. One would however have expected this provision to be prohibitive, given that in such event the lessee would be in breach of his obligations.