Insights and Further Recommendations
Insights and recommendations on the bill for the Residential Lease Act published by The Office of the Parliamentary Secretary for Social Accommodation.
The rental reform, entitled the Private Residential Leases Act, will come into force in January. The reform is concerned with property which is rented as a primary residence. It does not affect those leased as a secondary, tourism, luxury, pre-1995, and commercial residence, and deals with factors such as renewal of leases, incentives for longer contracts, registration of contracts as well as termination of rental agreements.
Proposals put forward by the Malta Rental Reform Bill
Minimum Rental Contracts
Designed to enhance security within the rental market for tenants, one of the main changes in the implementation of a 1-year minimum contract for residential rentals. Landlords will need to give tenants three months’ notice to renew or cancel their rental. Meanwhile, tenants can cancel a contract after the first 2 months with a one month notice pro rata per year.
Limit on Rental Increases
In order to combat the rising rental prices, the reform imposes a maximum 5% year-on-year rental cost increase, whilst in an effort to encourage longer contracts, the government will reward landlords with tax incentives for long-term contracts with a maximum tax rebate of €400 for two-year contracts, depending on the number of bedrooms.
Stricter Regulation
Stronger regulation on rental contracts is also to be implemented, with fines of up to €10,000 if not registered online. A special legal board will be set up to assist with issues such as damages to property. In addition, landlords will need to include the names of the tenants on their water and electricity forms. Landlords will also have the right to payment for the remaining period in case of evictions.
The reform attempts to address the issues faced in the market and systematise the industry, as well as to protect both tenants and landlords. The government also addressed the impact which the rising rental prices may have on tenants' lives as well as the other initiatives directed towards homeowners in a booming property market.
Insights
The bill aims to ensure standards of fairness, clarity and predictability in contractual relationship between lessors and lessees as the lessee is bound to continue paying rent in cases of over-holding of rented premises, thus adding further protection to the lessor.
Yet, although the proposal is positive in theory, some of the amendments proposed potentially display a discontinuation between the law proposed and the practical realities met by lessors and lessees and the requirements of the industry in today’s world. For example, the requirement put in place that states that the lessor must notify the lessee three months before the lease expires, may possibly see lessees avoiding notification in order for automatic renewal of the lease. This in turn may discourage lessors from leasing out long term, instead opting for different leases which fall outside the parameters of the new law.
Despite this, the bill does include the requirement to draw up an inventory proving the condition of the premises and the state of appliances and furniture supplied by the lessor, and therefore renders the disputes for damages or claims of missing items in a hastier and more equitable manner.
Parts of the projected rent law may also be greatly challenging in application and may outweigh the benefits, as well as may potentially be unfavourable to the rental market in the long-term. For example, the restriction put on the approved annual increase in rent (5% per year) may mean that the rental market may end up being inflated as a result of higher initial rental amounts being set.
The bill also aims to safeguard and protect the right to adequate accommodation which is clear from the establishment of an adjudicating panel specifically for private residential leases to adjudicate issues not exceeding €5,000, thus providing a more time and cost-effective dispute resolution method.
Recommendations on the Malta Rental Reform Bill
As a firm which assists authorities with the drawing up of multiple White Papers, Chetcuti Cauchi recommends that, apart from addressing the issues mentioned above, ancillary services such as cleaning and house-keeping services be catered for in the bill. Dr Maria Chetcuti Cauchi, Senior Partner Property & Projects, suggests that the bill should also include the role of property managers and the possibility for the lessor to request payments from the lessee other than rent, insurance, the security deposit or condominium fees.
Dr Chetcuti Cauchi also recommends the inclusion of the possibility to agree to a di fermo period and/or request payments in advance (for amounts more than one month) in order for lessees to strike a better deal.
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