This article was written by Dorita Cardona and Joshua Chircop.
The Parliamentary Secretariat for Social Accommodation has published a White Paper proposing the setting up of a new regulatory framework (the ‘Regulatory Framework’) to reform the residential rental market in Malta, referred to as the private rented sector (the ‘PRS’).
Rationale
The White Paper proposes providing both Landlords and Tenants with greater stability, flexibility, security, transparency and predictability in the long-term. There is a clear emphasis on creating a balance between Landlords and Tenants. The White Paper seeks:
1. to protect the fundamental rights of Landlords, especially their rights to property, to contractual freedom and to generate an adequate profit, and to reduce agency fees, vacancy costs and maintenance expenses; and
2. to provide Tenants with adequate and affordable housing, security of tenure and greater well-being in the rental market.
Scope
The White Paper states that the proposed Regulatory Framework should only be applicable to property leased for the purposes of primary residential use and should not apply to:
1. property leased for the purposes of commercial use, secondary residential use, short lets or tourist lets;
2. Lease Agreements entered into prior to 1995; and
3. luxury properties, to be defined in accordance with a set of published guidelines establishing the necessary criteria.
By way of exception, the White Paper proposes that definite short-term agreements for the purposes of residential use should also be allowed in the sole cases of:
1. temporary workers who would be employed for a short period of time or only to perform a specific task;
2. students enrolled in tertiary and vocational education for a period of up to six months; and
3. leases contracted for a temporary residential use, where the residents:
A. need to temporarily rent alternative premises, such as, where works would be carried out on their primary residence; and
B. where the Tenant is not ordinarily resident in Malta or is seeking to establish ordinary residence therein.
Stabilising the rental market
The White Paper is proposing a number of stabilising measures for the rental market.
1. The initial rate of the rent should be fixed by the Landlord.
2. Every lease should have a minimum contractual term specified in the agreement. The White Paper recommends prohibiting six-month residential leases. It proposes the following two models, leases with:
A. a mandatory minimum contractual duration meaning that the law will mandatorily specify the minimum duration of the lease; or
B. an optional duration with fiscal incentivisation for longer contractual terms meaning that the parties can agree on a minimum duration of the lease and will be rewarded with fiscal incentives if they agree to a long term in the agreement.
3.The Tenant should only be able to withdraw after the minimum contractual term lapses. The White Paper is proposing that a Tenant will not be allowed to withdraw from the Lease Agreement before the lapse of the minimum contractual term. After this period lapses, the Tenant will have a right to withdraw unilaterally from the contract in case of a personal change of circumstance, provided that he or she gives due notice to the Landlord.
4.The Landlord should not be bound to renew the lease. The White Paper is proposing that once the minimum contractual term lapses, the Landlord will not be bound to renew the lease but he or she must give notice of termination to the Tenant by not later than three months prior to the expiry of the said term. If the Landlord fails to give such notice, the Lease Agreement will be prolonged for a further term on the same terms of the original lease.
5. Periodical rent increases should be mandatory during the contractual term, allowing for yearly rent adjustments within the limits imposed by law, which will be clearly specified in the Lease Agreement. The White Paper is proposing that rent increases will be pegged to the Property Price Index (the ‘PPI’) and that the Government should additionally consider a capping which rents cannot exceed.
6. The Landlord should be allowed to withdraw from the Lease Agreement in the case of a mandatory term exceeding one year, when the Landlord:
A. needs to reside in the property himself or to allocate the property to any relative, up to the second degree, for residential purposes;
B. intends to sell the property with vacant possession; or
C. intends to demolish or carry out substantial renovations, including the construction of additional floors, and the eviction of the Tenant would become necessary for the execution of these works.
The White Paper is proposing that the Landlord should be able to terminate the contract prematurely, provided that adequate notice is given to the Tenant, only beyond a certain period, such as, after the lapse of one year from the date of the Lease Agreement. Deterring fines should be introduced against Landlords who utilise these powers in order to wrongfully obtain the premature eviction of the Tenant.
Measures to improve the functioning of the rental market
The White Paper is proposing a number of measures that are designed to improve the rental market immediately.
1.The eviction process of Tenants is presently regulated by the Rent Regulation Board (‘RRB’) which is a Board of specialised competence providing for a summary procedure in cases dealing solely with eviction. The White Paper is proposing the following changes to the RRB:
A. clarifying the wording of Article 16A (Cap. 69 of the Laws of Malta) relating to the summary procedure, by allowing the Chairperson to order the eviction despite pending claims relating to rent or utility arrears;
B. making allowance for the introduction of a second chamber within the RRB;
C. introducing an arbitration panel for minor disputes; and
D. expediting the service of judicial acts.
2. Declaration of deposit and presentation of inventory. The White Paper is proposing establishing a deposit scheme to protect the deposits made by Tenants to Landlords and providing a transparent method for its release or retention. Landlords should be required to declare in the Lease Agreement any amounts requested as a guarantee of future payment from the Tenant. If a deposit is indeed requested, an inventory (presumably of the assets in the property) must be signed by both parties and delivered together with the Lease Agreement.
3. Establishment of a new Agency. The White Paper is proposing the establishment of a new public Agency within the Housing Authority dealing exclusively with private residential leases. The Agency would be tasked with administration (such as registration) and enforcement duties, research and advising the Government on measures to be taken in this sector.
A. Registration.
i.The White Paper is proposing that all residential leases in Malta should be registered with the new Agency by the Landlord. If the Landlord fails to register the contract, Tenants should be empowered to do so instead at the Landlord’s expense. Penalties should be imposed on Landlords who are caught renting properties without a registered Lease Agreement.
ii.Lease Agreements which are not registered with the Agency may be considered null and void. However, at this preliminary stage the White Paper clarifies that the compulsory registration of leases should not be allowed to prejudice the interests of Tenants if Landlords fail to register the Lease Agreements. In such case, the Tenant could request the Court to formalise the de facto lease at a rate that would be in line with a below-market index.
iii.The White Paper is further proposing that a template Lease Agreement should be made accessible online.
B. Enforcement. The White Paper is proposing that the new Agency should have the following enforcement powers:
i.overseeing compliance with the new Regulatory Framework;
ii.ensuring that cases of abuse, by any party to the Lease Agreement, are reported, investigated and addressed;
iii.drawing up a black list of unruly Tenants and abusive Landlords from the pool of information at its disposal, namely, its investigations and decisions of the RRB.
4. Optimisation of the rent subsidy scheme. The White Paper is proposing that Government subsidy schemes be steered towards individualised means-testing mechanisms.
5. Promotion of bank transfers. The White Paper is proposing the promotion of bank transfers as a form of payment rather than payments in cash.
6. Tenants should be guaranteed access to water and electricity services. The White Paper proposes that upon registration of Lease Agreements, the Landlord and Tenant should present the following Automated Revenue Management Services’ (‘ARMS’) forms duly signed by both parties:
A. Form H: this serves as a change in the declaration of the number of persons residing in the property; and
B. Form N: this authorises the Tenant to verify pending dues for the leased property upon request by e-mail.
The White Paper is proposing that under this system, Landlords should not be able to perform ‘soft evictions’ by terminating water and electricity supplies, because any request for termination of supply by the Landlord will entail an investigation by ARMS, which will demand the consent of the Tenant to effect the termination of supply.
More affordable housing
The White Paper is proposing the following measures to make housing more affordable:
1. schemes to promote the rehabilitation of vacant dwellings (these have recently been brought into effect); and
2. using non-profit or limited-profit entities, like social purpose foundations and real estate investment trusts, which may or may not form part of public-private partnerships, to construct affordable housing as an alternative to public and commercial supply of housing.
Other long-term measures
The White Paper is proposing the following long-term measures to ensure better standards in the Maltese rental market:
1. minimum habitability standards;
2. regulation of houses in multiple occupation (‘HMOs’); and
3. regulation of estate agents by means of a comparative study of various European laws and a proper assessment of what professional standards estate agents are expected to meet.
Consultation period
The Parliamentary Secretariat for Social Accommodation has opened a public consultation period to all stakeholders until the 30th November, 2018. Submissions may be made here.
This document does not purport to give legal, financial or tax advice. Should you require further information or legal assistance, please do not hesitate to contact Dr. Joe Borg Bartolo and Dr. Dorita Cardona.