Malta’s accession to the EU and subsequent establishment as a European domicile of choice across various key industries (including financial services, remote gaming and e-commerce), has directly contributed to the jurisdiction’s increasing popularity as a place of permanent residence and a hub for international business transactions, resulting in the cumulative demand for the taking on lease of both residential and commercial property in Malta.
As opposed to a contract for the sale and purchase of immovable property, a lease arrangement does not transfer ownership but grants the right to make use of the property subject, of course, to the terms of a written lease agreement. The contract of lease in Malta is regulated by the Civil Code and the corresponding provisions seek primarily to establish the main rights and obligations of the parties to the lease. In general, lease arrangements may be said to be purely contractual in nature and, as such, the parties (i.e. the lessor/ landlord and lessee/ tenant) are afforded wide discretion in negotiating the terms and conditions of the lease.
Unlike agreements regulating the sale and purchase of property, a lease arrangement is crystallised by virtue of a private agreement executed between the parties and does not need to be published by a Notary ad validitatem. This notwithstanding, a lease agreement will have to cater for the following, as a minimum, on pain of nullity:
- appropriate description of the immoveable property to be leased;
- the agreed use of the property let (eg. residential or commercial);
- duration of the lease agreement;
- mechanisms for extension of the lease, if any;
- the amount of rent to be paid in consideration of the lease of the property and the manner in which rent will be paid by the lessee.
it is essential that proper, considered professional advice, duly tailored to the nature of each particular lease arrangement, is sought in advance by all interested parties in order to ensure that the final agreement properly reflects the intended terms between them
There are no prescribed Maltese law restrictions as to who may enter into a lease agreement, insofar as the parties to the agreement have legal capacity to contract (i.e. persons who are not interdicted, not incapacitated and of legal age).
The Lessor must also enjoy appropriate title to grant the property on lease and, accordingly, must be either the direct owner or a legitimate possessor of the property duly authorised to grant the same on lease to third parties.
The general principle under the Civil Code is that the parties to a lease are free to agree on the amount of rent payable and to determine the manner in which rent is to be paid, at their discretion.
What are my main obligations as Lessor?
The primary and most obvious obligation of the lessor is to hand over effective possession of the property to the lessee upon the execution of the lease agreement. The lessor’s main ongoing obligations include the structural maintenance of the property. The lessor is generally required to effect all structural repairs which may become necessary to and within the property. Ordinary repairs occasioned by ‘wear and tear’ are typically at the charge of the lessee.
In the event of persistent failure by the lessor to conduct required structural repairs, the lessee may carry out the repairs at the lessor’s expense (which may also be set off against rent). Moreover, in addition to various other remedies granted to the lessee in such circumstances, urgent repairs may also be carried out by the lessee provided that the latter must duly inform the lessor and provide a corresponding expert’s report confirming the nature of the repairs and the urgency thereof, the estimated value and the prejudice which might result from such delay.
The lessor is also required to undertake and warrant in favour of the lessee that the property is being leased without faults or defects that may prevent or diminish its intended and agreed use (including faults or defects that may arise during the operative lease period). In the event of any proven breach of this warranty the lessee would ordinarily be entitled to terminate the lease agreement without liability (insofar as the lessee had no knowledge of such defects at the time of execution of the lease agreement).
What are my main obligations as Lessee?
The primary obligation of the lessee is to make use, with prudence, of the property in accordance with the terms of the lease agreement and to pay the rent agreed upon. The use or application of the property by the lessee for any purpose other than that agreed between the parties would afford the lessor an immediate right of termination. The terms of a lease agreement would also typically provide for a mechanism for immediate termination in the event of persistent non- or late- payment of rent by the lessee.
The lessee retains responsibility for all ordinary repairs other than structural repairs as aforesaid and must carry out such works up to a good standard of workmanship. Similar to the right afforded to the lessee as set out above, the lessor will be able to carry out such repairs at the expense of the lessee in the event that they are not be carried out in a timely manner by the lessee.
A paramount obligation of the lessee is that of restoring the property to the lessor in the same condition in which it was received. The obligation excepts items that may have perished or deteriorated through age, fair wear and tear or irresistible force, however, generally any other deterioration or damage that occurs over the course of the operative period of the lease is attributed to the lessee, who will be required to make good for the damage.
Accordingly, it is prudent and advisable, but often unfortunately overlooked, to draw up and annex to the lease agreement an inventory listing the items in the property and their condition. Such an inventory minimises the possibility of disputes at a later stage (saving both parties time and expense) and serves as an effective tool to address the rebuttable presumption under Maltese law that the property and the items therein are deemed to have been delivered in good condition.
A well drafted lease agreement will also make specific provision for early termination of the lease in the event of serious and/or persistent breach by either party of any of the terms of the agreement
Alterations to the leased property require the prior consent of the lessor. The value of any improvements effected without the lessor’s approval may not be claimed by the lessee. If legitimately made and commercially viable, the lessee may opt to remove the improvements upon the termination of the lease, restoring the property to the same condition in which it was delivered at commencement, provided that the lessor may opt to pay the value of the improvements and retain them within the property.
How do I exit?
In the absence of specific renewal mechanisms built in to the lease agreement, and given that Maltese law does not recognise the tacit renewal of lease agreements, the lapse of the agreed term of lease brings about the expiration of the lease agreement ipso jure, without any need to give notice.
A well drafted lease agreement will also make specific provision for early termination of the lease in the event of serious and/or persistent breach by either party of any of the terms of the agreement. Residential lease agreements where the lessee has defaulted in payment of rent may only be terminated by the lessor following the service of a judicial letter and the subsequent failure of the lessee to pay rent within fifteen days of such service.
Given the discretion which is afforded to parties negotiating the terms of a lease agreement and in view of the fact that such contracts are by their very nature often of significant value and consequence, it is essential that proper, considered professional advice, duly tailored to the nature of each particular lease arrangement, is sought in advance by all interested parties in order to ensure that the final agreement properly reflects the intended terms between them.
This Article was first published on Money Magazine, July 2017.