With the introduction of Bill 91 of 2019 (‘Residential Leases Act’), which is currently in its second reading in Parliament, legislators have come up with a new framework to regulate what many claim to be a largely unregulated space: the letting of residential properties, and among other introductions, the Bill seeks to impose an obligation on lessors to register residential leases. 

When the Bill, dubbed as the ‘rent reform’ was launched in June 2019, promoters claimed that its intention was to fix the ‘jungle’ that is the rental sector, caused by disproportionate hikes in letting prices, lack of security for tenants in terms of length and permanence of tenancies, tax evasion and difficulty to access effective and timely remedies when disputes between parties arise.

The current framework

Most residential leases in force are likely to fall within two broad regulatory frameworks, both currently in force, regulated by one or the other depending on when the lease in question came into effect.

 The first framework regulates leases granted before June 1, 1995 which were very much dictated by a set of strict rules that limited greatly the lessor’s and lessee’s freedom to contract. All leases of urban properties entered into before 1995 were subject to the strict rent rules laid down in the Reletting of Urban Property (Regulation) Ordinance, Chapter 69 of the Laws of Malta (such as the prohibition to increase rent).

Before a set of amendments entered into force in 2010, these ‘old rent laws’ effectively deprived landlords of their right to property by giving tenants the right to renew each lease instalment upon expiration almost indefinitely. Relatives living with the original tenant had the right to continue the lease upon the death of the tenant and, in so doing, assumed all rights originally available to the tenant, including the right to renew the lease.

Act X of 2009 sought to remedy this situation by introducing a set of provisions intended to transition pre-1995 leases into the modern framework.

In so doing, the legislator narrowed the definition of ‘tenant’ and created a cut-off by which leases could no longer be renewed by relatives of tenants and by adding a preventive measure by imposing a means test to determine whether the person claiming a right to continue the lease truly requires the protections of the old rent laws.

Adding a definition of the term ‘principal place of abode’ would be most welcome

 The second framework regulates leases entered into after June 1, 1995 and eliminates all restrictions imposed by the old rent laws. This framework, which regulates all new leases (that is, until the proposed Bill 91 of 2019 enters into force), simply gives lessors and lessees the freedom to contract as they wish, and, save a few ‘standard setting’ rules, such as the rule that all contracts of lease must be put in writing and contain (on pain of nullity) some defined requisites, contracts of lease are regulated by the provisions agreed between the parties.

 In the current framework, the provisions of the Civil Code concerning letting and hiring generally apply only to determine matters on which parties remain silent in a written lease agreement.

Bill 91 of 2019 – Residential Leases Act

The Residential Leases Act will only apply to leases granted for residential purposes. The term ‘residential leases’ is qualified to exclude certain types of residential leases, such as leases of tenements in which lessees do not intend to establish their principal place of abode (save a few exceptions).

Thus, commercial properties and generally properties in which lessees do not reside as their principal place of abode are seemingly excluded from the scope of the Act.

Applicability of the proposed Act

Unfortunately, the term ‘leases of residential property’ (or simply, ‘residential leases’) is not defined in the Bill. However, there is a definition of the term ‘residence’ in Article 2 wherein it is stated that ‘residence’ means “an apartment or building in which the lessee (…) resides in as his principal place of abode”. This may possibly be construed as limiting the scope of the proposed Act only to leases that are granted with the intention of providing lessees a “principal place of abode”.

This is important because, as we shall see, the Act will impose an obligation to register all ‘leases of residential property’. If we are to interpret the definition of the term ‘residence’ as applying mutatis mutandis to the term ‘leases of residential property’, then only those leases of properties intended to give tenants a ‘principal place of abode’ must be registered – despite that, as we shall see, this term is not defined.

 The only exception to the rule that only leases of properties intended to give tenants a ‘principal place of abode’ shall be covered by the proposed Act are leases involving Gozo residents who are required to rent tenements in Malta on account of full-time employment, or vice versa.

This arguably means that, despite such persons not renting tenements with the intention to establish a ‘principal place of abode’, such leases will fall within the scope of the Act nonetheless (and must hence be registered as if they are ‘leases of residential properties’).

Presumably, this proviso has been added to grant these persons the same protections afforded by the Act, meaning that the ‘principle of abode’ test would not apply to such leases, although they will fall within scope of the Act nonetheless.

But what does the term ‘principal place of abode’ ultimately mean for the purposes of the Bill? The Bill lacks a definition, and this will certainly create issues in the future due to potentially varying interpretations.

One possible interpretation is that this term refers to the place where a person intends to establish his residence in the long-term, in the sense that the principal place of abode would be the place a person would always return to even if such person potentially spends more time elsewhere. Here, the emotional connection with the place of abode is a predominant feature.

Another possible interpretation is that this term refers to the place where a person spends most of his time, irrespective of the emotional connection to that place. This second interpretation would involve a calculation of the amount of days spent in the place in question (also referred to as ‘habitual abode’).

A typical problematic scenario would involve full-time Gozitan students. The second proviso in the definition of ‘residence’ in Article 2 of the Bill seems to exclude Gozitan students who occupy tenements in Malta due to full-time academic pursuits, since, unlike Gozo residents residing in Malta in pursuit of full-time employment, they are not specifically included in the proviso.  This could imply that contracts of lease involving students from Gozo residing in Malta will not fall within the scope of the Residential Leases Act.  Naturally, such position would greatly prejudice Gozitan students.

One possible reason why the second proviso excludes Gozitan students is that contracts of lease involving Gozitan students occupying tenements in Malta are ‘contracts of residential leases’ in their own right since the Malta tenement will offer such persons their ‘principal place of abode’ and, thus, they fall automatically within scope.

However, if this were so, would the same argument not also apply to Gozo residents who occupy tenements in Malta due to full-time employment? Such persons would arguably be establishing a principal place of abode in Malta too, so why did the legislator feel the need to add a proviso to state that such leases shall also be regulated by the Act?

The matter is not very clear and will give rise to legal uncertainty in the future in some instances, possibly leading to inconsistent application of the law. Therefore, a clarification on this matter, even perhaps by adding a definition of the term ‘principal place of abode’, would be most welcome.

Finally, a number of provisions in the Bill deal with whether the Act, once enacted, will apply to leases that would have already been granted before the enactment of the Act. In this respect, there will be no obligation for leases granted before the enactment of the Act to be registered if they are no longer in force on January 1, 2021. Leases granted before the enactment of the Act but which will still be in force after January 2021, or which will cease before January 2021 but will be renewed beyond that date, will have to be registered.

Mario Frendo LL.B (Hons), M.Adv (Melit), is an associate lawyer at Gonzi & Associates, Advocates. This article should not be construed as providing legal advice to the reader.