The Maltese Civil Code defines a contract of letting and hiring (lease) as an agreement whereby a party agrees and binds himself to give a thing to another for a specified time, a specified purpose and for a specified rent. This definition is quite problematic if viewed in the light of the regime applicable to tenements leased out prior to June 1, 1995.

Before the 1995 amendments to the Civil Code, the Re-letting of Urban Property (Regulation) Ordinance (Chapter 69 of the Laws of Malta) was the special law overriding the Civil Code, directly governing rental agreements for Maltese citizens using property as their sole and ordinary residence and rental agreements for commercial rents. This law, in providing unilateral security of tenure for the tenant in a diametrically opposite fashion to the contractual principle contained in the Civil Code, caused property owners serious prejudice, as they could rarely re-acquire possession of their own properties owing to the far-reaching law and definition of "tenant" under Chapter 69.

In fact, the particular definition of "tenant" under Chapter 69 differed whether the rent was of a commercial property or of a dwelling house. This definition was couched in ludicrously wide terms to include not only the widow/widower of the tenant but also any member of the tenant's family who was residing with him or her at the time of her demise. For commercial rents, 'tenant' in terms of Chapter 69 included any persons related to the tenant by consanguinity or affinity up to the degree of cousin.

This law was enacted with a view to provide secure housing and title to commercial properties in the post-war era. However, as decades passed, it grew increasingly prejudicial to property owners who remained unable to benefit from their immovable property and suffered a disproportionate measure of social housing, and provided security of tenure to tenants of commercial properties who benefited from very low rental fees in comparison to the value of the property they enjoyed.

The first attempt at addressing this problem came with Act 31 of 1995, whereby all leases entered into as of June 1, 1995 and beyond, were no longer regulated by Chapter 69 but only by the Civil Code. This law served to restore to lease agreements the general principle of pacta sunt servanda between two freely contracting parties. The Act, however, did not address leases entered into prior to the June 1, 1995, leaving property owners seriously prejudiced to the benefit of tenants.

On June 19, 2009 Act X came into force. This took place discreetly, with all Members of Parliament ratifying the said law. Act X has to some degree remedied the pre-1995 lease situation enabling property to at last look forward to the phasing out of the indefinite pre-1995 leases.

Summer Residences and Garages

On a positive note, summer residences and garages (not annexed with a leased residence or a commercial enterprise) will cease by June 1, 2010. On this date the property owner would have the right not to renew the lease in question and to re-acquire the possession of such property.

Commercial Rents

For properties rented out for commercial purposes, which were entered into prior to June 1, 1995, Act X stipulates a period of time up to when the tenant shall remain "protected" in his tenure. This time line is of 20 years commencing from June 1, 2008. It appears that the legislator introduced this span of time in order to try and reach a balance between the interests of the tenant for a smooth commercial operation and the land owner's right of property.

Although one may argue that the 20-year-period of time is too long, it puts into place a sand clock whereby tenants will no longer, without the express consent of the owner, enjoy security of tenure indefinitely. This time span gives tenants sufficient time to negotiate new terms and conditions or to come up with different business alternatives if no agreement is reached with the owner.

The reform also provides for increases in rental fees whereby as from January 1, 2010, the property owner may request the tenant to pay a 15 per cent increase on the previous rent, if the parties do not reach an amicable agreement. If such agreement is still not reached, the rent shall again be increased by another 15 per cent per year from 2010 to 2013, whereby after such period the rent will be increased in accordance to a Property Market Value Index, which the Minister has undertaken to publish by January 1, 2014. If the Property Market Value Index, would still not be published then the rent will increase at a rate of five per cent per year on the last increase, until said Index is published.

This applies only to rents which have been signed prior to June 1, 1995 and which are still in their original period on January 1, 2010. With reference to those leases, which have a periodic increase in the rent already stipulated in the agreement, the lease agreement in question will apply notwithstanding these laws.

A positive measure that has come into force is that external ordinary maintenance is now at the exclusive charge of the tenant.

In my opinion, the legislator has tried to provide for all circumstances and has gone to great lengths to try to satisfy both property owners and tenants.

This is the first of a three part article discussing the recent rent reform.

Dr Attard Montalto specialises in civil law at Fenech & Fenech Advocates.