Commercial Property
Reflecting Malta’s business-friendly environment, commercial lease agreements in Malta are typically concluded in writing within a few hours after an agreement on the general terms is reached between the lessor and the lessee - the process is further simplified by the fact that unlike cases of property purchases, a lease agreement need not be signed in the presence of a Notary Public.
This notwithstanding, the agreement cannot be merely verbal but must be in writing.
What is Commercial Property?
Maltese law identifies commercial property as property which is not used for residential purposes and which is leased to primarily host activities intended to generate profit. This would include stores, offices, clinics as well as property used for sale of art or trade, amongst others.
One must note that by way of exception, property leased to a society or to a musical, philanthropic, social, sporting or political entity and which is used as a club, is not deemed as being a commercial tenement, even if part of it is being used to generate profit.[1]
Who may lease property?
Maltese law poses no restrictions as to who may enter into a lease agreement, provided that the parties to the agreement have legal capacity to contract. Thus, any person who is not interdicted, not incapacitated and is of legal age may enter into a lease agreement. No nationality restrictions apply provided that the parties to the agreement are legally present in Malta.
In the case of property owners who have acquired such property through an Acquisition of Immovable Property (AIP) permit, these may not lease out their property since such permit only grants the permit holder the right to make use of the property as primary residence.
Who is the lessor?
Since the contract of lease does not transfer ownership, but merely the enjoyment of a thing, the lessor may be either the direct owner or else a legitimate possessor of the property.[2] The only requirement laid in Maltese law is that the lessor is in a juridical position to be able to transfer the tenement.
In this case, even if the right of the temporary holder is lost, the lease agreement is still upheld as Maltese law obliges the owner to acknowledge the lessee. In seeking to protect also the rights of the lessor, the lease agreement would be upheld if the lease had been granted under fair conditions[3] and for a reasonable time.[4] If the lease is not granted under fair conditions, he has a right not to acknowledge the lease agreement.
In the case that the lessor sells the property, the buyer is bound by the obligations of the old lessor and thus he must respect the lease.
Who is the lessee?
Maltese jurisprudence has established that the relationship between the lessor and lessee gives rise to a personal right between the lessor and lessee. This notwithstanding, the contract is not dissolved by the death of either of the lessor or of the lessee. Thus, for the remaining duration of the contract, a successor of either of the parties to the commercial lease agreement will continue to enjoy the fruits yielded or be bound by obligations (as the case may be) of the said agreement.[5]
The form of the agreement
A commercial lease agreement necessitates a written agreement. As per Maltese law, the contract of lease must include details on:
- the property to be leased;
- the agreed use of the property let;
- duration of the lease agreement;
- whether the lease may be extended and in what manner;
- the amount of rent to be paid;
- the manner in which rent will be paid.
Should the agreement lack any of the aforementioned details, the contract is deemed as being null and would thus have no legal validity, meaning that it would not be binding on either one of the parties.
The inventory
It is highly advisable that prior to the commencement of the lease, the lessor draws up an inventory listing the items in the property and their condition. The inventory, which can be compiled by the parties themselves or their authorised representatives, minimises the possibility of disputes at a later stage, with parties saving both time and money. Furthermore, an inventory addresses the rebuttable assumption that Maltese law creates when there is no description of the condition of the property and its contents - that the property and the items therein are deemed as having been delivered in good condition.[6]
The lessee is bound to restore the property in the same condition received, save for items that may have perished or deteriorated through age, fair wear and tear or irresistible force.[7] Depending on circumstances, any other deterioration or damage that occurs in the course of the lease agreement is attributed to the lessee, who will therefore have to make good for the damage.[8]
Rent payable
The general principle under the Civil Code is that the parties are at liberty to fix the amount of rent payable. Maltese law also gives the parties the discretion to determine the manner in which rent is paid, be it in money or in kind.[9]
Rights and Obligations Of The Lessor
Upon entering into the agreement, the lessor hands the keys to the lessee or an authorised representative.[10] Maltese law is protective of the lessee also insofar as it obliges the lessor to ensure that the property is in good state of repair “in every respect”[11].
Structural repairs
The obligations of the lessor do not cease upon the handing over of possession of the property but continue during the continuance of the lease. This is in light of the fact that during the course of the commercial lease agreement, the lessor must make all structural repairs which may become necessary. This would include any repairs related to the structure of the building itself, including the ceilings.[12] Unless otherwise agreed in the lease agreement, the lessor is not bound to make other repairs other than such structural repairs.[13]
Should the lessor default on the obligation to conduct repairs, the lessee has a right to seek authorisation from the Rent Board to carry out the repairs at the expense of the lessor.[14] In such cases, the lessee is given the possibility to keep the rent due or that which is still to be paid to set off his expenses.[15] Urgent repairs may be carried out by the lessee himself, who is bound to inform the lessor and deliver to him a report by an expert as to the urgency of such repairs, their estimated value and the prejudice which might result from such delay. Even if the repairs had been commenced by the lessee, the lessor is entitled to assume the continuation of the repairs urgently required.[16]
A lessee may demand the dissolution of the contract and sue for damages if the lessor fails to carry out the repairs which may jeapordise his right to make commercial use of the property according to the terms set in the lease agreement.[17] Where the repairs are urgent and cannot be delayed until the lease agreement is terminated, the lessee is bound to suffer the inconvenience caused by the repairs.[18] If the execution of the repairs takes longer than forty days, the lessee has a right to an abatement of the rent proportionate to the time and the degree to nuisance caused to the lessee.[19]
Warranty
Maltese Law obliges the lessor to warrant the tenement being leased against faults or defects that may prevent or diminish its use. [20] This includes faults or defects that arise during the lease period.[21] In case of proven faults or defects, the owner has a right to dissolve the contract. This does not apply if the lessee himself could have discovered the defects at the time of the contract.[22]
Responsibility and liability arises also in the case of damage that the lessee suffers as a result of latent faults or defects of which the lessor had knowledge or reasonable suspicion which he failed to disclose to the lessee.[23] This would include any hidden flaws, weaknesses or imperfection which may impinge on the lessee’s right to enjoy the property.
The lessor is not obliged to warrant the lessee against harassment by third parties insofar as the third parties do not have a right of action related to the premises being let. In the case of the latter, and if deprived of the use of the property in accordance with the terms of the agreement, the lessee may then sue for the dissolution of the contract and damages.[24]
Access to the property
During the course of the lease, the lessor retains the right to access the property to ensure that the lessee is respecting the terms of the agreement as well as to show the property to prospective buyers.[25] This is typically foreseen in the written agreement giving the possibility to both parties to strike a balance between the lessor’s rights over the property and the lessee’s right to privacy.
In the event that such terms have not been included in the agreement, the Rent Regulation Board may, if need be, fix days, times and conditions under which the lessor may access the property.
Rights and obligations of the lessee
The primary obligation of the lessee is to make use, with prudence, of the thing let in accordance with the terms of the contract and to pay the rent agreed upon.[26] In the case where the property is used for any purpose other than that agreed upon in the commercial lease agreement, the lessor may demand the dissolution of the contract.[27] One must also note that under Maltese law, non-commercial use of property that was leased for commercial exploit constitutes “bad use”.[28]
Non-structural repairs
Responsibility for all repairs other than structural repairs rests with the lessee who must carry out such works up to a good standard of workmanship. This would not include repairs for damages caused by unforeseeable events or caused with the fault of the owner.[29]
Should such repairs not be carried out in a timely manner, the lessor has a right to request authorisation from the Rent Board to carry out such repairs at the expense of the lessee.[30]
Damage by family members or other parties
Of particular relevance, particularly in the case of sub-letting, is the liability of the lessee in case of deterioration or damage caused by acts or defaults of a lessee’s family members, employees, guests, sub-lessees or domestic help.[31]
Rights over improvements
In upholding the principle that the property is to be restored in the same condition in which it was delivered, alterations to the property may not be made without the consent of the lessor. Unless such consent is in place, the lessee may not claim the value of any improvements.[32] Upon the termination of the lease, the lessee may opt to remove the improvements, restoring the property in the same condition with which it was delivered. This may be done if the lessee can obtain profit by removing the improvements and provided that the lessor does not pay to keep the improvements himself.[33]
Termination of the lease agreement
Maltese law does not foresee the possibility of a tacit renewal of a lease agreement[34] and thus once the contract of lease has expired, the contract of lease expires ipso jure. Thus, neither party needs to give notice of such event.[35]
Termination may also occur if the contract of lease was made subject to the fulfilment of a condition under which the contract was expressly covenanted, and that condition remains unfulfilled. Similarly, dissolution may take place in cases where either party fails to perform his obligations. Typically, this includes the payment of rent - under Maltese law, the commercial lease agreement may be terminated following the service of a judicial letter and the subsequent failure of the lessee to pay rent within fifteen days.[36]
Destruction of property
In the event that the property is destroyed as a result of a fortuitous event, the lease is immediately dissolved. If the destruction is partial, the lessee may demand an abatement of the rent or dissolution of the contract.[37]
Sale of property during the lease period
Maltese law stipulates that in the case that the premises are sold during the lease period, the lease is not terminated, but the new owner becomes the lessor and must respect the lease agreement made with the former owner. This applies insofar as the original lessor and lessee had not agreed to the contrary.[38]
[1] Civil Code Art 1525(3).
[2] A legitimate possessor of a tenement may only let it provided that it is allowed to do so by law or else by the author of its title.
