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On 6 April this year, the President promulgated the new Residential Tenancy Law (the new law), which had been awaited for years and was welcomed by investors, as well as caused concerns for tenants of denationalised houses. The law will enter into force on 1 May this year, when the Law On Rent of Dwelling Premises (the old law) expires accordingly.
Is the new law really more forthcoming for investors/ landlords who plan to invest in the development of new rental apartments? It cannot be denied that the law incorporates a number of instruments which, unlike the old law, will allow for a more efficient and balanced regulation of landlord-tenant relations. I will highlight the most important aspects, as I see them:
(a) One of the main concerns of landlords was the regulation of the termination of the tenancy agreement and the eviction of the tenant from the apartment. The old law stipulated that the tenancy agreement could be terminated only in the cases specified by law, and in case the tenant did not vacate the dwelling, he could be evicted only by way of filing a claim with the court. In practice, this meant litigation for up to 5 years, during which unscrupulous tenants did not pay rent and even utility bills, thus causing long-term damage to the landlord.
The new law provides for a facilitated procedure for terminating a lease and evicting a tenant if certain grounds for termination are in place. Namely, if the tenancy agreement is terminated due to its expiry or tenant’s failure to pay rent, the landlord will be able to apply to the court for undisputed enforcement, i.e., in a simplified and shortened procedure (which will take no more than six months). It should be noted here that in order to benefit from this simplified and shortened procedure, the tenancy agreement will have to be entered in the Land Registry or completed in the form of a notarial deed. It should also be taken into account that this procedure will not be feasible if (1) the tenant contests such application of the landlord by filing a claim with the court, and also (2) in other cases of termination of the tenancy agreement (e.g. when the tenancy agreement is terminated due to breach of other terms by the tenant). Accordingly, it will be more advantageous for landlords to enter into short-term tenancy agreements.
(b) The good news is that, same as the Civil Law provides for lease agreements, the tenancy agreement will not be binding on the new owner of the property unless the tenancy agreement is entered in the Land Registry. The new law also provides for a specific procedure with the help of a notary, in which the old tenant will be notified of the change of owner of the dwelling, giving the tenant 2 months to move out. However, given that it is the new owner that has to arrange communication with the existing tenant, deal with a notary and wait for the tenant to move out, and the whole process can take 3-4 months, while in the case of an unscrupulous tenant, this will also involve litigation, investors should be advised to agree that the agreement with the previous tenant for eviction from the living space constitutes a condition of purchase, which must be ensured by the seller.
(c) The new law provides more opportunities for the parties to agree on various terms to be included in the tenancy agreement, such as the increase of the rent and the terms of termination. In addition, the law stipulates that a tenancy agreement is concluded for a definite term, but in the case of existing open-ended tenancy agreements, the transitional provisions of the law provide for the procedure by which such agreements will have to be amended, as well as the final term of such tenancy agreements.
(d) In order to facilitate the entry of tenancy rights in the Land Registry, a simplified procedure is provided for the registration of tenancy agreements in the Land Registry. Among other things, the parties will not have to pay Land Registry fees, and the law establishes the landlord’s right to request the cancellation of the confirmed tenancy rights after the tenancy agreement has expired. However, if the tenancy agreement is terminated due to its breach by the tenant, the tenancy rights can only be deleted from the Land Registry on the basis of a court decision or an agreement between the parties.
It should be concluded that, compared to the previous regulation, the new law is a big step forward in the development of the tenancy market and we can expect investment in this sector.
On the other hand, in the case of old agreements concluded so far, the new regulation is less welcoming and provides for a very long transition period, where in the worst case it will be necessary to live with the terms of the current agreement for another 15 years. The law provides for the possibility to apply to a court until 31 December 2026 to amend the provisions of the old agreements adjusting them to the requirements of the new law, as well as to register tenancy agreements with the Land Registry. In a situation where the parties fail to agree on the new provisions and the term is not specified in the agreement, the deadline will be determined by the court at its discretion for a period not exceeding 10 years, but not longer than 31 December 2036. If the parties have not agreed on amendments to the agreement, including the deadline, and have not applied to the court, it is considered that such agreements expire on 31 December 2036.
Therefore, investors who have invested in properties with existing tenancy agreements may have to wait or spend money on litigation. It must be admitted that both with regard to the new tenancy agreements and the old ones, a lot of work will be done by lawyers, who will have to prepare tenancy agreements, go to court to amend the terms of the already concluded agreements, and put the provisions of the new law into practice.
Link to the text of the promulgated law is here
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