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27.06.19 3 NEWS FROM PAGE 1 "Any artificial intervention in a market always has a negative impact," he said, "It seems we have not learnt from the lessons of the past. Although 5% sounds reasonable, nobody knows what the fu- ture brings." He said that the cap would drive land- lords to opt for one-year contracts in- stead of ones of longer duration, so as to be able to draw up a new contract after the year elapses, rather than renew an existing one and be restricted by the im- posed increase limit. e tax incentives available for landlords who opt for con- tracts of two years or longer would not be enough to make up for the fact that annual increases are capped at 5%. "is will lead to a lot of instability in people's lives. […] Landlords might opt not to offer more than a one year con- tract, choosing to avoid a longer-term, since the tax incentives won't be enough to make up for the earnings limit im- posed by the 5% cap." Francis Spiteri Paris, founder and managing director of Perry Estate Agents, pointed to the clause within the reform which sets a minimum term of two-months before a tenant can termi- nate a rent agreement in the case of a one-year contract. Spiteri Paris, while acknowledging that he had not yet had the time to delve in detail into the reform's provisions, said that such a clause might be abused by tenants who enter into a long-term rent agreement, only to end it prema- turely while still having benefitted from the cheaper rent rates associated with longer-term letting compared with short-term lets. e provisions allow a tenant to termi- nate a one-year contract after the lapse of two months, subject to a one months' notice period. "e clause allowing a tenant to give notice of leaving after two months is a killer," Spiteri Paris said, "It will cause a lot of confusion. A contract is a con- tract, and if a tenant is contracted for a year, they should have to stay for a year or else pay a fee." He also noted that having a tenant ter- minate their contract after just a couple of months would cause added expenses for landlords, since short-lets typical- ly lead to general maintenance-related costs when changing from one occupier to the other. When it came to some of the reforms other provisions, Spiteri Paris said that he "fully agreed" with the requirement that all contracts be registered. More- over, while he said the idea of capping was a good one, the 5% ceiling was, "re- alistically speaking", rather high, and that in practice most tenants would, regardless of the provisions, not have accepted any increase over 5%. Rent reform highlights Residential rental contracts will have a minimum duration of one year with property owners being offered tax credits for longer lets, according to the government's proposals The new law will be presented in Parliament on Wednesday afternoon as government moves to regulate the rental sector. The Private Residential Leases Act will not impose a cap on rental pay- ments and landlords will be allowed to fix the initial rent. However, for contracts that are two years or longer, annual rental increases will be capped at 5%. Prime Minister Joseph Muscat said on Wednesday the reform was a re- sponse to the changes in society. "Un- til now the rental market was a jungle and we tried to address this problem. The rental sector is a small portion of the property sector but one that was causing disproportionate social prob- lems and others of competitiveness." Muscat said the reform had to be viewed within a wider context of other reforms targeting various categories of people. "We did not opt for a heavy-handed approach because the market would have rebelled like it did in the past when governments imposed them- selves in the past. This experience guided us towards these reforms that incentivise landlords rather than pe- nalise them to do something," Muscat said, adding the reform had to take into account different economic cy- cles. The new law will not apply to pre- 1995 leases. All rental contracts, including an in- ventory of the residence, will have to be registered. Failure to do so will re- sult in hefty penalties. Landlords currently pay a 15% with- holding tax on rental income but the market is rife with abuse and tax eva- sion. Contract registration will seek to cut down on the black market. The Housing Authority is tasked with overseeing this sector and en- forcing the rules. The law will not cover tourist ac- commodation, which will be dealt with in a separate law, and provides exceptions for short lets which have to be for a minimum duration of six months. Landlords will receive yearly tax credits for rental contracts that are for two years and longer. The credits range from €200 for a one-bedroom apartment on a two-year lease to €500 for a three-bedroom apartment on a three-year lease. The law also stipulates that land- lords will have to give three months' notice to tenants if they do not intend to extend rental contracts. In those cases where a landlord fails to register a rental contract, the Hous- ing Authority can initiate criminal action but the authority will also pro- ceed judicially in the tenant's name to impose a three-year lease at 75% the market value. This measure is intended to protect tenants and give them an incentive to report abuse. Housing Parliamentary Secretary Roderick Galdes said the reform was intended to give tenants stability, while providing landlords with incen- tives to go for longer-term contracts. "The registration of all rental con- tracts gives everyone peace of mind," Galdes said. Justice Minister Owen Bonnici said the reform will also include new rights to tenants and landlords when it comes to conflicts between them. The new law is expected to come into force on 1 January next year with a transition period for running con- tracts. By 1 January 2021, all rental contracts have to be registered and adhere to the new regime. One-year contracts • Compulsory registration • Declare deposit and inven- tory • Landlord free to fix initial rent • Tenant cannot terminate in first two months • No tax incentive • Landlord has to give three months' notice of termina- tion • No rental increase Two-year contract • Compulsory registration • Declare deposit and inven- tory • Landlord free to fix initial rent • Tenant bound for first four months • Tenant free to terminate with two months' notice • Tax incentive for landlord • Landlord has to give three months' notice of termina- tion • One rental increase of not more than 5% Three-year contract and more • Compulsory registration • Declare deposit and inven- tory • Landlord free to fix initial rent • Tenant bound for first six months • Tenant free to terminate with three months' notice • Tax incentive for landlord • Landlord has to give three months' notice of termina- tion • Annual rental increase of not more than 5% Room renting and short lets • Six months' minimum that cannot be extended. • Seven days' notice by ten- ant to end the contract • These apply only to non-resident workers, non-residential students, non-residents not seeking to establish long-term res- idence Excerpts from what the law is proposing on rental contracts Rent reform a response to changes in society - Muscat Prime Minister Joseph Muscat: We did not opt for a heavy-handed approach because the market would have rebelled like it did in the past

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