LNB News 08/01/2015

Noor Al Tareif, Associate at Zu’bi & Partners Attorneys & Legal Consultants examines the impact of the new Lease Law which comes into force on 7 February 2015.

Background

On 7 February 2015, a new lease law, Bahrain Law No. 27/2014, will come into effect. This law is the culmination of many improvements the government has been seeking to implement regarding rental properties. Previously, lease laws were difficult to source, as there was no single consolidated lease law. For over 70 years, the numerous property lease laws in Bahrain only applied to certain municipalities or certain types of purposes of premises. As a result of the laws being scattered, inconsistency issues often arose, along with confusion over which laws to apply. The centralisation of this entirely new law on leases, applicable to all types of properties in all of Bahrain, achieves the aim of providing clarity and consistency to an extremely important sector of the region’s legal system.

The previous law

Older laws, including some dating back to the 1940s, will continue to govern leases in Bahrain until the new lease law comes into effect. These laws are spread out over decades and promulgated in terms of separate municipal areas of the Kingdom as well as separate premise purposes. Previous laws also divided the country into only two municipalities-Manama and Muharraq. For example, the Manama Act governs renewal of lease of land and buildings used for commercial purposes in Manama. Due to massive booms in property development and in particular the gradual urbanisation of residential areas, provisions regarding only these areas are no longer sufficient.

In addition to various rent laws, the Civil Code contains provisions regarding leases. These include the definition of a lease, the leasehold rights on lapse of the lease term, the form a rent can take, the definition of a statutory lease and the right to terminate a lease if serious and unforeseen circumstances arise of such
nature as to render the performance of obligations by a party too burdensome. The Civil Code provisions on leases will continue to apply where the new law is silent.

The Rents Act, Bahrain Law No. 42/1946, as amended, is currently the primary law related to leases and governs residential properties, although the Rents Act Proclamation made certain provisions of the Rents Act applicable to commercial properties. Again, this law separated the country into only two municipalities-Manama and Muharraq. The rights of a landlord to terminate the lease and obtain possession at the end of the term were difficult to enforce. One of the most prominent problems with the Rents Act was that it favoured the tenant. For example, the tenant alone had the right to renew the lease if it expired, thereby severely restricting the rights of the landlord.

Significant changes

The most significant change is that the lease laws themselves are being codified into one single piece of legislation. Doing so enhances clarity and consistency while still maintaining sections of the core framework. The new rules revoke five previous rent laws, including the Manama Act and the Rents Act, which may be seen by some as a drastic change. However, this measure will ensure uniformity amongst all types of rental premises in all areas of the Kingdom of Bahrain, which can only be seen as a positive development for the property sector.

The new law also establishes a Rent Disputes Committee. Previously, local courts were inundated with cases relating to disputes between landlords and tenants. With the establishment of the Committee, all disputes related to any provision of the new law will be resolved outside of court in a timely manner. Resolutions of the Committee may, however, be appealed before the High Civil Court. Despite this, the establishment of the Rent Disputes Committee means that there will still be an overall reduction in the burden on national courts.

One entirely new provision that has the potential to impact every leased property is the requirement for the landlord to wait two years from the lease commencement date or the last rent increase date before having the right to increase the rent. The maximum increase is now set at 5% for residential properties and 7% for commercial and other properties, unless otherwise agreed in writing. A landlord must notify the tenant of their intention to increase the rent at least three months before the lapse of the second year.

One crucial issue which needed resolving was the imbalance of rights afforded to landlords and tenants in line with the Rents Act. The landlord’s rights at the end of the lease were disputed due to lack of clarity in previous laws. The new law guarantees the specific rights of the landlord, correcting the perceived inequality of the Rents Act in this respect. As stated above, the tenant was previously favoured in lease renewal circumstances. This is now rectified by the requirement of mutual agreement for renewing a lease in the new law, which balances this and many other rights to apply to both landlord and tenant, resulting in a fairer and more equitable piece of legislation.

In any case, the new lease law is a welcome and long-awaited development in the regulation of the property sector of Bahrain.

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