Understanding Lease Laws in Bahrain

Understanding Lease Laws in Bahrain

Introduction

It is important for landlords and tenants to have a general awareness of their rights and obligations in relation to leases. This ensures the lessor follows the relevant laws, and the lessee is aware of their rights and protections provided under Bahrain law.

In this respect, Bahrain has witnessed major developments with regard to leasing regulations, with the introduction of Law No. 27 of 2014 promulgating the Property Rent Law, as amended by Law No. 13 of 2020 (the “PRL”). Prior to the implementation of the PRL, Bahrain had multiple laws regulating leases which have been repealed by the PRL, including:

1. the Rents Act of 1946;
2. the Law for Fixing Rents of Commercial Stores in Manama of 1955;
3. Legislative Decree No. 9 of 1970 amending Certain Rents Rules; and
4. Legislative Decree No. 8 of 1984 with respect to Fixing Property Rents before 1 January 1970.

The PRL repealing such laws provided us with a more comprehensive piece of legislation addressing the majority of types of leases. This article will provide a general guide on leasing by discussing the provisions governing property rent in Bahrain.

The PRL Scope of Application 

Before delving into the relevant provisions of the PRL, it is important to understand its scope and its applicability to certain types of parts or properties. As a general guide, the PRL states that it is applicable to properties intended for accommodation, industrial, commercial, occupational, trade purposes, or other purposes.

To provide clarity, the PRL includes an exhaustive list of property types that are expressly excluded from its scope of application:

1. Plots of land, movable and immovable industrial installations subject to the provisions of Legislative Decree No. 28 of 1999 with respect to Establishing and Organizing the Industrial Areas;
2. Agricultural Land;
3. Leased property for hotel and tourist purposes;
4. Furnished flats with a lease period not exceeding one month;
5. Residential units operated for work circumstances; and
6. Plots of land leased for development purposes.

Requirements of the Lease Agreement 

There are two primary requirements for the lease agreement under the PRL:

1. The lease agreement must be in writing:This requirement is crucial to avoid misunderstandings or potential disputes between the lessor or lessee by providing a clear record of the terms and conditions of the written lease agreement.
2. The lease must be registered: The leased property should be registered with the “Leased Property Agreements Registration Office” within 1 month of concluding the agreement. This step is crucial because registration is required to receive electricity and water services. It is also particularly important in case of a dispute because any dispute related to unregistered lease agreements will not be accepted by the court. 

The Lessor’s obligations

Lessors have several obligations under the PRL. This section will cover a few primary obligations:

Necessary Maintenance

The lessor is obliged to carry out the “necessary maintenance” of the leased property, which refers to urgent repairs needed to keep the property from destruction, so the cost shall be borne by the lessor. Therefore, if the lessor refuses to arrange necessary maintenance after being notified, the lessee may do so and deduct the cost of such maintenance from the rent. 

The Right of the Lessee to Benefit from the Property

The lessor is also responsible for ensuring the lessee can benefit from the property without any restraints and should refrain from acts that prevent the lessee from enjoying the full benefits of the property under the lease agreement. If the lessor fails to comply with their obligations under the PRL, the lessee may, after going through the relevant formalities, request to reduce the rent or terminate the agreement.

Increasing the Rent 

The lessor cannot increase the rent agreed upon in the lease agreement, except after the lapse of 2 years from the commencement date or the date of the last increase, whichever is later. The increase limit permitted differs based on the type of lease. The maximum increase for a residential property lease is 5%, whereas it is 7% for other types of properties falling within the scope of the PRL. Such an increase may be utilised a maximum of 5 times within the lease period. However, it should be noted the percentage of increase and the number of increases may go beyond what the law permits, as long as this is agreed upon by the parties in writing.

The Lessee’s Obligations

The lessee’s obligations are generally related to the payment of the rent, payment of water and electricity fees, and the upkeep and maintenance of the leased property, unless otherwise agreed upon in the lease agreement. Moreover, when the lease agreement expires, the lessee is required to hand over the property to the lessor in the state it was received at the commencement of the lease agreement.

The lessee must ensure they are in compliance with PRL, because failure to comply may in some cases grant the lessor the right to request the evacuation of the lessee. One of these cases is if the lessee fails to pay the rent for a period of 2 successive months without a strong excuse for the delay. Another instance is if the lessee sub-leases the property without the written permission of the lessor.

Termination of the Lease Agreement

Like any agreement, the lease agreement expires upon its end-of-term date. However, it is important to note, if the lessee remains to benefit from the leased property even after expiry, with the knowledge and no objection of the lessor, then the agreement is considered to be extended.

Additionally, if the expiration period of the lease is not provided under the lease agreement, then the lessor may not request the lessee to vacate the property unless 3 years have passed since the commencement date for residential lease agreements and 7 years for other types of properties covered by the PRL.

Disputes

The High Civil Court is specialised in handling any dispute resulting from the lease agreements to the PRL. Decisions issued by the High Civil Court are considered final for claims below BD1,000 but may be appealed for reasons related to public order, the occurrence of invalidity in the judgment, or proceedings that affected the judgment.

Conclusion

To conclude, the PRL sets out solid rules to regulate lease agreements and the contractual relationship between the lessor and lessee in a way that protects the rights of both the lessor and lessee. However, it also provides some leeway for the two parties to agree upon certain conditions under the lease agreement. Therefore, it is highly beneficial for the lessor and lessee to understand their rights and obligations under the law, as highlighted in this article, especially where such obligations are not covered under the lease agreement.