Introduction

Contracts of lease (known formally as contracts for 'the letting of things' in Maltese law) are regulated in Malta under the Civil Code. The law – enacted more than 100 years ago – regulates the lease of both moveable and immovable things. Old and unchanged as the law was until recently, it struggled when applied to the lease of modern or high-tech chattels (eg, aircraft).

When Malta ratified the Cape Town Convention and its Aircraft Protocol in 2010,(1) the extensive rights and remedies it introduced for the benefit of lessors of aircraft whose leases were registered as security interests in accordance with the convention were in stark contrast with the more conservative, lessee-friendly rules regulating leases generally found in the Civil Code. Although the Aircraft Registration Act grants priority to the convention in case of conflict with any other law (including civil law), it was felt that for sake of clarity and legal certainty, amendments to the provisions of the Civil Code relating to the contract of lease were desirable and necessary.

Amendments

Accordingly, substantive amendments to the Civil Code were made in 2016,(2) introducing specific provisions regulating contracts of lease of aircraft.(3) Legal certainty aside, the purpose of the amendments was to improve contractual flexibility in aircraft leasing contracts by granting full autonomy to the parties in the regulation of the agreement between them and to do away with the cumbersome and often lengthy procedures for the repossession of aircraft in the event of a default under the lease agreement. The law also recognises the commercial realities underlying most aircraft leasing transactions, including the importance of preserving the value of aircraft caught up in the mire of legal disagreements and of protecting the rights of financiers of such aircraft.

In terms of the recently introduced provisions, the laws regulating the lease of chattels are generally set aside or subordinated to the terms and conditions agreed between the parties. The law specifically states that in the case of conflict between the provisions and the lease agreement, the latter will prevail. The parties are therefore given full autonomy and maximum flexibility to regulate the terms and conditions of the lease of the aircraft between them.

Remedies

In addition, the remedies available to the lessor in the event of the termination of the lease have also been greatly improved and the procedures to execute such remedies simplified. Thus, the formality of giving notice by judicial act(4) prior to the termination of a lease is disapplied in the context of the lease of an aircraft and the mode of termination of the lease will be regulated only by the agreement between the parties. Where the agreement requires prior notice in writing, such notice will be validly given if communicated in writing in any manner, including by electronic means.

Further, the lease of an aircraft can be immediately dissolved or terminated by the lessor at any time in the event of a default and on notice in writing to the lessee, notwithstanding the opposition by the lessee, and without the need for any authorisation or confirmation by any court that an event of default has taken place. In such circumstances, the lessor is given the express power to take possession of the aircraft and, where the lessee is uncooperative, he or she has a right to ask the court for an order authorising or directing any of these acts. Indeed, the law as amended imposes an obligation on the court to render full support to the lessor as expeditiously as possible in such situations.

Aircraft lessor

Unlike in the case of other chattels, the lessor of an aircraft is therefore not obliged to prove a default prior to exercising his or her right to terminate the lease and repossess the aircraft. Mere notice of default and termination will suffice to grant the lessor the power to take control of his or her asset. This is not to say that the lessee is powerless in the circumstances, but the law shifts the onus of proof so that if the lessor terminates the lease agreement for reasons which are not contemplated in the agreement, or generally for reasons that are not justified, it is the lessee that must seek recourse through an action for damages for breach of agreement.

Interestingly, the rights granted to the lessor are extended by right to the mortgagee of the aircraft, who has an automatic right to exercise the powers of the lessor in the event of a default under the lease agreement unless he or she has specifically renounced the right to do so. Indeed, the definition of 'default' in the context of the lease of an aircraft includes the events of default set out in the lease agreement. Commercially, the definition comprises a change in the financial condition of the lessee that endangers the continued performance of the lessee's obligations under the lease and, even more generally, any event which substantially deprives the mortgagee of what it is entitled to expect under the agreement between the mortgagor and the mortgagee.

Comment

The recent amendments to the Civil Code provisions regulating contracts of lease have dramatically bolstered the rights of lessors of aircraft such that their rights are now not materially different to the rights granted to the holders of security interests in terms of the convention. Aircraft leases are now akin to security interests granting important rights and remedies to lessors and financiers alike. The changes better reflect the commercial realities underlying the aircraft lease relationship and should continue to improve the attractiveness of Malta's legislative framework in this area.

For further information on this topic please contact Nicolai Vella Falzon at Fenech & Fenech Advocates by telephone (+356 2124 1232) or email (nicolai.vellafalzon@fenlex.com). The Fenech & Fenech website can be accessed at www.fenechlaw.com.

Endnotes

(1) As given effect by virtue of the Aircraft Registration Act (1 February 2011).

(2) By virtue of Act LII of 2016.

(3) The same provisions also apply to ships.

(4) Typically, a judicial letter that must be filed through the registry of courts in Malta and subsequently served on the lessee or any other relevant parties.

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