Acquisitions and leases

Ownership and occupancy

Describe the various categories of legal ownership, leasehold or other occupancy interests in real estate customarily used and recognised in your jurisdiction.

Occupancy of immovable property does not necessarily denote ownership. Among the panoply of titles that grant the right to possess property in Malta, including titles of ownership, titles of lease and titles of emphyteusis. Ownership is the fullest real right available, which means the owner of the property is free to use or dispose of his or her property as he or she wishes (subject to any existing burdens, if any). The transfer of immovable property, by law, requires the formality of a public deed. With respect to leases, these may either be commercial in nature or may relate to a private residential lease. Commercial leases are principally governed by the Civil Code and do not need to be registered with any authority. On the other hand, urban (including residential) leases may be subject to different rent regimes, depending on the date on which the respective agreement had been entered into. With the coming into force of the Private Residential Leases Act, any private residential lease agreement falling under its remit is required to be registered with the Housing Authority, in default of which the contract in question shall be null and void.

Property transferred by title of emphyteusis is another form of transfer, which has lost its popularity over time. Contracts of emphyteusis are contracts whereby one party grants to the other, for a specified time or in perpetuity, a property for a stated yearly rent or ground rent, the latter binding himself to pay to the former, either in money or in kind, an acknowledgement of the tenure. Contracts of emphyteusis must, on pain of nullity, take the form of a public deed. Burdens such as easements and servitudes may also restrict a person’s rights over property. An example is the right of passage over another person’s property. Easements may be acquired throughout the passage of time and need not necessarily be transferred in any agreement. Presumptions also play a role in ownership rights over certain property. There is a rebuttable presumption, for example, that a person who owns a piece of land also owns the air over such land.

Pre-contract

What are the typical pre-contractual steps?

A prospective buyer and seller enter into a promise of sale agreement for the transfer of immovable property prior to formally binding themselves by virtue of a contract of sale. It is standard procedure for contracting parties to enter into a promise of sale agreement in front of a notary public, although not strictly necessary, since a promise of sale agreement is a private agreement and need not be signed in the presence of a Notary. Notice of signature of the promise to transfer the immovable property in question must be given to the Commissioner for Revenue within 21 days, and the stamp duty deposit paid by the buyer.

Property brokers may be engaged in the process of acquisition of property. It is common practice for property to be put off the market following the genuine intent of the buyer to purchase said property. The introduction of the Real Estate Agents, Property Brokers and Property Consultants Act brought about the requirement for property brokers to obtain a licence after 31 December 2021, to be able to continue carrying out their activities after this date. Estate agent fees are normally 5 per cent of the price unless agreed otherwise with the client. Estate agency fees are paid by the seller.

Contract of sale

What are typical provisions in a contract of sale?

A contract of sale must be published by a notary public and must contain the date of publication, details of the contracting parties, details of the immovable property to be transferred, the title by which the immovable property is being transferred, any conditions of the sale, price of the property, and the amounts of taxes collected on deed. On publication of the deed of sale, the seller is bound to pay transfer taxes, whereas the buyer is to pay stamp duty.

Following the publication of a deed of sale, the ownership of the property is deemed to have been transferred from the seller to the buyer. For the sale to be effective against third parties, the notary public publishing the deed is under an obligation to enrol the public deed at the public registry. It is almost always the case, albeit not mandatory, for a deposit to be paid when the contracting parties have entered into a promise of sale agreement. This deposit is ordinarily kept by the Notary Public; however, the parties are free to agree otherwise.

It is also the responsibility of the notary public to ensure that the seller possesses title from which the right to transfer the property to the buyer emanates, and this by carrying out a title search. The costs in connection with such searches, and all expenses in relation to the registration of the deed, and notarial tariffs, are borne by the buyer. A contract of sale for the transfer of immovable property safeguards certain rights in favour of the buyer, including the warranty of peaceful possession and the warranty of latent defects.

Environmental clean-up

Who takes responsibility for a future environmental clean-up? Are clauses regarding long-term environmental liability and indemnity that survive the term of a contract common? What are typical general covenants? What remedies do the seller and buyer have for breach?

Answer to follow.

Lease covenants and representation

What are typical representations made by sellers of property regarding existing leases? What are typical covenants made by sellers of property concerning leases between contract date and closing date? Do they cover brokerage agreements and do they survive after property sale is completed? Are estoppel certificates from tenants customarily required as a condition to the obligation of the buyer to close under a contract of sale?

Typically, when a property that is being sold is occupied by a tenant or leased out, the seller must disclose the existence of the lease and the conditions thereof to the buyer, and a copy of the lease agreement is attached to the deed of sale.

On the contrary, when a property is sold vacant, the warranty of peaceful possession over the immovable property in question shall be embedded in the contract of sale.

Having said that, the tenant shall not, under any circumstance, suffer as a result of the change in ownership over the property in question. In other words, this shall not change the conditions of the lease to the detriment of the tenant. Rather, the buyer is to respect such conditions without there being any amendments in the existing lease.

Leases and real estate security instruments

Is a lease generally subordinate to a security instrument pursuant to the provisions of the lease? What are the legal consequences of a lease being superior in priority to a security instrument upon foreclosure? Do lenders typically require subordination and non-disturbance agreements from tenants? Are ground (or head) leases treated differently from other commercial leases?

Leases regulated by Maltese law are generally not subject to subordination by security instruments.

Where immovable property that is subject to an ongoing lease is sold and transferred to a third party following a judicial sale by auction, the lease and conditions thereof remain unaffected. In situations where a borrower intends to lease out a property that is subject to a security instrument held in favour of a lender, generally, permission must first be obtained from the lender. This also has to do with the fact that generally, loan interest rates vary depending on the nature of the loan itself (eg, commercial loans would carry with them a higher interest rate than residential loans).

Delivery of security deposits

What steps are taken to ensure delivery of tenant security deposits to a buyer? How common are security deposits under a lease? Do leases customarily have periodic rent resets or reviews?

With respect to lease agreements in Malta, it is common practice for a security deposit to be kept by the lessor. If the contract in question is a private residential lease, the deposit held as security may not exceed one month’s rent, however, if the contract is a commercial lease, the contracting parties are free to agree with one another on the deposit to be kept.

Periodic rent resets or reviews are permissible under Maltese Law. Again, one has to make a distinction between commercial leases and private residential leases, seeing that in the latter case, rent may only be increased if the private residential lease in question is for a period which is longer than one year, whereby, rent may be increased in proportion to the yearly adjustment of the Property Price Index published by the National Statistics Office, provided that this increase does not exceed 5 per cent of the initial rent.

Due diligence

What due diligence should be conducted before executing a contract? Is any due diligence customarily permitted or conducted after contract but before closing? What is the typical method of title searches and are they customary? How and to what extent may acquirers protect themselves against bad title? Discuss the priority among the various interests in the estate. Is it customary to obtain government confirmation, a zoning report or legal opinion regarding legal use and occupancy?

Upon signing the promise of sale agreement and prior to the execution of a contract of sale, the notary public to appear on the deed shall carry out the necessary title searches over the property to be transferred. This happens in the vast majority of cases, unless the notary public is exempted by the contracting parties from doing so, or if the property is being transferred under a title of donation or any other title, in which case the said exemption is applicable in terms of Law. When the notary public has conducted his or her searches, if agreed with the buyer, and at an additional cost, a title report may be drawn up and presented to the buyer. In cases where title searches have not been carried out by the notary public, a clause to this effect shall be included in the contract of sale, which clause shall also exonerate the notary public from liability in the existence of bad title towards the buyer. Prospective buyers may also separately engage the assistance of a lawyer to verify the notary public’s title searches.

In Malta, a contract of sale is legally valid on publication. However, it becomes effective against third parties when it is duly registered in the Public Registry. With regard to obtaining government confirmations, zoning reports or other opinions regarding legal use and occupancy – this is not typically the case, however, if a property would require certain permits in order to be legally occupied or used for a certain purpose, one must make sure that the necessary permits or licences are issued.

Structural and environmental reviews

Is it customary to arrange an engineering or environmental review? What are the typical requirements of such reviews? Is it customary to get representations or an indemnity? Is environmental insurance available?

In Malta, it is customary for a buyer to commission an architect to inspect the building to ensure that the building is structurally sound and conforms to building permits, building regulations and sanitary laws. On the other hand, it is not customary for environmental reviews to take place.

Review of leases

Do lawyers usually review leases or are they reviewed on the business side? What are the lease issues you point out to your clients?

As lease agreements do not require the formality of a public deed, the parties to the agreement are not required to engage a notary public in such circumstances. Nevertheless, it is not uncommon for a contracting party to engage a lawyer, especially in regard to commercial leases, to draw up or review the lease agreement and ensure that the client’s rights are properly safeguarded. Among the panoply of lease issues that can arise, one recent issue that may have not necessarily been given its due attention in the past is the force majeure clause. Moreover, it is the lawyer’s job to review any property management agreements which may be present, seeing that such may also affect a client’s rights and obligations, and to provide the client with advice in connection therewith. In Malta, it is not usual for property management agreements to be subordinated to financing security instruments.

Other agreements

What other agreements does a lawyer customarily review?

When a lawyer is involved in a transaction dealing with the transfer of a property, the lawyer would review the promise of sale agreement and the draft contract of sale prior to the signing thereof. Moreover, the lawyer would also look at any other agreements which may impose a burden on the property being transferred (such as agreements establishing a servitude or easement over the said property, or other agreements of a personal nature, such as lease agreements). If the transaction relates to a lease, the lawyer will review the lease agreement as well as any other agreement in place which would affect his or her client’s rights or obligations (such as a condominium agreement that is already in place).

Closing preparations

How does a lawyer customarily prepare for a closing of an acquisition, leasing or financing?

Typically, in the process of preparing for the closing of an acquisition, lease or finance a lawyer would thoroughly review the draft agreement to ensure that his or her client’s wishes are reflected therein, as well as to guarantee that his or her client is protected by virtue of the necessary warranties or declarations, the purpose of which is to exclude liability in certain cases. A lawyer will also ensure that the person appearing for and on behalf of the contracting party (where applicable) is duly authorised and has the legal capacity to enter into such an agreement. It is generally the case that when a property is to be financed, funding is authorised to be issued upon execution of the agreement, however, contracting parties are free to agree otherwise.

Closing formalities

Is the closing of the transfer, leasing or financing done in person with all parties present? Is it necessary for any agency or representative of the government or specially licensed agent to be in attendance to approve or verify and confirm the transaction?

This shall depend on the contract being entered into, as it all boils down to whether the transaction taking place requires the formality of a public deed or private writing. In the case of an agreement bearing the formality of a public deed, the contracting parties or their representatives, according to law, shall appear and sign the contract in the presence of a notary public. This formality shall not be required with respect to contracts deemed to be valid by virtue of a simple private agreement.

Contract breach

What are the remedies for breach of a contract to sell or finance real estate?

A promise of sale agreement typically includes a clause that makes the conclusion of the deal subject to the buyer obtaining a bank loan, or the seller regularising some irregularity flagged by the architect of the buyer. If all conditions are met, there is no reason for the final deed not to be published. Should one of the contracting parties suspect that the other party has no intention to appear on the final deed of sale, notwithstanding that all conditions are met, a judicial intimation may be filed by the party wishing to enforce the contract, and subsequently a sworn application if one deems it appropriate. The effect of filing a judicial intimation is to extend the term of the promise of sale by a further period of 30 days, whereas the result of filing a sworn application shall be to call upon the seller or buyer to perform his or her obligations in accordance with the agreement.

Breach of lease terms

What remedies are available to tenants and landlords for breach of the terms of the lease? Is there a customary procedure to evict a defaulting tenant and can a tenant claim damages from a landlord? Do general contract or special real estate rules apply? Are the remedies available to landlords different for commercial and residential leases?

Should one of the parties be found in breach of the terms of the lease agreement, each party has a right to take action against the other party by judicial means, whereby he or she may either seek to enforce the underlying obligations of the contract, as well as to request any damages suffered. It is also possible to demand that the lease agreement itself be terminated. Again, a distinction must be made in terms of the nature of the lease which would, in turn, determine if the lease agreement is governed by the Private Residential Leases Act or by the provisions of the Civil Code. Following such determination, one may seek to exercise any available remedy, either in front of the Rent Regulation Board (if the lease contract is governed by the Private Residential Leases Act) or the Courts, as the case may be.