Commercial lease agreements in Malta are legal agreements that govern the rental of commercial property such as shops, offices and warehouses. These leases are entered into between an owner of the property, also known as the lessor, and a tenant, also known as the lessee. The commercial lease agreement sets out the terms and conditions of the tenancy, including the duration of the lease, the rent to be paid and any other rights and obligations of both parties.
If you’re considering leasing a commercial property in Malta, it’s important to know your rights and obligations under the law. Commercial lease agreements in Malta are governed by the Civil Code, which sets out the legal framework for both landlords and tenants.
To help you make an informed decision, in this article we will go through the most important points which one should look out for when signing a commercial lease agreement in Malta.
By understanding these key considerations, you can ensure that you’re entering into a lease that’s fair and beneficial to both parties.
Legal background
The article 1531A (3) of the Civil Code stipulates:
“The lease of an urban property, a residence and a commercial tenement made after the 1st January, 2010 shall be regulated exclusively by the contract of lease and by the articles of this Code”
The contract of commercial lease in Malta shall have the below items listed in the contract to be deemed valid:
- the property to be leased;
- the agreed use of the property let;
- the period for which that property will be let;
- whether such lease may be extended and in what manner;
- and also the amount of rent to be paid and the manner in which such payment is to be made.
In the case of absence of one or more of these essential requirements, the commercial lease agreement will be considered as null.
A commercial lease agreement is concluded between two parties, the lessor and the lessee, and it outlines the terms and details of the lease. In accordance with the terms of the lease, the lessor agrees to provide an asset (the commercial property) for use by the lessee, who in return must pay an agreed fee for its usage. The fee, or rent, is paid periodically for an agreed period of time.
This agreement does not transfer the ownership of the asset to the lessee, but it provides them with the right to use the asset as they see fit.
Moreover, the lease agreement continues even in the event of the death of either party, and their successors remain bound by the terms of the contract.
Negotiating the terms
When negotiating the terms of a commercial lease agreement in Malta, the most crucial clauses that determine and lay out the conditions to be respected by both the tenant and the lessor are:
- the duration of the lease clause, including the ‘Di Fermo’, ‘Di Rispetto’ periods,
- and the ‘break clause’ or termination clause.
Further to the above, it’s also important to note the lease’s key provisions, such as the rental amount, lease term, security deposit, and maintenance responsibilities. You should also pay close attention to any additional fees or costs, such as common area maintenance charges, utilities, and taxes.
Duration of the lease – Di Fermo & Di Rispetto periods
The duration of a commercial lease agreement in Malta is usually set to a minimum of 5 years with a 2 (or 3) year ‘di fermo’ period, the remaining 3 (or 2) years being ‘di rispetto’.
- The “Di fermo” period is a given period during which the tenant has the obligation to maintain the payment of the rent, regardless of the situation of the business.
- The “Di rispetto” period offers the tenant the possibility to terminate the contract, provided that a previously stipulated notice period is observed, in accordance with the agreement.
Break clauses in commercial lease agreements in Malta
A break clause in a lease allows either the tenant or the landlord to end the lease early. If the tenant decides to exercise a break clause in a commercial lease, he should keep in mind some key practical considerations.
Depending on how the lease has been drafted, the right to break the lease might be:
- On one or more fixed dates;
- Exercisable at any time during the lease term on a rolling basis.
A break clause can only be exercised if the agreed in the lease requirements have been fully performed, for example giving a notice or failure to pay the rent. Tenants should always keep evidence of their compliance with the terms of the lease, since such evidence may serve in their defence should a dispute arise.
Legal advice and assistance with drafting or contract review
In Malta, it is not a legal requirement for parties to involve a lawyer or notary when entering into a commercial lease agreement. However, seeking legal advice during the drafting stage can ensure that the agreement is well formulated and legally sound, helping to avoid any future disputes.
Throughout the negotiation of the lease, where the contract is already drafted and proposed by the property owner, it is important to review the terms of the agreement thoroughly and seek legal assistance if necessary. This can help you protect yourself from unforeseen events and potential losses that may not have been accounted for in the lease.
Having a legal professional involved in the negotiation of a commercial lease agreement can provide additional guidance on any legal or regulatory terms and requirements that may affect the lease. This can help both parties fully understand their rights and obligations under the law.
How can we help?
If you are in the process of negotiating a commercial lease agreement in Malta or you are planning to rent a commercial property in the near future, SMM Advocates are here to assist you throughout every step, starting from contract drafting, or commercial lease agreement review, as well as negotiation of suitable terms for your commercial property and business interests.
We are always available for both face-to-face or online consultations, get in touch with our team and speak with one of our experts today.