The effects of the COVID-19 emergency on real estate in Malta
News    ·   20-03-2020
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AUTHOR: Marisa Vella; Martina Camilleri

Promise of Sale agreements and related notarial matters

Further to the order of closure of the law courts in Malta on 16th March 2020 (by virtue of Legal Notice 65 of 2020 of the Laws of Malta), the Superintendent of Public Health has issued an order regulating the suspension of legal times relating to promise of sale agreements, notarial and related matters (through Legal Notice 75 of 2020). This order brings into effect – starting from the date of closure of the law courts – the suspension of the running of the following:

(i) all the legal terms imposed on a notary public by law to register any deed, will, act or private writing or any period within which the notary public, in terms of any applicable law, must pay taxes collected by him in the exercise of his profession;

(ii) any term related to fiscal benefits, incentives or exemptions or any period within which a notary public is to submit any information or documentation to any authority or regulator pursuant to relevant notarial activity; and

(iii) any expiration term in any promise of sale agreement duly registered in terms of law with the Commissioner of Revenue within the period established by law.

The above terms shall be suspended during such time as the order for closure of the courts in Malta shall remain in force. Such suspension shall be automatic, without the need of any signatures or formal renewals by the parties and it shall last until twenty (20) days following the repeal by the Superintendent of the order of closure of the law courts.

This effectively means that if the term of a promise of sale agreement (which would have been duly registered by the notary in terms of law) expires during the time when the order of closure of law courts is in force, that term is deemed suspended and will therefore start to run again from the day the order of closure is repealed and for an additional twenty (20) days after such date.

This suspension mechanism shall also apply to “any term in any promise of sale agreement” which includes bank loans, planning permits and any other conditions which must be actioned in terms of the promise of sale agreement.

Lease Agreements

The current Covid-19 emergency has brought about a period of uncertainty for landlords and tenants alike – particularly in the context of commercial leases – as the effect that the virus could have on lease arrangements is still unknown. This is particularly pertinent in view of recent measures implemented in Malta with respect to the closure of many public places including restaurants and bars, gyms and cinemas. Such closure will inevitably lead to negative economic effects on tenants operating these types of businesses from leased premises and this will also directly affect their respective landlords.

We have already seen a number of companies (particularly in the media industry) asking the Government to introduce financial aid measures including the grant of a direct subsidy to help them with rental expenses. However no such measures have been announced to date. In light of this, many are left wondering whether as tenants they will need to continue paying rent in full; and as landlords whether they could still collect rent from tenants whose businesses have been partially or completely shut down indefinitely.

These issues are best dealt with on a case by case basis, since much will depend on the relevant provisions contained in each lease agreement. Particularly, one would need to assess whether the lease agreement provides for any turnover rent provisions, thus making the rent payable by the tenant dependant on the income generated by that tenant through its business operated from the leased premises. 

On the other hand, force majeure clauses are perhaps more commonly included in lease agreements, thereby addressing circumstances where unexpected external events prevent a contract party from discharging their duties. The mere inclusion of a force majeure clause does not however automatically entitle a party to invoke relief. Firstly, whether a pandemic such as Covid-19 is deemed to be a force majeure event will naturally depend on the specific wording in the said clause. Moreover, a party relying on a force majeure clause would usually have to prove that the force majeure event has prevented it or delayed from performing its obligations; that the circumstances were unforeseen and beyond the party’s control; and that therefore the party could not have taken any reasonable steps to prevent or mitigate the event and its effects. Most clauses also provide for the termination of the agreement without any liability on the parties if the force majeure event persists for a significant period of time. 

In the absence of a specific provision, one would need to assess whether the current circumstances would be such as to have an impact on the obligation in question, for instance the obligation of the tenant to remain open during specific business hours, or perhaps more fundamentally the obligation of the tenant to pay rent. Whereas with the former example, it is relatively clear that with the introduction of Legal notice 76 of 2020[1] - at least for restaurants and other public places covered by the legal notice[2] - the obligation to remain open cannot be performed, it is highly questionable whether any such impossibility also exists in connection with the obligation to pay rent. As stated above, these and similar issues would need to be assessed on the basis of the wording of the agreement, or in the absence of any, on the interpretation of article 1134 of the Civil Code.

This note is not intended to be exhaustive, nor does it constitute legal advice. Please get in touch with us if you require more specific advice, whether on real estate matters or any wider business issues.

 



[1] See also Legal notice 82 of 2020 and Legal notice 83 of 2020

[2] bars, restaurants, cafeterias, snack bars, cinemas, gymnasiums, museums, exhibitions, clubs, discotheques, night clubs, open-air markets, indoor swimming pools, national swimming pool, massage parlours, gaming premises including controlled gaming premises, bingo halls, casinos, gaming parlours, lotto booths and betting shops.

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