Arabian Homes: July 2015

Comparison of New and Old Lease Laws

A new Lease Law, Law No.27 of 2014 (“Lease Law”) came into effect on February 7th, 2015, as part of a new wave of development in the real estate market.

The previous law, the Rents Act No. 42 of 1946, as amended, was, at times, difficult to enforce, as it divided the Kingdom into two municipalities only, Manama and Muharraq, and applied only to certain premises with specific types and purposes. Furthermore, the imbalance of rights afforded to both the tenants and the landlords under the old law was one of the crucial issues that was fortunately addressed by the Lease Law.

In comparison, Law No.27 of 2014 applies to new and existing residential, industrial, commercial, professional leases of properties in Bahrain; however, the following leases are exempt from the provisions of the Lease Law:

  • Industrial Tenancies which are subject to Law No. 28 of 1999 in relation to the Establishment and Organization of Industrial Zones;
  • Leases of agricultural land;
  • Properties leased for the purposes of hospitality and tourism;
  • Leases of furnished apartments which do not exceed a period of 1 month;
  • Leases of units which are used for work circumstances; and
  • Properties subject to Musataha arrangements for the purposes of development.

The Lease Law annuls previous laws issued under proclamations 29 of July 9th 1944, 42 of August 25th 1946, 42 of 1955 as well as law decrees 9 of 1970 and 8 of 1948.

As a result, the comprehensiveness of the Lease Law and its applicability to exclusive types of properties in all areas of Bahrain, achieves the aim of providing clarity and consistency to an extremely important sector of the region’s legal system, by codifying the previous lease laws into one single piece of legislation.

Prominent Features of the Law No.27 for 2014

The documentation and registration of the existing and new leases has been addressed in the Lease Law. Under the Lease Law, all existing and new leases must be documented and registered by the landlord, with the “Municipal Lease Registration Office”, which is the entity responsible for the registration and management of leases, upon payment of a fee ranging from BHD (1) to (5) for residential leases and BHD (5) to (10) for other types of leases within 6 months from the effective date of the new Lease Law.

Article 35A of the Lease Law prevents a landlord from requesting a tenant to vacate the lease property within the first 3 years of the term of residential leases, or within the first 7 years of the term of other leases (industrial, professional, or commercial), unless the parties agree otherwise.

The restrictions imposed on the landlord’s rights to increase rent were among the most significant impacts of the Lease Law. Unless the parties to a lease agreement have agreed otherwise in writing, the Lease Law restricts landlords from increasing the agreed rent for a consistent period of (2) years from the date of the lease or the date of the last increase of rent. The Lease Law limits the level of the rent increase to 5% for residential leases and 7% for all other types of leases. Under the Lease Law, the landlord is not entitled to increase the rent more than (5) times during the term of the lease.

Furthermore, the Lease Law stipulates that rent should be paid within the first week of the agreed due date. If the lease agreement does not specify a due date, the rent shall be due on the first day of each month during the term of the lease agreement.

Furthermore, the Lease Law permits the landlord to receive a deposit not exceeding 3 months’ rent which should be refunded to the tenant on the expiry of the lease term or any time sooner by termination or handover. The deposit payment will be subject to deductions applied by the landlord for any breaches or obligations that remain at the time of termination of lease on the tenant.

One of the most prominent outcomes of the new Lease Law is the introduction of the “Rent Disputes Committee”. Under the new Lease Law, all disputes related to any provision of the new Lease Law will now be resolved out of Court in a timely manner by the “Rent Disputes Committee”. It is hoped that this new approach will result in an overall reduction of the burden set on national courts.

The passing of the Lease Law is considered to be a long awaited development in the regulation of the property sector and is expected to resolve many of the issues currently faced by contracting parties and facilitate the settlement of related disputes.