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Jun 30, 2006

Sri Lankan law is pro-landlord


Sri Lankan law is pro-landlord for properties that are not covered by the Rent Act. Otherwise, it is pro-tenant.

The difference between a lease and a monthly tenancy is important in Sri Lanka. The term ‘tenancy’ has a slightly different meaning than usual elsewhere, in that it means giving the use of immovable property for rent to another for successive periods. Tenancies may be terminated by landlords with a month’s notice without cause and this may be followed by legal action for eviction, unless the premises are protected under the Rent Act (see below). Tenancies are subject to no stamp duty unlike leases which are stamped at 1% of the total rent for the demised term.

A lease contract is however normal for high-end, fixed-term contracts, because it gives more secure possession, and allows more certainty as to term. A lease must be by a deed signed in the presence of two witnesses and a Notary, and registered at the Land Registry. Leases as in tenancy agreements could contain such other conditions as the parties may agree upon.

Rents: Can landlord and tenant freely agree rents in Sri Lanka?

If the premises, whether given on lease or tenanted, are not governed by the Rent Act (see next paragraph), there is no limitation as to the amount of the rental which can be agreed between landlord and tenant or lessor and lessee.

The Rent Act applies to all premises OTHER THAN:

  1. residential premises occupied by the owner on the 1st of January, 1980 and let on or after that date;
  2. residential premises in the occupation of:
    (i) a person who has been issued a valid visa under the Immigrants and Emigrants Act and whose total income exceeds one thousand rupees per month; or

    (ii) a non-resident company, except if the residential premises were let before 12 December 1980, when exemption from the Rent Act is subject to certain conditions, including an exemption from the provisions of the Act being granted by the Commissioner of National Housing;
  3. residential premises constructed after the 1st of January, 1980 and let on or after that date.
  4. excepted premises, which includes any business premises situated in certain areas if the annual value of such premises as specified in the rates assessment exceeds certain prescribed amounts, and premises where the landlord is a company registered under the Companies Act No. 17 of 1982.

If the premises are governed by the Rent Act, section 4 prescribes “the standard rent” payable, and section 5 provides for certain permitted increases. The aggregate of the standard rent and every permitted increase is the ‘authorised rent’. It is an offence to pay, demand or receive any amount in excess of the authorised rent.

Security Deposit

If the premises, whether given on lease or monthly tenancy are not governed by the Rent Act, the amount of security deposit is freely negotiable between the landlord and tenant.

If the premises are governed by the Rent Act, no person shall, as a condition of the grant, renewal, or continuance of the tenancy of any premises, demand, receive, or pay, or offer to pay:

  1. as an advance of rent any amount exceeding the authorised rent, or as the case may be, the receivable rent, for a period of three months
  2. in addition to the rent of such premises, any premium, commission, gratuity or other like payment whatsoever

What rights do landlords and tenants have in Sri Lanka, especially as to duration of contract, and eviction?

Tenancy contracts are usually for no fixed period. A monthly tenancy (which is normal) is terminable at will, by either party, by the giving of one month’s notice, and the rent is generally payable monthly.

Where the Rent Act applies, the law weighs heavily in favour of tenants, who can terminate a monthly tenancy at any time with a month´s notice, while the landlord can only do so on the grounds specified in the Act which include the following:

  1. The rent is in arrears for a period of over one month.The premises are being used for immoral or unlawful purposes by the tenant.
  2. The premises are being used in such a manner as to cause substantial deterioration.

Several new grounds were introduced by an amendment to the Rent Act in 2002.

Upon the termination of a monthly tenancy or lease, if the tenant or lessee does not vacate the premises as required by the notice of termination, legal action for eviction becomes necessary.

In the case of a lease for premises not governed by the Rent Act, there is no restriction on the period of notice which the parties may agree, either as regards landlord’s or tenant’s notice. And unless there is a breach of the terms, covenants or conditions by either party, or the lease itself provides for termination, the lease cannot be terminated by either party without the agreement of the other.

A lease for a fixed term should be by deed notarially attested. If not so executed, it will amount to a monthly tenancy, and could be terminated by either party with a month´s notice.

LEASES AND TENANCIES – THE DIFFERENCE

The difference between a lease and a tenancy is important in Sri Lanka:

LEASES

The concept of a lease is recognised by the common law of Sri Lanka, (the Roman Dutch law). Case law has recognised a valid lease as a pro tanto alienation of the land by the Lessor for the period or term of the lease and a lease of property is, in all cases other than where the Rent Act applies, the surest means of securing one’s right to possess, use and enjoy the property of another.

The parties to a lease have, broadly speaking, freedom to agree on such terms as they deem fit to be included in the lease, subject to the provisions of the Rent Act, should the Act apply.

Generally a lease will make provision for the following matters:

  1. term of the lease) security deposit) rental and how and when payable) responsibility for repairs) responsibility for payment of rates) Lessee’s covenants) Lessor’s covenants
  2. mutual covenants

Certain legal formalities must be observed in regard to leases. The Prevention of Frauds Ordinance provides that no promise bargain contract or agreement for establishing any interest in land (other than a lease at will or for a period not exceeding one month) shall be of force or avail in law unless it is in writing, signed in the presence of a Notary and two witnesses.

To safeguard the Lessee from the point of view of the rules governing priority as contained in the Registration of Documents Ordinance, it is necessary that the lease be properly registered at the Land Registry.

As leases often provide for payment of rent annually in advance, it is prudent and advisable for any Lessee before entering into the lease to instruct a lawyer to carry out a search at the relevant Land Registry to verify whether the property is encumbered or not and that the property does indeed belong to the Lessor.

It should be noted that a Lessee or tenant should in most cases also request a copy of the Certificate of Conformity to satisfy him or herself that the premises can be lawfully occupied, before entering into occupation of the demised premises.

TENANCY AGREEMENTS

Such agreements need not be notarially attested but should, for evidentiary purposes, be in writing.

A contract of tenancy is an agreement whereby a person agrees to give the use of immovable property on a rent to another for successive periods until the tenancy is terminated by a notice given by either party. The person who agrees to give the use of the immovable property is known as the landlord and the person who promises to pay the rent for the use of the immovable property is the tenant.

A monthly tenancy is terminable at will by either party by the giving of one month’s notice and the rent is generally payable monthly.

A tenancy agreement will generally make provision for matters such as the quantum of rent, responsibility for repairs and contain obligations on the part of the tenant to look after the property in a tenant like manner.

How effective is the Sri Lankan legal system?

The Court system works, but there can be considerable delays before a judgment is obtained. Recovery of unpaid rent will take approximately nine to twelve months assuming that the summons can be served and dilatory tactics are not indulged in by the defendant.

EVICTION FOR NON-PAYMENT OF RENT

Duration until completion of service of process 90
Duration of trial 440
Duration of enforcement 200
Total Days to Evict Tenant 730
Courts: The Lex Mundi Project

Obtaining a Court decree for eviction could take one and a half years or more and up to ten years or more if there is an appeal as there is a tremendous backlog of appeals to be argued and decided before the Appeal Courts. This applies even in the case of a fixed term lease if the Lessee does not vacate the premises on the expiration of the lease and legal proceedings have to be instituted for eviction.

Legislation

The Rent Act No. 7 of 1972 and the subsequent amendments thereto.

The Prevention of Frauds Ordinance No. 7 of 1840 as amended.

  




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