Landlord and Tenant Law
Why does the Global Property Guide emphasize the importance of landlord and tenant law?
nvesting in residential property in a foreign country can bring disaster, if you don’t consider the system of landlord and tenant law and practice.
Consider the awe-inspiring Swedish example. Swedish landlords who, a generation ago, made the mistake of investing in buy-to-let properties face the following harrowing situation:
- Rents are strictly controlled, set by law very far below reasonable returns-on-investment
- No deposits are allowed
- Tenants have a right to prolong their contract, essentially for ever. The rule is totally asymmetric; a tenant may at all times serve three months' notice, even when the contract is fixed for a certain time, and terminate the agreement.
- Tenants can transfer the property without asking the landlord, to their spouses, closely related persons, and live-in partners, same-sex or otherwise.
- Tenants cannot sell the tenure or give it to someone else against the wishes of the landlord. But they can exchange the tenure for another dwelling – a tenancy, a cooperative apartment, or a house to own.
- Sub-letting by tenants is allowed, and cannot be ruled out by contract
The foreign buyer is often poorly prepared for such strongly pro-tenant systems. To help him, the Global Property Guide uses its own rating system.
In countries where there is strong pro-tenant feeling or pending legislation (such as Poland), investors should be wary. Swedish law is now under review, but laws can change at any time. Landlords can get locked into loss-making investments for a generation. It has happened before, and it will happen again.
What system does the Global Property Guide use to compare and rate landlord and tenant laws?
We use a five-point rating system to evaluate a country′s rental market:
- Strongly Pro-landlord
- Strongly Pro-tenant
- We look at the following factors:
- Can rents be set freely by agreement between landlord and tenant?
- Can subsequent rent adjustments be freely negotiated?
- Can the rent be indexed to the cost-of-living or some other index? If so, what mechanism can be written into the contract?
- If there is rent control, what are the provisions? What are the criteria used to determine rents?
- Is the landlord allowed to collect security deposits? How about rental deposits (advance payment)?
- Are there legal limits on the amount of deposits that can be collected? How much?
- Should the landlord keep the deposit in an interest bearing account?
- If there are no legal limits, what is the usual practice?
Duration of contract/Eviction
- Are contracts required to be for any specified periods?
- Is notice necessary for eviction at the end of a contract?
- Is there a very big and basic different between time-delimited contracts and contracts for an indefinite period?
- Can either landlord or tenant terminate before the end of a contract period?
- What are the penalties for early termination of contracts?
- What is the procedure for tenant eviction?
The effectiveness of the legal system
- Does the court system work?
- Is Alternative Dispute Resolution (ADR) available for landlord-tenant disputes?
- How long does it take to evict a tenant for non-payment of rent (assuming that the landlord is absolutely right)?
- What laws cover Landlord and Tenant issues?
- Has there been any radical de-regulation or re-regulation in the past few decades?
The resulting rating is the Global Property Guide′s view, and not necessarily that of the contributing law firm (in cases where we have asked law firms for contributions and input).
‘Pro-landlord’, ‘pro-tenant’ and ‘neutral’ - define the Guide’s use of these terms
‘Neutral’ means that (in fact) that the laws are slightly asymmetric. Modern consensus opinion believes it to be normal for the person who rents a dwelling to get some security of tenure. Therefore that’s what the Global Property Guide terms ‘neutral’ - when the law is slightly bent towards the tenant.
An example of a neutral situation would where the tenant can leave at three months’ notice, but the landlord must wait to the end of the contract. We consider this (slightly asymmetrical) situation ‘neutral’ between landlord and tenant, but only if
- There is freedom to negotiate rent levels; and
- There is no right for the tenant to stay at the end of the contract.
An example of a pro-tenant law would be when the tenant gets a right to remain after the end of the contract against the landlord’s wishes
Strongly pro-tenant would be when the tenant gets a permanent tenure, with the rent strongly regulated in favour of the tenant
We also take into account factors unrelated to the letter of the law (slow courts, armed landlords, bribery and dilatory tactics).
Such informal factors may mean that a pro-landlord law can, in practice, work in favour of the tenant (or vice versa). Our ratings reflect this.
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