Investing in residential property in a foreign country can run into disaster if you don't consider the system of landlord and tenant law and practice.
The awe-inspiring example of Swedish buy-to-let:
- Rents are set by law far below reasonable returns-on-investment.
- Deposits are not 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.
- 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:
The Global Property Guide's landlord and tenant rating system
We use a five-point rating system to evaluate a country:
- Strongly Pro-landlord
- Strongly Pro-tenant
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).
Landlord and tenant law: an international comparison
Landlord and tenant law in Africa
Landlord and tenant law in Asia
Landlord and tenant law in Caribbean
Landlord and tenant law in Europe
Landlord and tenant law in Latin America
Landlord and tenant law in Middle East
Landlord and tenant law in North America
Landlord and tenant law in the Pacific
Landlord and tenant Q & A
What is the Global Property Guide's standard for neutrality?
'Neutral' means that (in fact) that the laws are slightly asymmetric. Modern consensus opinion believes it to be 'normal' for the person who lives in a dwelling to get some security of tenure. That's what we call 'neutral' – when the law is slightly bent towards the tenant.
Can you give an example of what you define as neutral?
A situation where the tenant can leave at three months' notice, but the landlord must wait to the end of the contract, is considered neutral between landlord and tenant, assuming
- there is freedom to negotiate rent levels; and
- there is no right for the tenant to stay at the end of the contract.
What do you define as pro-tenant?
When the tenant gets a right to remain after the end of the contract against the landlord's wishes
What do you define as strongly pro-tenant?
When the tenant gets a permanent tenure with the rent strongly regulated to favour the tenant
Are there any other factors that you consider?
Yes. Factors unrelated to the letter of the law (slow courts, armed landlords, bribery and dilatory tactics) may mean taht a pro-landlord law can work, in practice, in favour of the tenant (or vice versa). Our rating reflect this.
How we judge landlord and tenant relationships?
We look at the following factors to arrive at a judgment about the overall relationship:
- 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?
In most cases, our sources are leading law firms, who we have been asked to contribute articles for the Global Property Guide. In some cases, however, we have relied on our own précis of the reviews of European landlord and tenant laws published by the European University Institute of Florence.