Real Estate Guide
Principles of ownership
Freehold - freehold ownership signifies the right of enjoying and disposing of property in the most absolute manner. The owner may occupy the property, grant real or personal rights over it, and bequeath it by will. Ownership of land is presumed to carry with it ownership of what is above the land and under it unless otherwise excluded. Any construction or work, whether on or over or under the land, will, unless the contrary is proved, be deemed to have been made by the owner at his expense and to belong to the owner, without prejudice to third party rights that may have been acquired.
Leasehold - leasehold ownership of property signifies the granting of the enjoyment of property for a specified time and for a specified rent. However, urban leaseholds of more than two years, and rural leaseholds of more than four years, must be made in writing under pain of nullity. Leasehold may be long or short. Furthermore, where property is granted for a time exceeding 16, the grant may be deemed at law to be emphyteusis, even if the parties have termed it lease.
Usufruct - usufruct is the real right to enjoy property owned by another person, subject to the obligation to preserve its substance in both matter and form. Usufruct over immovables may only be constituted by a public deed.
Emphyteusis is a contract whereby one of the contracting parties grants to the other a tenement for a stated yearly ground rent (GR) as an acknowledgement of the tenure. It may be either perpetual or temporary for any period of time. In the case of perpetual emphyteusis, the emphyteuta has the right to redeem the GR by paying a sum equivalent to the amount of GR capitalized at the rate of 5%, whereupon the emphyteuta becomes full owner of the tenement. Emphyteusis is null unless made by a public deed. The emphyteuta has rights of enjoyment similar to those of an owner.
Condominium ownership - condominium is a building or group of buildings where the ownership or the use or the enjoyment of the common parts thereof is vested pro indiviso in two or more persons. Likewise, the ownership of the various separate units in the building or group of buildings is vested pro diviso in the same two or more persons. No condominus may execute in his individual property works which may cause damage to the common parts. An administrator must be appointed when there are more than three condomini.
Utilisation right - utilisation is the granting of a real right over property for the use of the property or for the taking of the fruits from it, but only to the extent of the person's own or family's needs. The right of use can only be created by means of a public deed.
Joint/Co-ownership - property may be owned by one person or held in co-ownership. A co-owner cannot lease out property held in co-ownership without the consent of all the other co-owners or without authorization by a judgement of the Rent Regulation Board. Property co-owned for a period in excess of ten years may be sold by order of the Courts upon a request made by the majority of co-owners.
Registration - property can only be acquired in ownership by means of a public deed, which shall be published in the records of a notary public and registered in the Public Registry.
Restrictions on foreign ownership
Individuals who are not citizens of a European member state may only acquire immovable property in Malta if they are granted a permit (known as AIP permit). This permit will be granted only if the value of the property to be purchased is above €70,000 for the purchase of a flat or maisonette, and above €117,000 for the purchase of any other immovable property. The property must be used only as a residence by the purchaser or his family and cannot be used or otherwise converted into more than one dwelling house, nor can it be rented out unless it is a villa with a pool or a first-class quality flat. Citizens of the EU who have resided in Malta continuously for a minimum of five years at any time preceding the date of acquisition may freely acquire immovable property without obtaining a permit. EU citizens who do not qualify for the five-year residency condition may only purchase their primary residence or any immovable property required for their business activities or supply of services without obtaining a permit. Such citizens must obtain a permit if they wish to acquire immovable property for secondary residence.
Title to real estate
Examination of title – A notary public who publishes a notarial act of transfer of ownership of immovable property or other real rights over such property shall be deemed to have been instructed by the transferee to examine its title. Nevertheless, the transferee may, by an express declaration recorded in the notarial act, exempt the notary from the obligation imposed on him in terms of the law or limit the extent of such obligation in any way the transferee deems fit.
Transfer of title - transfer of ownership, emphyteutical and usufructuary grants must be made by public deed. A public deed is binding on third parties only when it is registered in the Public Registry.
Registration - property can only be acquired in ownership by means of a public deed, which shall be published in the records of a notary public and registered in the Public Registry. The Public Register and the Land Register are public and provide evidence of title. Anyone can conduct searches in these registers. The Land Register is based on plans that indicate both the location of the property and rights appertaining to it, while the Public Register contains a person based index. Privileges and hypothecs over immovables are also registrable.
Information on the register - not applicable.
Commercial leases - leases of commercial property refers to property which is not a residence and which is leased to house an activity primarily intended to generate profit and includes, but is not limited to an office, a clinic, a tenement leased out for the sale of merchandise by wholesale or retail, a market stall, a warehouse, a storage used for commercial purposes as well as shops selling things, wines, spirits, or foodstuff and drinks, or theatre. A lease to a musical, philanthropic, social, sporting or political entity that is used as a club is not considered as a commercial lease even if part of it is used for the purpose of generating profit.
Structure of a real estate transaction
Negotiation of terms/Agreement - commercial terms are usually negotiated between the seller and the buyer who may be assisted by an estate agent or broker.
A preliminary agreement is signed between the seller and buyer, in the form of a private writing, which may be drafted by a notary or by the parties’ lawyers. The agreement is a promise of purchase and sale under agreed terms and conditions. The agreement is valid for a term either agreed to by the parties or in the absence for the terms of three months prescribed by law. After signing this preliminary agreement but before entering into a final deed of sale, the buyer engages a notary to investigate the title to the property. A deposit representing 10% of the purchase price is normally paid when the preliminary agreement is signed. The agreement is considered as binding when a deposit is paid. However, when earnest is paid, each of the parties may recede from the agreement, although the party receiving the earnest will forfeit it and the party receiving the earnest will return double the amount. Provisional duty of 1% of the contract value must be paid when the agreement is signed. The agreement must be registered with the Inland Revenue Department within three weeks of it being signed and the provisional duty paid to the Department.
Heads of terms – While Maltese Courts have very rarely been called upon to decide pre-contractual disputes, there exist a limited number of judgments which discuss this alien concept under Maltese Law. In determining such cases, our Courts have classified pre-contractual obligations under the law of tort. The damages awarded as a result of negligent behaviour at pre-contractual stage have so far been limited to actual loss caused and expenses incurred.
Investigation of title – (Vide supra investigation of title).
Purchase deed - the deed of sale is generally drawn up by a notary chosen by the buyer. The balance of the purchase price and the applicable taxes are paid when the contract is signed. The notary is usually paid by the buyer while brokerage fees, if any and unless otherwise agreed, shared between the buyer and the seller.
Contracts - See "negotiation/terms of agreement" above.
Completion/closing - not applicable.
Post completion - the deed of sale is registered in the Public Registry and, where applicable, with the Land Registry. The stamp duty and capital gains tax will be paid to the Inland Revenue Department on registration.
Leases - not applicable.
Transfer of ownership of leased property (alienation) - a lease agreement still in force must be respected by the new owner of premises if title to those premises is transferred during the duration of the lease.
Language requirement – All public deeds are to be drawn up in the Maltese or in the English language as the appearers desire. Furthermore, when the appearers declare that they are not Maltese-speaking persons nor English-speaking persons, they may require the use of any language other than Maltese or English which is known by the notary drawing up the deed and also by the witnesses. In any such case the notary shall draw up by the side of the original text or at the end thereof a translation of the act into Maltese or English.
Governance of lease signature/administration – See leasehold.
Usual commercial lease terms
Summary of available lease types - lease signifies the granting of the enjoyment of property to another for a specified time and for a specified rent. Lease may be made in connection with urban property, residence, commercial tenements, and rural land.
Alterations/modifications - The tenant may not make any alteration in the property let without the consent of the landlord. Moreover, he will also not be entitled to claim any value of such alterations made without the landlord’s consent.
Assignment and sub-letting - the tenant has no right to sublet or assign the lease, unless such right is agreed upon in the lease agreement. A management agreement or any other form of agreement, by means of which a tenant transfers to third parties the possession of the property or of the business operated from the commercial property is considered to be sub-letting. Where the tenant is a company, the cumulative transfer inter vivos of 50% of the shareholding or of the transfer of the actual controlling power of the administration of such company or of the control of the business conducted from the property shall be considered as a sublease.
Destruction/reinstatement - if, during the continuance of the lease, the property let is totally destroyed by a fortuitous event, the lease is ipso jure dissolved; if it is destroyed only in part, the tenant may demand either an abatement of the rent or the dissolution of the lease agreement. The tenant may also demand an abatement of the rent or the dissolution of the contract, if owing to a fortuitous event, the thing let has become unserviceable. No compensation may be claimed in any of these cases. The landlord may require the reinstatement of any alterations made by the tenant during the lease.
Disposal/Return of Premises - usually, it is agreed that property let is returned in the state in which it was leased out, wear and tear excepted.
Duration of lease - leaseholds may be concluded for any period, provided it is not more than 16 years, depending on the agreement reached by the parties. Where property is granted on lease for a period exceeding 16 years, the grant may be deemed at law to be emphyteusis, even if the parties have termed it lease, in which case it would be deemed null unless made by public deed.
Forfeiture/irritancy - dissolution of the lease may be demanded by the lessor if the property let is used to any purpose other than that agreed upon by the parties or in a manner which may prejudice the lessor. In the case of commercial premises, failure to use the said property for a commercial purpose is considered to be bad use and entitles the lessor to demand dissolution of the lease. A commercial lease may also be dissolved if either party fails to perform its obligations under the lease agreement. Failure to pay punctually the rent due after the lessor calls upon the tenant to pay by means of a judicial act and such failure persists after 15 days from service of such letter, entitles the lessor to demand dissolution.
Insurance - property insurance is not compulsory but, more often than not, properties are not insured. For commercial premises, the landlord may require the tenant to take out an insurance policy against the risks of destruction or damage to property or public liability insurance.
Rent review - for leases longer than 2 years rent is generally subject to review in accordance with the cost of living index or by a percentage pre-agreed by the parties. Rent increases generally vary depending on whether the lease is of residential or commercial premises, with the latter being subject to more reviews than residential ones.
Repair/decoration/furnishing - generally, the ordinary external and internal repairs of the building are the responsibility of the tenant, while structural or extraordinary repairs are normally the responsibility of the landlord. Unless otherwise agreed, repairs and decoration of the common parts of a building are borne by the landlord. Structural alterations are generally not permitted except with the landlord’s prior consent.
Service charges - the lease agreement may stipulate a monthly fee by way of contribution to the use of the common parts. However, this contribution is generally included in the rent. Electricity and water utility bills are usually not included in the rent.
Tenant’s duties - tenant’s usual obligations assumed in a lease agreement are to pay the rent punctually, to use the premises let for the specific use for which they were let, carry out any repair or maintenance work required in terms of the lease agreement, and to return the premises on termination of the lease.
Termination/break clauses - the parties may negotiate early termination clauses, in particular when either party fails to meet its obligations. It is common to grant the tenant the right to terminate the lease agreement early by giving a specified period of notice.
Increasing covenant strength
Lease deposit - is usually required by the landlord by way of guarantee for any damage caused to the property. The deposit is placed with the landlord and can be forfeited if the tenant fails to return the property damaged on termination or fails to return the property in the state in which it was let out, wear and tear excepted.
Surety – a landlord may require a surety to guarantee the performance of the tenant’s obligations under the lease agreement. This is a more common requirement for companies that are newly set up.
Warranty - warranties may also be required in a commercial lease agreement.
Rent deposit/bank guarantee - a deposit is usually required by the landlord by way of guarantee both for the payment of rent. The deposit is placed with the landlord and can be forfeited if the tenant defaults on rent payment. It is uncommon for landlords to request the issue of a bank guarantee, except in the case of commercial leases.
Security of tenure
When the lease term expires, the tenant must vacate the premises. Failing to do so may result in the tenant being liable for the payment of damages for unlawful occupation of property. The parties may agree that failure on the part of the tenant to vacate the premises on the termination of the lease or on the early expiration of the lease will carry a penalty by way of pre-liquidated damages.
On sale/acquisition of real estate - stamp duty is paid by the buyer at the rate of 5% on a public deed of sale and purchase of immovable property, and is calculated by the notary not the price at which the property is being sold, but which at law is due on the price or market value, whichever is the higher. The seller is obliged to pay capital gains tax. If five years have elapsed since the seller purchased the property, the seller may choose to have the transfer taxed either on the difference between the price at which the property is sold and the expenses sustained at the time of purchase of the property, or at the rate of 12% on the price at which the property is sold. No capital gains is due if the property has been the registered main residence of the seller for a minimum of three years and is being sold within a year of when it is being vacated.
These payments are due not only on the sale or acquisition of title of ownership to property but in the case of any assignment, emphyteusis, partition, donation, settlement of property on trust, distribution and reversion of property settled on trust.
No value added tax is due on the sale and acquisition of immovable property.
Immovable property tax - not applicable.
Income tax - income derived from leased property is subject to the income tax rate applicable to the lessor. The current highest income tax rate is 35%.
Land tax - not applicable.
Lease tax - no stamp duty or capital gains tax is due on the granting of a lease. However, value added tax at the rate of 18% is due and is usually included in the rent.
Local tax - not applicable.
Mortgage - not applicable.
Other taxes - not applicable.
Property lease tax - not applicable.
Value added tax - not applicable.
- UK England & Wales
- UK Northern Ireland
- UK Scotland
- Bosnia and Herzegovina
- Czech Republic
- Slovak Republic
- Middle East and Asia