Real Estate Practice: Lawyers in Malta - Muscat Azzopardi & Associates Advocates

The term ‘Real Estate’ as such falls within the notion of ‘Immovable Property’ in most civil law systems. Both these terms essentially refer to land or any permanent feature or structure above or below the ground surface. Being a Civil Law system, the Maltese legal system deals with immovable property in the Civil Code and therefore, immovable property is primarily and mainly subject to the provisions of the Second Book of the Maltese Civil Code (Chapter 16 of the Laws of Malta)

The Maltese legal system is mostly based on civil law in particular in the field of property and thus it is hard to assess the direct common law impact on real estate in Malta. All laws in Malta are in the written form and one is to note that the ‘rule of precedent’ does not apply to the local judiciary system distancing it further from Common Law in this regard.

Maltese law affords all rights envisaged by the European Convention on Human Rights as the latter was enacted as an integral part of our laws in 1987. Thus, property rights contained in the ECHR, particularly Article 1 of Protocol 1 in so far as the right to private property is concerned, are reflected in Maltese law.

Chapter 246 of the Laws of Malta (Immovable Property (Aquisition by non-residents) Act), regulates the acquisition of immovable property by non-residents and outlines the instances when an Aquisition of Immovable Property (AIP) Permit is required by such persons. The basic rules relating to foreign freehold ownership can be divided into three categories: -

1) Rules for EU citizens who have lived in Malta for at least five years: People who originate from another EU Member State but who have lived continuously in Malta for at least the last five years can purchase more than one property in Malta and do not require permission to do so.

2) Rules for EU citizens who have not lived in Malta for at least five years: Those who are citizens of another EU Member State and who reside elsewhere other than in Malta or who have lived in Malta for less than five years can buy a single residential property for the purposes of permanent or semi-permanent residence and can purchase business premises and they do not require permission to do so.

3) Rules for Non-EU citizens: The latter can purchase one piece of real estate in either Malta or Gozo after they have received permission to purchase in the form of an AIP Permit or ‘Acquisition of Immovable Property by Non-Residents Permit’ from the Ministry of Finance.

The above rules however, do not apply to a number of selected high-value areas and thus no permit is required for the acquisition by any person of any number of properties in such areas.

The Maltese legal system recognises an extensive list of rights over land which include ownership, lease, rural lease, usufruct, servitudes, easements, emphyteutical grants, sub-emphyteutical grants, priviliges and hypothecs. Lease and emphyteutical grants in general are the only rights which may be said to be purely contractual between the parties although certain aspects of them are covered by law in the absence of specific provisions between the parties while other rights may result on a contractual, legal or judicial basis.

The term land, as defined by the Land Registration Act, (Chapter 296 of the Laws of Malta) is to include building and other construction or works.
The Act states that the Minister responsible for Land Registry is to declare areas in Malta to be compulsory registration areas. Any notarial act, court judgement, judicial sale, redemption of groundrent by schedule of redemption or opening of succession relating to land situated within a compulsory registration area is inoperative, with regard to third parties, unless and until the title to the land concerned is registered with the Land Registry.
As far as land which falls outside registration areas is concerned, there is no such requirement.

Apart from ‘title’, the Land Registration Act in article 21(2) speaks of a ‘guaranteed title’ and states that:
“Where land is according to any other law to be registered with a guaranteed title, or where land is to be registered in favour of the Government of Malta, or where registration is sought pursuant to a transfer by the Government of Malta, it shall be registered with a guaranteed title.

Furthermore, a title shall be converted into a guaranteed title upon the lapse of 10 years from first registration of the land unless an application for the interruption of prescription or a charge having the same effect have been lodged.”

The most important effect of a guaranteed title is that once it is granted it is indefeasible except in limited circumstances, defined in the Land Registration Act itslef, and the guaranteed title will not be disturbed since the State is guaranteeing that title.

As explained in detail further down, in Malta there are two registries: The Public Registry and the Lands Registry.
All transfers of ownership, promises of sale, and any real right referring to immovable property including the registration of special and general hypothecs are to be registered in the Public Registry irrespective of whether the property is within a Land Registration area or not.
Any contract conveying the ownership or any real right relating to land situated in a compulsory registration area as explained above is also to be registered within the Lands Registry. The law imposes an obligation on notaries public receiving acts affecting the title to land in registration areas to apply for the registration of such title.
Non-registration of such rights would lead to their non-applicability against third parties as stated in Article 12 of the Land Registration Act.

Any rights other than those in relation to which the law specifically requires compulsory registration need not be registered. However, the Land Registration Act recognises voluntary registration and land, or rights over land, registered voluntarily are treated in much the same way as if the land was situated in a registration area.

4.5 Where there are both unregistered and registered land or rights is there a probationary period following first registration or are there perhaps different classes or qualities of title on first registration? Please give details. First registration means the occasion upon which unregistered land or rights are first registered in the registries.

On the application for first registration of land, charge or other registerable right, whatever the title under which such land, charge or right has passed to the person applying for registration, the Registrar issues, to that effect, a certificate for the title to that land, charge or other registerable right, according to the title under which the land, charge or right has passed to that person. The title which the Land Registrar issues is the same title which the applicant has according to Civil law.

Once the price has been agreed upon it is usual for both the vendor and purchaser to sign the preliminary agreement (Promise of Sale). The preliminary agreement actually commits both parties to the sale subject to the conditions of the agreement being met. This agreement usually has a valid duration of three months. Once everything is in place for the sale to proceed to closing, the final contract of sale will be drawn up. Transfer of ownership occurs when the final contract is published and signed, at the same time, by the vendor, purchaser and the notary public.

Privileges and hypothecs give rise to lawful causes of preference over property and in the case of Hypothecs they require registration to have effect vis a vis third parties. If the special privilege or special hypothec relates to land registerable in the Land Registry it is called a charge, and its registration is governed by the Land Registration Act. If, on the other hand, the special privilege or special hypothec relates to land which is not registerable in the Land Registry, its registration is regulated by the Civil Code. Hence, the system of registration will vary according to whether the land is registerable in the Land Registry or not.

Where registration is made it shall be deemed to have been made on the date on which the application therefor has been entered in the land registry. Registered charges on the same land shall, as between charges of the same kind and not enjoying any intrinsic priority, rank according to date/time of registration.

Generally, registered land, unregistered land, land situated in a registration area as well as land situated outside a registration area may be ‘charged’ by agreement, by operation of law or by judgment provided that certain conditions stipulated by law, peculiar to each of the circumstances, are satisfied.

The Maltese Legal system operates two distinct registries in relation to real estate, namely, the Public Registry and the Land Registry:
The Public Registry Act (Chapter 56 of The Laws of Malta) establishes a Public Registry Office for the registration of causes of preference among creditors for the enrolment of acts requiring registration in order to have effect in regard to third parties, and for all other registrations required by law.
The registry governing property situated within registration areas referred to above is the Land Registry. All dealings in properties which are located in registration areas must also be recorded in the Land Register. The latter is based on plans which indicate both the location of the property and the rights appertaining to it.

Presently such information is not available online. However the Land Registry is committed to provide a real time on-line access to its external clients in the near future.

Yes, the Land Registration Act itself provides for a system of indemnity and ractification of the registry in cases where any person suffers loss by reason of the loss or destruction of any document lodged at the registry for inspection or safe custody or by reason of an error in any official search.

As explained above all transactions are registered in the Public Registry, and any one can order researches from the Public Registry with regard to any particular person (or body corporate) or property. All entries in the Public Registry are therefore accessible by the public in general and researches are detailed and all registerable actions relating to a particular property shall result in such researches.

Property agents may be involved in the transaction as a link between the buyer and the seller in so far as the sale results from their introduction.
lawyers
Lawyer’s services are most often sought relating to vetting of searches in relation to title and contract drafting and negotiation. Moreover, a lawyer’s assistance is advisible in terms of both general as well as specific legal advice as well as in the case of commercial and residential leases.
notaries
A notary’s service is mandatory in a real estate transaction of sale or purchase in Malta as the final contract of sale cannot be published without the notary’s signature.

Remuneration for the notary’s professional services are regulated by law while estate agents are remunerated by means of a commission on the selling price. A lawyer’s remuneration depends on the type of service for which s/he is engaged.

The minimum legal formality for the sale and purchase of real estate in Malta is the Contract of Sale. However, this is generally preceded by a Preliminary Agreement / Promise of Sale Agreement.

The seller is bound by Maltese Law to warrant the thing sold against any latent defects which render it unfit for the use for which it is intended, or which diminish its value to such an extent that the buyer would not have bought it or would have tendered a smaller price, if he had been aware of them. Thus, the seller is duty bound to disclose any non-apparent defects of the property being sold of which he is aware.

Misrepresentation as such is not a ‘civil law’ concept, but Maltese law does protect the buyer from the consequences of mis representation in that a buyer who suffers a loss due to misrepresentation is entitled to seek damages equivalent to the loss suffered as a direct consequence of such misrepresentation from the seller.

Besides the warrant against latent defects mentioned above, the Civil Code speaks of the warrant of quiet possession and states that although no stipulation of warranty might have been made in the contract of sale, the seller is bound by law to warrant the buyer against any eviction which deprives him, in whole or in part, of the property sold, and against any easement or burden on the same, claimed by others, and not stated in the contract. However, the law also privides that the parties may, by special agreement, add to, or diminish the effects of such implied warranty, or stipulate that the seller shall not be liable to any warranty vis a vis third parties. Nevertheless, the seller is liable to that warranty which arises from his own act and any agreement to the contrary is void.

In reality ownership is warranted through the warranty of peacful possession although ownership is normally ascertained by means of the searches carried out prior to the sale.

Besides the main obligation to pay the price agreed, the buyer is also bound to pay all costs directly related to the actual sale apart from the commission owed to the estate agent (if any). These mainly include notarial fees, legal fees, stamp duty, searches and registration fees.

As with all financial institutions, lending of money to finance real estate depends largely on the policies adopted by each individual institution. The determining factor is security, and how much the individual is ready to pay up front. As to resident and non-resident persons, as far as financial institutions and banks are concerned it also boils down to the information and security with which the bank is provided, and there is no real difference as to whether it is an individual or a corporate entity who is obtaining the said finance. What does make a difference is whether the purchase is purely speculative or not, and as a general rule less leverage is afforded to purely speculative projects.

The law grants the lender a special privilege on the immovable property in virtue of which finance is provided as long as such loan is given by means of a public deed for the sole purpose of, and is actually used for, purchasing the property. The financial institution may seek further protection through a special hypothec as well as a general hypothec on the assets of the person or corporate entity seeking finance.

Minimum formalities required for real estate lending can be said to be a detailed explanation on how the loan shall be financed. One must keep in mind that the concept of security in Malta, being a Civil Law based country is not a Mortgage based security but a Hypothec based security. This means that the bank or finance institution cannot avail of ‘foreclosure’ as such in the case of default but can only resort to judicial measures and obtain a sale of the property by judicial auction. In reality this means that a bank usually requires that it ranks as first creditor vis-à-vis the property on which finance is sought, and a sine qua non is that the property is kept fully insured at all times.

Article 1999 of the Civil Code states that a privilege is a right of preference which the nature of a debt confers upon a creditor over the other creditors, including hypothecary creditors. It is therefore clear that the special privilege conferred upon the real estate lender ranks before any other claim against the borrower.

When property is transferred, stamp-duty of 5% is payable by the buyer, and capital gains tax or final witholding tax (either or) is paid by the seller. Capital Gains tax is payable at 35% on the profit made on a transfer, while final withholding tax is of 12 % on the whole amount (see 9.2 below on when you may elect to pay capital gains on the profit rather than withholding tax on the whole amount).

9.2 When is the transfer tax paid?
In the case of final withholding tax, the seller pays tax on the deed of transfer. However if the sale relates to a property that the seller would have acquired within a 5 year period preceeding the transfer s/he may opt to pay provisional income tax at the rate of 7% (on the whole amount), then pay at the rate of 35% on the actual profit made at the end of the fiscal year (deducting the provisional income tax which would have been paid at the time of the transfer).
The standard rate of stamp duty payable by the buyer is of 5% however this is subject to exceptions – such as when one is purchasing his sole ordinary residence in which case part of the amount (at present €116,468.67) is taxed at 3.5% and any amount above the stated amount is taxed at 5%.

If a company transfers property, then it is taxable as explained above (12% / 35% regime). Moreover where an asset used for business purposes for a period of at least three years is transferred and replaced within one year by an asset used solely for a similar purpose in the business, any capital gains realised on the transfer shall not be taxed but the cost of acquisition of the new asset shall be reduced by the said gain. When the asset is disposed of without replacement, the overall gain shall take into account the transfer price and the cost of acquisition reduced as aforesaid.
If however the ownership of the company is transferred then a different tax regime applies relating to the transfer of shares.

The contract of lease in Malta is regulated by the Civil Code and there is no legal distinction between types of lease agreements. Hence, the nature of each lease may be said to be purely contractual and it is left entirely within the discretion of the parties to negotiate conditions therein.

10.3 What are the typical provisions for leases of business premises in Malta regarding: (a) length of term; (b) rent increases; c) tenant's right to sell or sub-lease; (d) insurance; (e) (i) change of control of the tenant; and (ii) transfer of lease as a result of a corporate restructuring (e.g. merger); and (f) repairs?

The business aspect and related conditions within a lease of a business premises are purely contractual and as such a wide discretion is allowed for the lessor to impose any conditions as he may deem fit. In reality this means that conditions such as lenght of term, rent increases, the tenant’s right to sell or sub-lease and other related issues are left entirely within the discretion of the parties to such lease to negotiate. As far as repairs are concerned the law does provide that as a general rule, ordinary expenses are to be bourne by the lessee while extraordinary expenses are to be bourne by the lessor, nevertheless the parties may agree otherwise.

There is no tax on the lease as such, therefore, the landlord includes any rent received with his annual income tax computation. Article 14(1)(a) of the Income Tax Act states that rent paid by any tenant of land or buildings, occupied for the purposes of acquiring income related to the business, is a deductable expense.

10.5 In what circumstances are business leases usually terminated (e.g. at expiry, on default, by either party etc.). Are there any special provisions allowing a tenant to extend or renew the lease or for either party to be compensated by the other for any reason on termination?

Once a lease agreement has been entered into and the parties have agreed to the conditions therein, the default or breach of any of the conditions falls within the parameters of the Civil Code and failure to redress a breach generally results in resort to judicial action. This means that the landlord or tenant of a lease does not in reality cease to be liable for his/her respective obligations under a lease once they have sold their interest and they can be held responsible after the termination of the lease in respect to pre-termination non-compliance.

The Development Planning Act (Chapter 356 of The Laws of Malta) governs zoning and related matters concerning the use and occupation of land. It was introduced in 1992 to make provision for the planning and management of development, for the establishment of an authority with powers to that effect and for matters connected therewith or ancillary thereto.
With regards to expropriation one is to refer to the Land Acquisition (Public Purposes) Ordinance (Chapter 88 of The Laws of Malta). The amount of compensation to be paid for any land required by a competent authority may be determined by agreement between the competent authority and the owner, in failure of which a detailed mechanism is put to work by the law-established Land Arbitration Board to determine the adequate compensation taking into consideration the particular circumstances of the case and reflecting the amount which the land if sold in the open market by a willing seller might be expected to realize.

Such matters are regulated by the Malta Environment and Planning Authority (MEPA) and reliable sources for related information include the Authority’s Directorate, The Development Planning Act as well as professional legal advice.

The standard permit required for any type of development is the Development Permission issued by the Malta Environment and Planning Authority which also issues a compliance certificate once the development is finalised, certifying that the development was carried out in accordance with the development permits.

Provided that a development permission application is in line with all legal requirements outlined in the Development Planning Act, ranging from the site being within the boundaries of a ‘development zone’ to the particular use of the building to which the application refers, a development permit is usually issued.
Implied permission may be obtained by the so called ‘deemed approval procedure’ whereby permission is deemed approved if the Malta Environement and Planning Authority does not process an application within twelve weeks. This procedure is however subject to a number of conditions stipulated in Article 36 of the Development Planning Act.

Such issues broadly depend on the nature and scale of the project in question and are directly proportionate to the magnitude of the project in question.

In accordance with the Environment Protection Act, it is the duty of the Government of Malta to take all those measures, both preventive and remedial that may be necessary for the protection of the environment of Malta, and furthermore, it is the duty of every person not to cause damage to the environment and to concur with the Government in the above mentioned measures.

Legal Notice 238 of 2006 entitled Minimum Requirements on the Energy Performance of Buildings Regulations applies to new buildings and existing buildings that undergo major renovation or alteration whose building permit applications are submitted to the Malta Environment and Planning Authority on or after the 2nd January 2007, and aim to improve the energy performance of buildings in line with the requirements of Directive 2002/91/EC of the Euoropean Parliament and of the Council of 16th December 2002 on the energy performance of buildings.

Dr. Adrian Muscat Azzopardi is one of the managing partners in Muscat Azzopardi and Associates, Advocates. Dr. Muscat Azzopardi graduated as Doctor of Laws from the University of Malta and subsequently read a Masters in International Maritime and Shipping Law Degree at the International Maritime Organisation’s Maritime Institute where he graduated with Distinction. Dr. Muscat Azzopardi has also acted as a tutor with the IMO’s Maritime Institute.

Dr. Muscat Azzopardi is directly responsible for the firm’s Maritime, Real Estate, Finance, Money Remittance and E-Money departments. Dr. Muscat Azzopardi has advised the firm’s international client portfolio in real estate matters in and outside Malta, and he has advised on the purchase of hotels in Slovenia, Turkey and Kosovo. Dr. Muscat Azzopardi’s local portfolio includes a number of Malta’s leading property developers. He advises on various aspects of real estate including international tax issues, finance, development and contracts of lease, sale and acquisition. Dr. Muscat Azzopardi has also headed a team of professionals on a number of Government Tenders issued in relation to the privatization of high value properties.

Dr. Muscat Azzopardi is fully conversant in English, Maltese, Italian, French and Spanish.