Macau – Proposed Changes To Leasing Regime Under Civil Code.

19 June, 2017

 

Introduction

 

Macau's real estate market has always been a topic of debate between residents and lawmakers, as well as landlords and tenants.

 

After the liberalisation of the gaming industry, rapid development in the local real estate market and soaring prices fuelled an increasing demand in the lease market, including for residential property and commercial and professional activities.

Macau's legal regime for real estate rentals is set out in the Civil Code, with specific rules on rental prices. These terms are expected to be improved to cope with the reality of the market.

 

According to the Legislative Assembly, the leasing regime reform provides for further protection and control based on the Civil Code and intends to enhance the local lease market with affordable rental prices.

 

Amendment of leasing regime

 

A major concern is the increasing number of conflicts between parties to tenancy agreements.

 

As a result of the rapid development in the real estate market, landlords have expected to maximise their profits and real estate agents have sought to collect higher commission during landlord and tenant negotiations. Under existing rules, the formal requirements of tenancy agreements are not particularly demanding, as their execution requires only a private written agreement signed by the parties. This means that sub-leases are possible and may present a problem.

 

Considering the problems arising between parties, and in order to alleviate the burden on the courts hearing tenancy disputes and, most importantly, to provide better protection for landlords and tenants, the Legislative Assembly has agreed to amend the leasing regime.

 

Arbitration 

 

Major conflicts between landlords and tenants have resulted in a high number of court cases. These conflicts involve illegal occupations and infringement of contractual obligations resulting in serious damage for landlords.

 

Until now, the only way to resolve such conflicts was to take legal action before the courts. In relation to the termination of a tenancy agreement due to non-compliance with contractual obligations, court proceedings are time consuming, complicated and constitute an obstacle to lease market development.

 

Taking this into consideration, the proposed amendments intend to provide a more efficient way to resolve disputes. The approval of Decree Law 29/96/M and Decree Law 55/98/M – which aim to regulate internal voluntary arbitration and commercial arbitration – reflect the need for a legal regime of arbitration in order to reduce pressure on the courts and provide better resolution of disputes.

 

There are five arbitration institutions in Macau, including the Administrative Property Arbitral Centre, which was established in 2011. Once the arbitration body begins operations, and the amended leasing regime enters into force, more options for landlords and tenants to resolve conflicts extrajudicially will become available, while also shortening the time necessary to mediate and resolve conflicts.

 

Rent cap increase

 

After the handover of Macau to China, the development of the gaming market increased the resident population. Together with the development of tourism, this increased residential property prices and the need for housing.

 

The proposed amendment of the leasing regime aims to enable the chief executive of Macau to set a cap on rent-increase rates based on a coefficient scheme. It also aims to reinforce the interests of low-income groups and ensure their rights. As far as the lease market is concerned, some critics contend that the return rate is a landlord's primary consideration when leasing out properties. However, if a rent cap is not set, rental control provisions may worsen the supply in the rental market.

 

Tenancy agreement

 

According to Article 1032 of the Civil Code, tenancy relations require that a private written agreement be executed by both parties, with no other formalities stipulated.

 

The proposed regime requires tenancy agreements to have both parties' signatures certified and notarised. This amendment to Article 1032 may help to regulate the rental market and make it fairer. Public authorities will also thus have knowledge of these contractual relations.

 

Protection of commercial and professional tenants 

 

Small and medium-sized enterprises have always been the weakest link in the negotiation process with landlords, creating consequences for rental prices. This is based on the fact that under the existing regime it is possible for landlords to terminate tenancy agreements early whenever other tenants offer to pay higher rental prices, jeopardising the stability of the rental market and Macau's wider economy.

 

The proposed regime introduces amendments regarding the termination of these agreements, conferring more protection to the lessees and promoting greater diversification in the market. The proposed regime reinforces the mechanism already provided for residential properties. It also provides further protection for commercial and professional tenants and aims to prevent landlords from terminating tenancy contracts for three years.

 

The amendments – which are yet to be approved – intend to increase protections for tenants and promote development of the rental market. Once the changes are enacted, a more stable rental market with a speedy dispute resolution process is expected.

 

This update was first published in the International Law Office Offshore Services Newsletter – www.internationallawoffice.com.