Tenancy law increases clarity for landlords and tenants in Bahrain

As part of a raft of legislation designed to restore confidence to the property sector and to protect the rights of those involved in property transactions, a new law to ensure the rights of both landlords and tenants of rented property has been passed.

Although the new piece of legislation, Law No. 27, is yet to be implemented, it is designed to remove the confusion that has surrounded rental agreements. There is a formal tenancy registration process, which is designed to offer better protection to the rights of both landlords and tenants.

In the past some landlords had complained that the previous legislation, Decree 9 of 1970, gave tenants unlimited renewal rights and so made it difficult to evict people or to impose rent increases to cover the cost of building improvements.

When Bahrain Chamber of Commerce and Industry’s property committee met to discuss the issue in March 2015, local media reported a comment by one committee member who said that in some cases the old law meant there were tenants of shops or flats in the centre of Manama paying BD70 ($180) a month while in other parts of the country tenants were paying BD700 ($1800) a month for similar properties.

Registration

When the new law came in to force on February 7, 2015, the old law was repealed. However, the new law stated that any lease that existed under the old act would terminate three years after the new act. Although that clause appeared to give both landlords and tenants with existing agreements some breathing space, it stated that all existing leases would have to be registered by landlords within six months of February 7 and that all new tenancy agreements had to be registered by landlords within a month of being agreed by the two parties.

In cases where the landlord failed to register the tenancy, the tenant could register the agreement and deduct the registration fee from their rent. New notarisation offices were to be set up to handle this paperwork at each municipality, with some landlords suggesting 200,000 agreements would have to be registered for Manama alone.

Termination Clauses

The new legislation also includes clauses with regard to the termination of tenancies, which should apply to anyone entering into a new agreement. Where new leases are concerned, landlords cannot require termination at the end of the tenancy period – assuming there has been no breach of the terms of the agreement – unless the tenant has lived in a property for three years in the case of residential agreements, or seven years for other properties. The law states that the tenant must give the landlord three months notice if he wishes to leave at the end of the agreed lease term.

Rent Reviews & Sub-Letting

The law places caps on the frequency and scale of rent increases, which could leave landlords out of pocket if there is a boom in the rental market. However, this aspect of the law gives tenants security and could help to prevent a boom-and-bust cycle in the rental market. The new law says rent reviews can only take place every two years and that caps of 5% and 7% apply to residential and other types of property, respectively.

The rules governing sub-letting have also been tightened under the new law, which stipulates that a tenant cannot sub-let his or her home without written consent from the landlord.

Furthermore, where permission is granted the assignment or sub-lease must also be registered. The new law does not cover development leases, residential units occupied for work purposes, furnished flats with a lease term of less than a month, hotel and tourism plots, agricultural land or industrial plots.

Dispute Settlement

The law states that the minister of justice will create a Rental Dispute Resolution Committee (RDRC) to deal with any disputes arising from lease agreements. An RDRC decision may be appealed to the High Civil Court within 15 days.