Previous Laws

For many decades, Lebanon has not enjoyed a fair rent act. The previous laws accorded tenants extensive rights that almost transformed them into landlords or partners of landlords to the detriment of the latter. Against the backdrop of inflation and steep price increases, tenants continued to pay the same rent, preventing landlords from deriving remunerative returns to such an extent that revenues from multi-floor buildings became hardly equivalent to what is spent on living costs in a few days. Thus, most landlords inched closer to poverty, lamenting the diminution of their property and waiting for the day when they could recover it or when rental fees would finally go up.

This reality has effectively led to sharp passivity in the rental market, for landlords were afraid to face the same fate that their peers had encountered. A rent act thus emerged in 1992 to find initial solutions for the rental crisis, creating a distinction between new and old leases.

New Leases

Law no. 159 dated July 22, 1992 stipulated the repeal of Article 543 of the Obligations and Contract Law relating to the leases signed after the effective date of the new law and replaced it with the following:

“The leases of both residential and non-residential property shall be subject to freedom of contract and to the will of the contracting parties in all that does not contradict the following binding provisions:

First: if the lease period specified in the lease agreement is less than three years, the lease shall still be considered for a period of three years.

Second: excluded from the previous provision are all the seasonal leases concerned with summer and winter vacation premises and the leases of property granted by employers to employees with or without a charge.

Third: if the period of the lease agreement, whether of built property or land, exceeds three years, the property may not be passed to a third party unless it is first registered in the cadastral registry.”

This new law known as the ‘freedom of contract’ law entitled tenants to rent any property for three consecutive years at the same rental rates. After the expiry of the lease period, either a new agreement could be arranged for an equal, higher or lower rental amount or tenants must vacate their tenancy without receiving any compensation. These new mechanisms pumped momentum into the stagnating rental market and landlords returned to renting out their property without fears from tenants taking their place.

Old Leases

The lease agreements signed prior to July 22, 1990 fell under the provisions of Law no. 160 promulgated on July 22, 1992. Unlike its predecessors, which used to either extend the lease agreements unchanged or impose a specific increase in fees, Law no. 160 prescribed a rental increase that was commensurate with the pay increases in the private sector. It stipulated the following:

• “Raising rental fees by half the successive wage hikes affecting the first salary bracket and determined by the decrees pertaining to the cost of living and the pay of employees as of July 1, 1987 and successively upon every future rise.”
• Law no. 160 also postulated doubling the rental fees according to the year of the lease agreement in favor of landlords and granted them the right to regain their property should they or a member of their family need the dwelling for personal use, provided that they pay the tenant a compensation estimated by the courts of not less than 25% and not more than 50% of the property value.

However, this law still failed to do landlords justice especially since it was extended several times since its initial approval.

Extension

Rent Act No. 160/92 has been extended 12 times since 1996. The following Table 1 shows those extensions noting that the last one expired on March 31, 2012.

Source: Laws of extension of Rent Act 160/92

New Rent Act

Non-Residential Premises: Lease Extension until 2018

With respect to the rent of non-residential property, the Rent Act approved recently has generally favored tenants through the following:

• It extended the lease agreements signed prior to July 23, 1992 until December 31, 2018.
• It eliminated the rent increase set at half the wage increase affecting the first salary bracket and replaced it with an annual increase equivalent to half the annual inflation rate reported officially by the Central Administration of Statistics the year before, provided that the increase does not exceed 5%.
• It dictated the doubling of rent in several cases, most notably when the tenant becomes an owner of built properties or of shares in rented properties whose actual total value is ten times the rent of the premises he occupies. However, this remains hard to prove amid the current chaos affecting the real estate market.

Residential Premises: Liberated after 9 Years

As previously mentioned, the previous rent acts adopted since 1992 used to extend the lease agreements of residential premises after linking the rent increase to half the increase in the first salary bracket. Although this has been specifically translated into increases in rent, these increases remained far lower than the actual worth of the premises and landlords have for decades continued to demand that the pre-1992 lease agreements be liberated or that the rental fees be raised by the same percentage of the wage increase and inflation, particularly between 1985 and 1993 when the rate of exchange of the Lebanese pound collapsed drastically against the US dollar and other foreign currencies.

Conversely, instead of tying rent increases to half the pay increase, the newly approved law tied it to another indicator: a percentage of the rented premises’ value, provided that the lease agreements would cease after 9 years, which is where the major problem lies. While previous rent acts favored tenants over landlords, the new rental provisions prioritized the interests of the latter.

What provisions did the Rent Act contain?

• Subject to the provisions of this law are all the lease agreements regarding built property signed prior to July 23, 1992 with the exception of: 1) the leases of agricultural land and the facilities on it, 2) the seasonal leases concerned with summer and winter vacation premises, 3) the leases of property granted by employers to employees for accommodation with or without a charge, 4) the leases on villas fulfilling certain specifications established by the law and most ironically 5) the leases on the state and the municipal public properties.
• The newly approved Rent Act extended lease agreements by nine years starting on the date of its entry into force (a law usually becomes effective six months after its having been published in the Official Gazette; should the President of the Republic sign this law, it would come into effect at the end of October) and permitted a further extension of three additional years upon expiry of the first nine year period at the same rental rates paid during the ninth year, which are relatively high compared to the rent prices before the rent increase.
• Rent increase: During the period of the lease agreement extension, rents increase by a gradual percentage- a percentage of the dwelling’s rental value in the free market- that is either agreed upon by the mutual consent of the contracting parties or determined, in case of disagreement, by two court experts. The second option would be costly for both the landlord and the tenant, for the latter would be entitled to appeal against the valuation carried out by the experts appointed by the landlord, should he consider it unfair, by submitting a counter estimation by other government-appointed experts. If the two reports differ, the matter would then be referred to a judicial committee (see the section on committee formation below) in the Mohafaza where the dwelling is located to resolve the issue. The committee’s decision is to be deemed final and irrevocable.

The free market rental value is determined on the basis of 5% of the sale value of the rented dwelling in its current condition if vacant.

After determining the free market rental value, the rental fees would be raised on an annual basis as follows:

• By 15% of the difference between the rent applicable before the entry into force of the new Rent Act and the above-mentioned rental value for each of the first four extended years.
• By 20% of the difference between the rent applicable before the entry into force of the new Rent Act and the above-mentioned rental value for each of the fifth and sixth years, until the fees finally reach the full rental value in the free market.
• After this time, between the seventh and the ninth extended years, the property will be rented at free market prices.
• By the end of the ninth year, the lease agreement will be liberated and may be extended for another 3 years.

Eviction in case of necessity

If the landlord wishes to recover his property for family-related reasons during the first year of the nine-year extension period, he shall pay the tenant a compensation equivalent to the rental cost sustained over four years on the basis of the specified free market rental value. However, if he plans to evict the tenant in the first year in order to demolish the building hosting the rented unit and replace it with a newer one, he shall in this case pay the tenant a compensation amounting to the annual rents paid within six years on the basis of the specified free market rental value. These compensations are by far lower than those stipulated by Rent Act No. 160/92.

State Fund

In order to address the problems that could arise from the implementation of this Rent Act, particularly among the poor and segments of the middle class, the Rent Act prescribed the formation of a residential rent fund under the Ministry of Finance in order to assist all the affected tenants whose monthly income does not exceed three times the minimum wage by paying the rental increases, either fully or partly, depending on the case. This fund, which excludes foreign tenants and Lebanese tenants who rent property deemed luxurious according to the classification set out in Law no. 29/67 dated May 9, 1967 and Law no. 10/74 dated March 25, 1974.

The implementation of the provisions related to the rent increases and the applications submitted to the fund for assistance will be entrusted to a judicial committee consisting of a judge- active or retired- and of four members, one representing landlords, one tenants and the other two speaking for the Ministry of Finance and the Ministry of Social Affairs respectively.

The committee specifies the size of contributions depending on the income of the tenant and his household. If the average household income is not at least twice the minimum wage (USD 900), the assistance of the fund is to cover the entire difference between the old and revised rental fees, meaning the landlord would not have to pay a penny and the state would shoulder the rent increase. If the average household income is anywhere between double and triple the minimum wage (USD 1350), the fund will assist the tenant by paying him/her 30% of the average household income and of the new rental fees.

However, no studies have been conducted into the cost of this fund and the amounts and burdens that it should bear, let alone the waste and mismanagement that might occur were it to fail to verify the actual income of tenants. The chances are that most tenants would refrain from declaring their authentic monthly income and would instead turn to the fund for help, thus transforming it into just another portal for squandering public funds while the state continues incapable of paying its most fundamental dues and obligations.

Increasing rents remains pointless if not accompanied with a modern and restructured taxation systen, not to mention that the crisis cannot be fully resoved unless after determining the social and financial conditions of tenants as well as the exact numbers and the profiles of both old and new landlords. In the absence of a data base for every tenant and landlord, all talk about a state fund or an effective rent act will be deemed an empty rhetoric.