The Ministry of Justice completed draft legislation on residential lease regulations toward the end of last year that aims to give lessors the right to demand lessees renovate apartments and introduce contractual penalties, for example, for failing to replace the smoke detector battery.

The bill sent out for coordination has found the support of Tartu Circuit Court but not its Tallinn counterpart.

Chief Justice of Tallinn Circuit Court Villem Lapimaa wrote in a letter to the justice ministry that their civil chamber practice does not support the occurrence of problems the planned bill aims to solve.

"When making a generalization regarding residential lease contract disputes, it is possible to conclude that contracts are usually drawn up and their conditions determined by lessors. The latter are therefore in a much better position for protecting their interests and shaping a legally clear and responsible lease relationship," Lapimaa wrote.

He added that planned changes, primarily placing an obligation of maintenance on the tenant and reshaping the deposit regulation, would create new potential disputes and likely result in lengthier rental disputes for courts.

"That is why we stand by our previous positions and request them to be taken into account once more in proceedings," Lapimaa wrote.

Renovation requirement questionable

Tallinn Circuit Court sent its position to the Ministry of Justice toward the beginning of last year after the ministry first sent the bill out for coordination in late 2018. The court asked the ministry do abandon changes that are not necessary, sufficiently clear and could cause uncertainty for an extended period of time.

"The proposed changes would create a situation where the tenant could theoretically be obligated to renovate the property to restore it to the condition it was in when the contract was signed. It would render questionable the idea and purpose of rent," Lapimaa said.

He explained that rent is a fee the tenant pays for the right to use an object that covers the consequences of that use. The planned change would be a fundamental one and new to the Estonian legal system, people are not used to it and could unknowingly take upon themselves severe financial obligations that become apparent only once the rental contract expires.

"Reading the proposed changes, they could at first glance be interpreted as allowing for a possibility to include in contracts the tenant's obligation to renovate the property or pay for it upon termination of contract. In reality, this kind of an interpretation is only possible if the tenant is given a newly renovated apartment that has not been used by anyone else and restoring it to the condition it was in before the contract was signed is possible," the circuit court chairman pointed out.

"Therefore, if the lessor hands the tenant a residential space that is in good condition but has not been newly renovated, it is doubtful whether the tenant can be obligated to renovate the property upon expiry or termination of contract," he said.

The court also finds that the draft legislation fails to answer the question of the equation based on which the tenant would have to compensate the lessor for renovation in situations where the property was slightly used before the signing of the contract or where an identical renovation is not possible due to structural changes made to the building.

"A solution that would force people without lodging to seek clarity in court in matters like these is neither responsible nor in the interests of residents," Lapimaa said.

Tenants left far worse off

He also described as unreasoned the plan of allowing rent contracts to include contractual penalties for violating non-financial obligations. While tenants can be required to compensate the lessor for damage caused to the property under current legislation, the possibility of contractual penalties would make such claims more convenient for lessors as it would remove the obligation of proving the extent of damage.

The changes would leave tenants in a greatly weakened situation, and the circuit court has asked the Ministry of Justice to seriously consider whether they are reasonable.

The bill also wants to give lessors the right to demand late fees three times the current limit. Lapimaa said that it is possible to take consumer loans in Estonia the interest rate of which falls below the triple late penalty rate and that the reasoning behind the change is incomprehensible in a situation where the justice minister seems to want to allow rent contracts to demand the tenant pay the maximum late fee court practice allows for consumer contracts in Estonia.

A change on energy efficiency was also criticized by the court, according to which the lessor would be allowed to hike rent annually for the purpose of rendering the property more energy efficient. The circuit court finds that boosting energy efficiency in whatever volume cannot serve as basis for hiking rent and cannot always happen at the expense of the tenant.

The draft legislation also touches on deposits regarding which the sum could be based on gross salary instead of monthly rent. Lapimaa said that this has no direct connection to the property or rent and that the reasoning behind the change remains unclear.

Around 15-20 percent of Estonian households rent, meaning that rental properties are home to 90,000-120,000 people.

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