Riigikogu passes law changing rent regulations

Apartment buildings in Tallinn.
Apartment buildings in Tallinn. Source: Siim Lõvi/ERR

On Wednesday, the Riigikogu accepted amendments to the Law of Obligations Act, changing the way rental relationships are regulated.

The bill to amend the Law of Obligations Act initiated by the government was passed in the 101-seat chamber by a vote of 73 to eight.

The amendments will enable market participants to regulate the relations between them in a more flexible manner, while keeping in mind the need to proceed from balanced solutions, spokespeople for the Riigikogu said, pointing out that the regulation concerning the rent of dwellings in Estonia has been unchanged for almost 20 years.

"The law proceeds from balanced solutions, which ensure sufficient protection for the tenant as the weaker side of the contractual relationship and preclude possibilities for misuse, while also offering a feeling of security to the lessor. I believe that more flexible regulation will facilitate the emergence of a rental dwelling stock of good quality and the emergence of trustworthy rent relations in the coming few years," Minister of Justice Raivo Aeg (Isamaa) said according to spokespeople for the ministry. 

The amendments will abolish the absolute prohibition on contractual penalty in the case of lease contracts, set out a maximum limit of fines for delay for lease contracts and allow for more extensive agreements than to date when it comes to the division of the obligation to conduct repairs.

To protect the tenant, the right of extraordinary withdrawal from a contract is set out for the case if the rent increased unilaterally by the lessor is not acceptable for the tenant, and in such case an increase in the rent is precluded until the expiry of the lease contract. 

The lessor will be entitled to withdraw from the contract in the event of a smaller amount due or a shorter period of default -- of two months instead of three months.

At the same time, limits have been imposed on the size of the contractual penalty, several requirements concerning content and form introduced as regards agreements concerning the obligation to repair, as well as more extensive informing requirements set for the lessor in the event of withdrawal from the contract due to default.  

Besides, it will be possible for the new owner to more easily terminate a lease contact acquired by them as result of a sale that has taken place as part of a bankruptcy or execution proceeding.

Real estate companies consider new regulations insufficient

Rental regulations have remained untouched in Estonia for 20 years and changes to the law have been discussed for a long time. Merike Roosileht, lawyer from state subsidizided legal firm Hugo.legal, said the laws passed on Wednesday are beneficial to lessors.

"I am convinced that the amendments are completely not in favor of tenants, but are in stead beneficial to to landlords. Lessors can impose more obligations on the tenant, for example general repair funds and loan payments. In addition, they can demand a contractual penalty in the event of a breach of obligations that the previous law did not allow for," Roosileht said.

Among other things, tenants can be fined contractually for bringing in pets, smoking, making loud noises or leaving the batteries of a smoke detector unchanged. Roosileht assessed that the changes will bring forth a wave of lawsuits until the new situation becomes clearer.

Real estate companies however find that the passed regulations are not sufficient enough as it is still not possible to evict a person breaching the rent contract without a long process.

1Partner Kinnisvara CEO Martin Vahter noted that the new law will not solve arguments between tenants and landlords. "The issue of parasite tenants where the tenant refuses to move out. Meaning, if the tenant does not comply with the law, nothing will change in the light of amendments," he said.

Starting January, an agreement can be made obligating the tenant to make repairs - paint ceilings or walls, change wallpapers etc. - or at least cover costs of repair when moving out.

Estonia's largest apartment rental company Lumi Capital says they will not use the new options right away.

"I think most people renting their home need not worry about their rental contract. The contracts will remain in force as they are today. That is one less thing people should worry during the holidays. It is just an option and I think it will be implemented gradually into new contracts. But only if the renter agrees to it," said Martin Rekor, leading partner at Lumi Capital.


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Editor: Kristjan Kallaste

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