Leasing and Maintenance Responsibilities

Hisham Almansoor – Associate ([email protected])

The principal law governing real estate premises & its parts intended for residential & commercial purposes is Bahrain Law No. (27) of 2014 on the Issuance of the Real Estate Lease Law (“the Lease Law”). Various categories are exempted from this law (agricultural land, property leased for hotel & tourism purposes, residential units operating for work purposes & industrial installations subject to an existing law on industrial zones). The provisions of Bahrain Decree-Law No. (19) of 2001 on the Issuance of the Civil Law (“the Civil Code”) apply to any matter that is not addressed by the Lease Law.

While both laws provide protections and remedies to both the Lessor and Lessee, the parties’ obligations are embodied in detail within the lease agreement. As maintenance and repair may often be a source of conflict between the parties, this article provides an overview of the following:

• Maintenance Works Envisaged by Law
• Lessor’s Warranties
• Lessor’s Liabilities
• Available Remedies
• Lease Agreement Clauses

Preliminary Considerations

Both parties must ensure that the lease agreement is registered with the Property Lease Agreements Registration Office within one month of the date of concluding the lease in accordance with Article 3 of the Lease Law.

Any dispute arising from an unregistered lease will not be heard before the Court, and no water or electricity will be supplied to a Leased Premises until that lease has been properly registered. Under Article 5, the lease agreement must also specify the premises’ intended purpose, otherwise it will not be accepted for registration. As per Article 7 of the Lease Law, a fee of BD5/- (Bahraini Dinars Five) is payable to register residential leases, and a fee of BD10/- (Bahraini Dinars Ten) applies to other purposes.

Maintenance Types

Lessees are obliged to maintain the Leased Premises with due care in accordance with Article 25 of the Lease Law. The same is mirrored in Article 530(a) of the Civil Code whereby Lessees ought to exercise due care to preserve the Leased Property. The Lease Law envisages two types of maintenance works: urgent and rental maintenance.

Lessees are required to “notify the Lessor of all matters that require his intervention, such as urgent repairs, the discovery of defects, trespassing and disturbances or damage by third parties” to the leased premises, as per Article 532 of the Civil Code. (see “Maintenance Requests”).

Urgent Maintenance

Lessors are obliged under Articles 1 and 10 of the Lease Law to perform urgent maintenance works required to keep the leased premises safe and usable for its intended purpose and to preserve it against destruction. Maintenance becomes “urgent” where the required repairs are: (1) necessary to maintain or preserve the leased premises (such as the ceiling, walls and internal fittings repairs within the building’s structure); or (2) urgent in nature such that a delay may cause partial or full destruction to the leased premises.

In practice, lessors are commonly expected to maintain issues relating to the supply of utilities within the leased premises including plumbing, sewage, water or electricity supply and so on. Article 1 of the Lease Law specifies that these customary repairs are treated as urgent. Lessees cannot prevent Lessors from conducting urgent maintenance. However, the parties to a lease agreement may specify what constitutes urgent maintenance to clarify the obligations of the Lessor as has been confirmed by the Bahraini Court of Cassation in Challenge No. 684 J.Y. 2015 stating that “Where the lessee submits that he was unable to benefit from the premises during the term due to disruption or damage of its major installations such that it is unfit for habitation particularly the unfitness of the air conditioning, water pipes and electrical fittings as confirmed by witness statements and what has been agreed under the lease to be the Lessor’s responsibility, the Lessee is entitled to withhold rent under that agreement. The appealed judgment which ordered the Lessee to pay full rent […] has contravened and misapplied the law”. This demonstrates that it is far more practical for parties to specify the circumstances where repairs are urgent, or where the Lessee may withhold rent rather than rely upon the vagueness of the law (which does not explicitly refer to plumbing, sewage, air conditioning, water and electricity supply).

Rental Maintenance

Lessees must perform minor maintenance required for normal use of the leased premises and pay for power, water and other services or fees, unless otherwise specified within the lease agreement, as per Article 26 of the Lease Law. The Lessee may rectify damage or defects to items such as furniture or appliances unless the lease agreement provides otherwise. For instance, Lessees can repair a tear in a furniture item that was caused by them or a defect in a door handle or hinge within the Leased Premises.

Lessor’s Warranties

The Lessor must hand over the leased premises to the Lessee in a condition that is suitable for use in accordance with the intended purpose agreed between the parties, as per Article 9 of the Lease Law, which is mirrored in Article 512 of the Civil Code. The law does not treat the Lessor’s obligation as a particularly sacred one, and this has been confirmed by the Court of Cassation in Challenge No. 253 J.Y. 2008, wherein the Court held “The Lessor, by virtue of Article 512 of the Civil Code, obliges to hand over the premises in a state which permits the Lessee to derive its benefits in accordance with what has been agreed upon and the nature of the premises. However, this obligation does not intrinsically relate to the public order, and parties may agree, either explicitly or implicitly, to vary this obligation either by tightening or relaxing that duty”.

Considering the above, a Lessee may agree to receive the leased premises in “as is” condition. Where there is no evidence to the contrary, the lessee is presumed to have received the leased premises in good condition, as per Article 538 of the Civil Code.

The Civil Code renders the lessor liable for its warranties to the lessee against: (1) acts of the lessor, his employees and subordinates, and any disturbance or damage based on a lawful claim by any other lessee or successor in title of the Lessor; (2) third-party rights interfering with the lessee’s rights which cause serious and sufficient deprivation from enjoying the leased premises; and (3) all defects which prevent or appreciably diminish enjoyment of the property; but not those that are customarily tolerated. All of the aforementioned applies subject to an agreement to the contrary, and it is common practice for lessors to do so. The lessor will not be liable for any defects of which the lessee was informed or of which they were aware at the time of signing the lease agreement, or for those the lessee could have been aware of upon reasonable inspection of the leased premises. The burden of proof in this case lies on the lessee to prove the lessor either deliberately concealed such defects as an act of fraud or confirmed that the leased premises had no such defect.

Interferences by public authorities pose an interesting matter to consider. The Court of Cassation in Challenge No. 275 of J.Y. 2015 held that “In accordance with the lessor’s obligations under Articles 512 to 521 of the Civil Code […] the lessor obliges to hand over the premises in a state that permits the lessee to derive its benefits, and is liable against a disturbance in fact by third parties […], and under Article 523, the lessee may seek termination of the lease or a deduction in rent where an act by a public authority causes a substantial deprivation of the benefits conferred by the premises for reasons that are not attributed to the lessee. The lessor, however, is not responsible for that disturbance where it occurs outside the premises’ boundaries”. In light of this decision, roadwork developments carried out by the Ministry of Works which (temporarily) hinder access to the premises and considerably diminish its benefits do not render lessors liable, even where said interruption lasted for three months. This hinges on the fact that the interruption was not attributed to either party, and it did not fall within the boundaries of the premises.

Lessee’s Liabilities

Subject to any existing defects or damages, the lessee must obtain the lessor’s written consent before making any alterations to the leased premises. The lessee may, however, do so if the alteration will not harm the lessor. For instance, placing a new window or a door where they did not previously exist constitutes a change in the leased premises that requires the lessor’s prior approval. The lessor may in this case oblige the lessee to return the leased premises to its original condition and claim compensation if necessary, as per Article 25 of the Lease Law.

The lessee may install air-conditioning, water, electrical lighting, gas, telephone, television, radio and other like installations in accordance with the general practice. The lessee may call upon the lessor to complete the installations if necessary, however they must reimburse the lessor for the expenses incurred by virtue of Article 529 of the Civil Code.

Lessees are responsible for any damage caused by them, which is not a result of normal use, as per Article 530(b) of the Civil Code. The Court of Cassation has confirmed in Challenge No. 450 J.Y. 2008 that “The Lessee has the burden of proving that any damage that arises during the term was not caused by him or his employees, or if said damage was a result of a foreign cause not attributable to him”.

The Lessee is also liable for any damage to the leased premises caused by fire, unless they can establish that the cause was not attributed to them. Note that the burden of proof in the event of fire lies on the lessee to not only prove the fire was not caused by them, but also that they did everything a reasonable person in his position would do to prevent the fire from spreading (i.e., the lessee has discharged his duty to mitigate). The Court of Cassation held in Challenge No. 181 J.Y. 2013 that “A person in charge of an object requiring special care is relieved of liability if he has proven that he has not carried out a mistake and acted with due care and caution to minimise damage […] in accordance with Article 175 of the Civil Law”. The circumstances in this case concerned a fire resulting from a short circuit, and the Court stressed that periodic maintenance of the electrical installations within the boundaries of the premises were the responsibility of the lessee. Such installations were deemed to be among the hazardous aspects of the premises, and had the lessee carried out said maintenance, the resulting harm would not have occurred. The Court additionally noted that short circuits are not unforeseen circumstances and as such they may give rise to liability.

At the expiry or termination of the lease agreement, the lessee is bound to return the leased premises in the same condition it was handed over, subject to any damages or loss not caused by them, as per Article 537 and 538 of the Civil Code. However, in accordance with Article 538(b), where the leased premises is returned to the lessor without a description of its condition, the lessee is presumed to have returned the same in a good condition. The costs of restitution of the leased premises will be borne by the lessee unless the prevailing custom or the agreement provide otherwise, as per Article 539 of the Civil Code.

Remedies

In order to benefit from the remedies and protections under the Lease Law, all lease agreements and their amendments must be concluded in writing and registered at the Property Lease Agreements Registration Office in the Kingdom of Bahrain (which may be done online) within one month, as noted earlier in this article.

Maintenance Requests

Prior to claiming for remedies, the lessee must deliver a registered letter informing the lessor of the maintenance in question (preferably explaining the negative effect of the defect or damage on their enjoyment of the leased premises) with acknowledgement of receipt.

If the lessor fails within a reasonable time or refuses to perform such works, the lessee may perform the maintenance works and deduct the cost from the rent. This repair must either be of an urgent nature or can be carried out at a modest cost. This does not prejudice the lessee’s right to claim, if necessary, for: (1) deducting the loss of benefit from the rent; (2) extending the lease period for a time equal to that of the benefit loss; or (3) terminating the agreement, as per Article 10 of the Lease Law. The Court of Cassation held in Challenge No. 779 J.Y. 2014 which involved urgent maintenance that “The lessee was unable to benefit from the premises during the term due to water leakages in the toilets – which rendered it impossible to lease out the premises to others – and has notified the lessor of his obligation to repair but to no avail. The lessee’s request to decrease the rent after being wholly deprived of the benefits of the premises is permitted by law, and the appealed judgment which ordered the Lessee to pay the full rent was a violation and misapplication of the law”.

In all other circumstances, lessees may obtain judicial permission to carry out the repairs by themselves and to recover such amounts they spent from the rent without prejudice to their right to seek termination of the lease or a reduction of the rent, as per Article 516(a) of the Civil Code, although in accordance with paragraph (b), the lessee need not obtain judicial approval where the repair in question is urgent or of low cost.

Other Remedies

Where the leased premises have sustained total destruction due to a foreign cause prior to handover to the lessee, the lease agreement is effectively terminated in accordance with Article 18 of the Lease Law. However, where the leased premises sustain partial damage by a foreign cause, the lessee has a right to claim a deduction in rent accounting for the loss of benefit.

In the event the maintenance work by the lessor leads to a defect that prevents the lessee from using the leased premises, the lessee may either: (1) demand to terminate the lease agreement; or (2) withhold payment of rent for the period where the benefit is lost and, if necessary, claim compensation. If the lessee continues to occupy the leased premises for a month or more from the date of their knowledge of the loss of benefit without notifying the Court, he forfeits the rights provided to him as stipulated above, according to Article 11(b) of the Lease Law. Article 11 is also mirrored by Article 517 of the Civil Code. The provision has been the subject of Court of Cassation judgments before, and the Court notably held in Challenge No. 253 J.Y. 2008 that “This provision applies to repairs carried out by the lessor after handover of the premises to the lessee, which is the opposite of the facts of the present case […] Where a lessee receives the premises with a fault and has remained in possession despite the lessor failing to carry out the repairs, the lessee cannot be deemed to have forfeited his rights under Article 517(c)”. Hence, where a lessee moves into the premises without power supply (although uncommon in practice), and has called upon the lessor to repair the fault, his continued occupation does not amount to a forfeiture of his right to terminate the lease.

If any defect or damage against which the lessee has been warranted by the lessor occurs, the lessee may ask for repair of that defect or damage at the expense of the lessor, provided that such expense is not excessive. Nevertheless, the Lessee has the right to claim: (1) termination of the lease; or (2) reduction of the rent in addition to damages, where there are grounds for the same, according to Article 525 of the Civil Code.

Lease Agreement Clauses

The lessor and lessee should consider the following when concluding the lease agreement:

• Upon ensuring the lessee’s inspection of the leased premises, the lease agreement may provide that the lessee received and accepted the leased premises in a good condition.
• The major and minor maintenance responsibilities of either the lessor or lessee may be specified, while ensuring the same does not contradict with the laws concerned.
• Warranties by the lessor may be limited or excluded within reason, although such limitation or exclusion may be void if the lessor is found to have fraudulently concealed the cause of such liability, as per Article 526 of the Civil Code.
• Decide on the status of improvements or changes made by the lessee to the leased premises (i.e., whether to be kept or removed) upon termination or expiry of the lease agreement. This is important since Article 25(b) of the Lease Law stipulates that in the absence of agreement, the alterations carried out by lessees shall stay as they are in the leased premises
• Decide on the types of alterations (if any) that could be carried out by the lessee without prior explicit approval of the lessor.
• Specify a reasonable timeframe within which a lessor must carry out urgent maintenance work to avoid undue delay or ambiguity.
• Excluding maintenance obligations for inherent defects.

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