This content is from: Local Insights

Macau: Reforming lease agreements

Pedro CortésCalvin Chui

Even as 2015 was winding down and coming to an end, the government of the Macau Special Administrative Region was busy putting together a robust draft law to amend various aspects of the legal framework for lease agreements. At present, the rules set out in the Macau Civil Code (1999) govern lease agreements.

A decade and a half after Macau's legislative assembly approved these rules, the reality in which they were grounded has changed dramatically. This is a common theme driving the need for legislative reform in Macau.

As the draft law was going through the legislative phase, the government cited three socio-economic issues behind the need to draft amendments to the legal framework for leases. First, the government recognised the need to ensure fair rents and to create a way to control increases in rent. Second, it wanted to address the phenomenon of so-called rogue tenants which poses a challenge to market development. Third, the government noted the lack of control in the execution of lease agreements which gives rise to many irregularities and problems relating to housing.

Several mechanisms have been developed to resolve these issues. Among these mechanisms, is the rent control coefficient. This will be determined by the region's chief executive based on the consumer price index and the situation in the real estate market. A new lease arbitration centre will also be created to provide an alternative means of dispute resolution. In addition, there will be a stricter requirement on the legal form of lease so that the signatures must now be notarised.

The draft law advances the policy of diversifying the region's economy. For example, prohibiting the lessor from unilaterally terminating the lease in the first three years, if the property is dedicated for commercial use or for the exercise of liberal professions, is intended to increase the stability of the lease relationship upon which the businesses operated by those tenants rely.

Altogether these measures are intended to help develop the region. The specific terms of the draft law will likely be approved in the legislative assembly's next vote. It will come into force once it has been signed by the chief executive. Domestic and foreign investors should be aware of these imminent changes that are highly relevant when entering into lease agreements, contemplating speedy dispute resolution, and assessing the profitability of Macau's leasing industry.

Pedro Cortés and Calvin Chui

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