Stylianideslaw

What is a lease agreement? A lease is basically an agreement where a tenant (alternatively called “the lessee”), takes exclusive possession of immovable property belonging to the owner (alternatively called “the lessor” or “the landlord”) for a certain period of time in consideration for a rent.

What are the formalities for a valid lease agreement? In order to be valid, under Article 77 of the Contract Law, Cap. 149, leases that are longer than one year in duration need to be concluded in writing by means of a lease agreement and signed at the end by the parties in the simultaneous presence of two witnesses who also sign as such therein.

Leases whose duration is less than one year need not follow any formality.

What is a periodic tenancy and how can be terminated? A lease agreement that provides for a lease duration that is longer than one year but does not comply with the aforesaid formalities is considered to be invalid. In such cases, a tenant who takes possession under an invalid lease agreement is considered to be a tenant under a periodic tenancy, the most common being a periodic tenancy from month to month, if the rent is payable monthly. In such cases, he is still considered be lawfully possessing the property as tenant, but this periodic tenancy is deemed to expire upon the expiry of the period stated in the invalid lease agreement. This periodic tenancy is also liable to be terminated at any time by either party, owner or tenant, by giving the other notice of termination. Such notice of termination in periodic tenancies served on the other party needs to expire at the end of the following period of tenancy. So, for example, if rent is payable on a monthly basis, say on the 1st day of each month, rendering this a periodic tenancy from month to month, if notice will be served within June, which is the current monthly period of the tenancy, this needs to expire on the last day of July, which is the end of the following monthly period of the periodic month to month tenancy.

Likewise, a tenant who takes possession of a property under an oral agreement with the owner is considered to take possession under a periodic tenancy, which is liable to be terminated at any time by service of notice in the same way. If of course, a duration of an orally concluded lease has been agreed and it is less than one year, the lease may be considered as valid for that period of time agreed, as for leases of a period not exceeding one year there are no formalities that need to be followed.

A tenant who remains in possession of a property after the expiry of a lease agreement or even after the expiry of a periodic tenancy, but continues to pay the rent and the owner continues to receive it as rent, is again considered be a tenant under a periodic tenancy, most commonly from month to month, and is in the same position as above.

When will a tenant become a trespasser? If a lease agreement or periodic tenancy is terminated or expires, with the owner demanding delivery of possession but the tenant failing to vacate, the tenant is considered to be a trespasser on the property, and the owner can take legal proceedings for his eviction and to claim compensation for loss of use due to the trespass. The measure of compensation normally awarded is the income the property would generate for the owner had he offered the property for lease in the free market, compensating him basically for the loss due to the trespass.

When will a tenant become a statutory tenant? The Rent Control Law of 1983 provides protection to a certain category of tenants, giving them the right to remain in possession of the leased properties after the expiry or termination of their lease agreements unless and until a ground for eviction provided under this Law exists. As this right is not based on a contact but derives from the application of the Law, it is not contractual but statutory (legislative). So, a contractual tenant (in possession under a lease agreement or a periodic tenancy) that falls into the category protected by the Rent Control Law of 1983, who remains in possession upon expiry or termination of his contractual tenancy, does not become a trespasser but continues to lawfully possess the property as a statutory tenant under the provisions of this Law. A statutory tenancy is accordingly a statutory right of the tenant to irremovability from the property, unless and until a ground for eviction provided for in this Law exists.

The Rent Control Law of 1983 applies, as aforesaid, only to a certain category of tenants that fulfil certain criteria. The tenant needs to be an EU citizen or a company controlled by EU citizens, the leased property must be a building leased or offered for lease as a residence or for commercial purposes, the leased property must also be in a controlled area to which the Rent Control Law of 1983 applies (which includes all cities and certain larger villages), and the leased property must have been under lease or offered for lease on 31/12/1999. These are rather technical criteria that need to collectively fulfilled, otherwise no protection is afforded under the Rent Control Law. Obviously, this protection has been left to cover only older properties, as by definition, anything constructed as of 1/1/2000 does not enjoy protection. Likewise, empty plots and petrol stations are excluded. These criteria are derived from the definitions in Article 2 of the Law.

In a statutory tenancy, the parties continue to observe the terms of their previous lease agreement so far as not inconsistent with a statutory tenancy. The terms that are inherently inconsistent with a statutory tenancy are provisions relating to delivery of possession and rent increase. There are additional or supplementary provisions in relation to the terms of a statutory tenancy in Article 27 of this Law.

It is accordingly of utmost importance to identify and be able to distinguish between a tenant protected under the Rent Control Law of 1983 as a statutory tenant and one that does not enjoy such protection, as the basic rights and obligations of owners and tenants very much depend on this distinction.

Christos Stylianides
Advocate/Partner

Disclaimer: The above is offered as a simplified general outline for the purpose of this Article and does not constitute legal advice.

The explosive rise of interest rates during the last year seems indeed unprecedented. Since 21 July 2022, when the Governing Council of the European Central Bank (hereinafter called “ECB”) announced the first increase of one of the key ECB rates – the interest rate on the main refinancing operations (MRO), by 50 basis points setting it to 0,50% with effect from 27 July 2022, in approximately a year the said interest rate has risen to 4,25%, with increases being announced roughly every 6 weeks. By the latest announcement of the Governing Council of the ECB on 27 July 2023, the interest rate on the main refinancing operations, was raised by 25 basis points and has been set to 4,25% with effect from 2 August 2023. According to the said announcement “Inflation continues to decline but is still expected to remain too high for too long. The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner”.

It should be noted that the said rate was set at lower than 100 basis points (1,00%) on 11 July 2012, reached almost zero floor (0,05%) on 10 September 2014, and then indeed zero floor on 16 March 2016 where it remained since.

What is the main refinancing operation interest rate?

As defined by ECB, this is the interest rate banks pay when they borrow money from the ECB for one week, while offering collaterals as guarantee for the repayment.

How does it affect borrowers?

The interest rate based on which the interest a borrower has to pay when borrowing money is calculated, usually consists of the base rate and the margin, where in case οf a non-performing loan, a default interest rate may also be applied. The ECB main refinancing operation interest rate may form the base rate or may be used for the calculation methodology of a bank’s base rate.

Indicative example of how a monthly loan instalment with the ECB main refinancing operation interest rate being its base rate has been affected:

01 July 2022

01 September 2023

*For the above indicative example, the capital amount of the loan is €200.000 and the maturity of the loan is 30 years.
The above calculations cannot be fully accurate and were made for the purposes of the indicative example for this Article only.

It should be noted that very recently, local banks announced some reward schemes for eligible customers with housing loans with variable base interest, including among others those with the ECB main refinancing operation interest rate. Quite interesting is also the fact that lately there has been a discussion about levying a windfall gains tax on banks for unexpected earnings or profits above average. If this is adopted, it will interestingly remain to be seen whether banks will eventually decide to lower their earnings by decreasing their interest rates on lending or by increasing their interest rates on deposits.

It also remains to be seen whether the ECB will continue to raise its key interest rates, including the main refinancing operation interest rate, as a measure to tackle inflation, and up to what level will that rise go. It will also be interesting to see whether Cyprus will seek to refrain from any more increases or even attempt to tackle the increases that have been already enforced, either by regulation or by measures taken individually by banks and credit acquiring companies as an initiative to limit the risk of explosion in numbers of non-performing loans.

Rafaella Georgiou
Advocate