More than half of Bermuda's rental properties are now under rent control after the annual rental value ("ARV") threshold was amended recently.

The Rent Increases (Domestic Premises) Control Amendment Act 2004 ("the 2004 Amendment Act") came into force on January 1. It raised the threshold in respect of residential premises governed by rent control from $16,200 to $24,600, which increased the number of such units under rent control restrictions from 13,300 to 15,900 - or 55% of the Island's residential units.

The 2004 Amendment Act altered the provisions of the Rent Increases (Domestic Premises) Control Act 1978 ("the 1978 Act"). The 1978 Act was previously amended in 2000 ("the 2000 Act"). The 2000 Act was important for two reasons. It increased the ARV threshold and also removed an exception in the 1978 Act that placed residential units that received certificates of use and occupancy from the Department of Planning on or after 30 June 1983 outside the rent control regime.

The raising of the ARV threshold recently should improve the legal position of many tenants, but it is unlikely to be welcomed by landlords, especially those who will have to deal with rent control issues for the first time.

Some such landlords may be more cautious in respect of letting their premises because of these issues.

The 1978 Act was introduced primarily to provide tenants of rent controlled premises with security of tenure, and also to prevent landlords of such premises from arbitrarily and potentially unfairly increasing rent. The 1978 Act is specifically intended to apply to situations where rent is being increased as opposed to situations where, for example, a newly-constructed unit is being let for the first time.

In circumstances where a tenant is occupying rent controlled premises and he and his landlord cannot agree a proposed rent increase, the landlord must apply to the Rent Commissioner for authorisation to increase the tenant's rent.

The Rent Commissioner is empowered to decide whether or not the proposed increase is acceptable and if not to specify an acceptable increase (if any). If the landlord and tenant agree an increase, the Rent Commissioner must nevertheless be notified of this increase. If the tenant is pressured into agreeing the increase, the Rent Commissioner may safeguard the tenant's position by rendering the increase void. Landlords cannot secure mutually agreed increases before the commencement of or within the first six months of a rent controlled tenancy, thus further protecting the tenant's position. Additionally, the termination of a rent-controlled tenancy by a landlord is only possible in limited circumstances such as where:

the tenant has breached the terms of his tenancy agreement, which would include failure to pay rent

the landlord requires possession of the premises for use as a dwelling for himself or other members of his immediate family including one or both of his parents, or any child or grandchild either over the age of 21 years or married

the landlord requires vacant possession of the premises in order to carry out renovations of a major character

the tenancy would otherwise terminate following a change in the identity of the landlord or the tenant as a matter of law.

The grounds for termination tend to be generally less onerous on landlords where the rent controlled tenancy commenced after 30 June 1983, the building is partially occupied by the landlord, and the building contains three or fewer living units.

They are also less onerous where a tenancy has been entered into as a consequence of an employment relationship. Landlords must be mindful of the restrictions involved in rent increases when negotiating tenancy agreements involving rent-controlled premises.

They must also realise that they probably will not find themselves in a position to specify or negotiate the duration of any tenancies granted. Landlords will, however, be able to negotiate the remaining terms of such tenancies including for example when and by what means the rent should be payable.

Contravention of the provisions of the 1978 Act can result in criminal prosecution. For that reason, any landlord who is unsure whether or not his premises are rent controlled and/or is unsure about the formalities of rent control, should either contact the Rent Commissioner's office at 297-7700 or seek legal advice before entering into a tenancy agreement or receiving any rent.

Stephen Males is an Attorney in the Property Law Department of Appleby Spurling Hunter. A copy of Mr. Males' column can be found on the Appleby Spurling Hunter website at www.applebyglobal.com. This column should not be used as a substitute for professional legal advice. Before proceeding with any matters described herein, persons are advised to consult with a lawyer.