Despite the demand, developers are disinterested in the rental market. In landlord-tenant relationships, rights and obligations date back to ownership reform era. Even with tenancy contracts entered on voluntary basis, the law reads like a tenant is stupid and defenceless, and a landlord mean and vicious.
Pursuant to law, any clause potentially harmful to tenant is automatically null and void. For instance: should a contract state that a tenant undertakes to pay contractual fine in case of damage, a landlord actually has no right to charge that.
According to Tõnis Rüütel, head of Estonia’s Association of Real Estate Companies, a potential investor would be outright mad to start developing rental market right now. «To amend the law, why not start with a tiny little thing as to add the provision «if not otherwise agreed by the parties» to its clauses. Strange as it seems, right now the option isn’t there,» explained Mr Rüütel. «Thank God, mandatory tenants we have no more. But now we live in the mandatory owner land.»
Law tilted
The main culprit seems to be right of obligation. According to legal and real estate experts questioned by Postimees, the trick is all norms are imperative and the law itself strongly tilted to favour tenants.
Sworn advocate Pille Pettai agrees the situation is absurd, noting that tenant rights should never exceed those of landlords. «Basically, the law is defending a group that no longer exists. Today, rental contracts are entered into voluntarily, so people know what rights and obligations they will have,» says Ms Pettai.
Domus Kinnisvara board member Ingvar Allekand says the law makes investors wary. According to him, the mandatory-tenant-mentality should be forsaken, and the contemporary freedom of entrepreneurship and free choice of dwellings embraced. «This would not only mean extra powers for landlords against impunity of «here-to-stay» tenants; it would just help equalise the parties on basis of prudence,» claims Mr Allekand.
In addition to Law of Obligations Act, Mr Allekand underlines that as contrasting to business real estate projects, rental dwellings are burdened by a discriminatory value-added tax, basically forcing an investor to credit the state with large sums for a long time.
The experts are unanimous that the Estonian rental market has a short perspective and is unstable, while tenants expect a stable and longer-term rental-relationship. In Estonia, rental service is a random business; investing into rental apartments is not sufficiently profitable; and other investment options offer better yields.
As also told Postimees by the new economy minister Urve Palo, the Estonian rental market is not too well developed; she thinks the demand is there for municipal rental flats popular elsewhere in the world. On other countries, especially in Western and Northern Europe, rental relations are thoroughly regulated; the rights and obligations of parties are better balanced; and therefore rental relations are much longer-lasting.
In Estonia, the market is chaotic; nobody dares to enter into long-term rental relationships; and therefore there is currently no stable alternative to owning a home. «Definitely, the poor law is reason why we do not have a decent rental market. Even while we may mentally agree that the parties should be equal, the law will not allow that,» confirms Ms Pettai, the sworn advocate.
Balance wanted
Turns out, interested associations had discussed amending the law with the former coalition; the desire to advance is actually still there. In details, the wishes may vary; even so, no one is basically against.
The first real steps are now being taken and, at the end of April, a meeting is planned with minister of justice Andres Anvelt. Hot news can hardly be expected at once; even so, it’s a good opening.
While everybody is interested, justice ministry’s private law chief Indrek Niklus says balance will have to be sought with extremely varying interests – when it comes to renting homes.
«We must weigh and assess tenant’s right to a home and the inviolability of home, as it would not be reasonable, for instance, for the law to allow a landlord arbitrarily to throw a family with small children out into the streets,» explained Mr Niklus.
On the other hand, said Mr Niklus, the right of a landlord to start using his house or apartment again for personal needs must surely be considered, as well as the right to rent it to others or get a just rental price. «The topic being complex, amending the tenancy contract regulation included in Law of Obligations Act needs a long preparation, and a thorough inclusion of interest groups,» said he.