Sri Lankan rental process

Contracts, the law and deposits

Sri Lankan rental process

In Sri Lanka, there are two different ways to rent a property, according to legal differences in the terms of a contract. You can have a “Tenancy” agreement, or a “Lease” contract. If the rental property is also governed by the Rent Act, the rules, terms and power of the landlord or tenant will differ.

For properties that are covered by the Rent Act, the law tends to be in favour of the tenant in Sri Lanka. For properties not covered by the Rent Act, the law tends to favour the landlord.

The Rent Act governs all properties in Sri Lanka, except in the cases highlighted below:

  • Residential premises occupied by the owner on 1st of January 1980, which have been let since this date.
  • Business premises constructed after the 1st of January 1980 and let on from this date.
  • Residential premises used by a person who has a valid visa under the Immigrants and Emigrants Act, and who has a monthly income of at least 1000 Rupees.
  • All business premises used by a foreign company (except of the premises were let before the 12 of December 1980)
  • All premises, including business premises in certain areas, if the annual value of the premises (as specified in the rates assessment) exceeds a certain amount.
  • Premises where the landlord is a company registered under the Companies Act No. 17 of 1982.

Tenancy agreement

Without the Rent Act

A tenancy is a rental with a non fixed term, and so is an agreement, that is not necessarily written. The tenancy agreement can be defined as the authorisation (from the Landlord) of use of his property to the tenant.

Both parties can break the contract freely, if it is announced with at least one month’s notice. If there is dispute, this may include legal intervention to evict the tenant. If the property is not governed by the Rent Act, the terms of the tenancy agreement (including deposit amount, terms of payment, method of payment etc) are discussed, negotiated, and agreed freely between the parties (tenant and Landlord). Tenancy agreements are not subjected of any fine or tax, unlike Lease contracts, which are taxed at 1 %.

With this kind of contract, it is advisable to write an official copy of the agreements, that is signed by both parties. Notary services should be used to ensure greater security in the renting process.

With the Rent Act

If the property is governed by the Rent Act, then the renting price is set against the value which has been given to the property by the state.Tenancies under the Rent Act, give more power to the tenants. The landlord cannot freely end the contract unless he has one of the following legal reasons:

  • Late rent payment of over one month
  • Use of the premises for illegal/immoral activities
  • Substantial deterioration of the premises due to misuse of the property.

Unless at least one of these situations occurs, the landlord is not legally allowed, under the Rent Act, to cease the Tenancy contract.

The lease contract

The lease contract is a legal contract recognised by the local law (Roman Dutch Law). It is the most secure way to possess (for a limited amount of time) and use a property owned by another entity. The lease contract is a fixed time agreement, and the lease period should be clearly expressed in the written contract.

The contract can be defined by a “pro tanto alienation of the land/property,” but this option requires far more procedure, and includes several administrative tasks.

If the property is not governed by the Rent Act, the landlord and tenant can freely agree on all points of the lease contract. This still gives a lot of leeway to negotiate prices and conditions. If this is not the case, and the property is governed by the Rent Act, it is forbidden to pay a deposit greater than the value of 3 month’s rent, any gratuity or commission. 

The lease contract has to be signed by both parties in front of two witnesses and a notary. In order to legally protect the tenant, the lease has to be registered at the land registry. When leasing a property, you have to ask the Landlord you are in contact with, to provide a Certificate of Conformity (a document that legally states that the premises can be lawfully occupied).

In order to avoid any scam as an expat, it is advised to hire a lawyer, who can check the reliability of the offer and of the legal documents as the Property's Certificate of Conformity. This will include checking whether the property is encumbered or not, duly and officially registered, and of course, if the property legally belongs to the Landlord.

Rental and security deposits

With regards to the legal situation of the property, the deposit and agreements of the rental contract are more or less freely chosen and agreed. In any renting contract, it is important to cover the following points:

  • Security Deposit
  • Terms of Payment
  • Responsibility for repairs
  • Responsibility for payment of rates
  • Mutual covenants (Landlord/Tenant obligations with respect to the situation)
  • Personal covenants
  • Inventory of the goods

Normally, even under the Rent Act, the rent is paid monthly, and there is a deposit given to the Landlord. The usual termination notice of the contract is one month. As explained earlier, all general terms of the contract can be discussed and agreed. When renting a property not governed by the Rent Act, you should also be able to negotiate the price. The landlord is legally free to rent his accommodation to who he wants, at the price he wants. Some new rules were added to the Rent Act in 2002, though in Sri Lanka, the landlord’s control on his property is quite limited as the tenant is favoured.

Further reading

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