Property Laws in Sri Lanka – The Basics!

property laws in Sri Lanka

Are you looking to rent or purchase real estate in Sri Lanka? Before researching available homes and apartments, it is important to educate yourself on the nation’s property laws. Though these laws are often complex, understanding them will help you make an informed decision in regards to renting or purchasing a home. Here are the legal terms to consider before purchasing a residence in Sri Lanka.

THE RENT ACT: WHAT IT MEANS TO YOU

Deciphering the Sri Lankan Rent Act is the first step towards understanding Sri Lankan rental laws. All real estate in Sri Lanka is controlled by the Rent Act, except for in a few particular instances. If your lease terms fall under the following conditions, your rental situation will not be governed by the Rent Act:

* The residential real estate was occupied by the owner as of January 1, 1980, and has been leased on or after this date.
* The real estate is the premise of a business that was constructed after January 1, 1980 and has been leased from this point onward.
* The residential real estate is occupied by:
a.) an individual who has a valid visa according to the terms of the Sri Lankan Immigrants and Emigrants Act, and who possesses a monthly income in excess of 1,000 Rupees a month.
OR 
b.) a non-resident company. (Note: If the real estate was leased before December 12, 1980, it is possible that certain conditions will prevent the individual from being exempt from the Rent Act. Individuals may be required to seek an exemption from the Rent Act by contacting the Commissioner of National Housing.)
* The residential building(s) were constructed after January 1, 1980, and have been leased from any point on or after that date.
* The real estate is a foreign company’s business premises. (Note: Premises leased before December 12, 1980 do not meet this requirement.) 
* Real estate, including business premises in certain regions, in which the annual value of the premises exceeds a certain amount, as dictated by the “rates assessment”).
* Any real estate in which the landlord’s company is registered under the Companies Act No. 17 of 1982.

The main significance of the Sri Lankan Rent Act is that it dictates whether rental terms favor the landlord or the renter. For real estate governed by the Rent Act, Sri Lankan law is generally pro-tenant. For real estate NOT governed by the Rent Act, most laws favor Sri Lankan landlords. In short, knowing whether your future residence is or is not covered by the Rent Act is crucial to understanding your rights and privileges as a renter or landlord. Your residence will be covered by the Rent Act by default, unless your residence meets the exceptions listed above.

WHAT DOES “TENANCY” MEAN IN SRI LANKA?

Under Sri Lankan law, “tenancy” is starkly differentiated from the leasing of a real estate entity. Tenancy in Sri Lanka generally invokes no fixed terms regarding the rental duration and conditions. In some cases, tenancy may not even involve written terms and conditions. In short, “tenancy” in Sri Lanka constitutes a very liberal rental agreement made between a landlord and his or her tenant. A landlord need only authorize the use of his land to an individual for the agreement to be considered a tenancy.

TENANCIES NOT CONTROLLED BY THE RENT ACT

Tenancies on properties not controlled by the Rent Act have many upsides. The looser terms of tenancy in Sri Lanka allow for increased freedom of negotiation between landlords and their potential tenants. The terms and conditions of the tenancy contract can be freely and openly negotiated between the two parties. For this reason, tenancy is ideal for landlords or tenants seeking the opportunity to negotiate payment terms, deposit amounts, means of payment, manner of payment, and more. Tenancy agreements have the additional benefit of being free of fines and taxation fees. In contrast, lease contracts in Sri Lanka are taxed at a rate of 1%. 

Tenancies, however, are not as well-defined as the official leasing of properties. As such, tenants may face more risks in renting these types of properties. A tenant’s right to lease a residence may be revoked with as little as one month’s notice. If a tenant refuses to leave within this time-frame, he or she could face eviction and further legal action from the landlord. Note, however, that these actions cannot occur if the residence is protected by the Rent Act. If a residence is not protected by the Rent Act, however, a tenant is at a higher risk for being evicted from their place of residence, as non-Rent-Act properties are governed by pro-landlord law. If you choose to draw up a tenancy contract on a non-Rent-Act-controlled residence, it is recommended that you put your agreements in writing. A tenancy contract ought to be signed by both the landlord and the tenant. For additional protection, consider enlisting a notary to officiate the process. 

TENANCIES CONTROLLED BY THE RENT ACT

If the residence you are looking at falls under the terms of the Rent Act, you will have additional protection under Sri Lankan law. The rental prices of residences controlled by the Rent Act are determined by the value of the residence as calculated by the Sri Lankan state. Properties leased under the Rent Act are pro-tenant, and, as such, guard tenants against termination of a tenancy contract except in the following instances:

* a tenant has incurred late payments in excess of one month
* the residence has been critically damaged or has fallen into disrepair due to improper use or neglect
* the leased premises are, or have been, used for unethical or illegal activity

Under the Rent Act, lessees are protected in their tenancy, unless one of the above legal conflicts arises. Unless the tenant is in violation of these terms, the landlord may not legally terminate the agreed-upon contract.

Though the legal system in Sri Lanka is effective, the court system is often backlogged with cases. This can occasionally make things difficult for landlords. Landlords seeking late rent payments from their lessees may have to wait up to a year for their cases to be dealt with. Landlords seeking to evict an unruly tenant may face a wait of numerous years, depending on the state of the local courts. The Sri Lankan court system deals justly with both tenants and landlords, but may occasionally be slow in processing cases.

HOW DOES A LEASE IN SRI LANKA DIFFER FROM TENANCY?

The terms of a lease in Sri Lanka are more clearly defined than with land tenancy. Leasing a home in Sri Lanka involves drawing up a lease contract, a legally binding document that is recognized by local Sri Lankan authorities according to Roman-Dutch law. Leases are the ideal manner of renting real estate from an outside party. The Sri Lankan lease contract is a reliable agreement that protects both landlord and lessee better than tenancy contracts. 

Leases differ from tenancy agreements in that they are set for only a fixed period of time. The time frame of the lease ought to be agreed-upon and clearly expressed in the written terms of the contract.

If the real estate being discussed is not governed by the terms of the Rent Act, both parties will have greater freedom in negotiating the terms of the lease. In such cases, both parties can discuss the lease’s terms and conditions, reaching mutually beneficial agreements regarding price, terms of payment, and more.

If the land under discussion is controlled by the terms of the Rent Act, there are greater restrictions placed on the estate’s landlord. Generally, the terms of the lease will be more clearly established under Sri Lankan law. Landlords leasing properties controlled by the Rent Act cannot, for example, require lessees to pay deposits exceeding three months’ rent in value. Such landlords cannot accept or require commissions or other cash payment for their work, either.

Such agreements as a “pro tanto alienation” can also be negotiated between the two parties considering a lease. Note, however, that such technicalities in drawing up a contract often require parties to engage with further paperwork and may require visits to local administrative offices.

To make the lease contract official, the landlord and lessee must sign the document before a notary and two witnesses. A few additional steps must be taken to legitimize the contract, too. The landlord must procure a Certificate of Conformity for the land, a deed that declares that the premises may legally and lawfully hold residents. Finally, for the protection of the tenant, the lessee must register himself at the local Land Registry office. Once all of these steps have been completed, the lease contract can go into effect. 

If you are new to home ownership, consider seeking legal guidance as you research property for sale or for lease in Sri Lanka. A lawyer can help you understand the legal terms and paperwork associated with new apartments and homes. With a lawyer’s assistance, you can feel more confident in knowing that you are engaged in a legal business transaction. Such legal assistance may include: confirming the legality of the lease or tenancy offer, certifying the authenticity of the Certificate of Conformity, confirming that the landlord has legal rights to the land, and much more. Though you can certainly find land for lease without the assistance of a lawyer, enlisting legal assistance will ensure that you are best protected when entering into a lease or tenancy contract.

COSTS, FEES, AND SECURITY DEPOSITS

As stated above, the costs for leased homes in Sri Lanka is more tightly restricted in instances where the residence is governed by the Rent Act. Section 4 of the Rent Act dictates the “standard rent,” or base rent, that can be charged by landlords. Section 5 details permissible increases that may be added to the standard rent, resulting in what is known as the “authorized rent.” The authorized rent amount is a legally binding cap on what landlords can charge their tenants. It is considered a crime to demand, charge, or receive any payment in excess of the authorized rent amount. These restrictions, however, do not apply to properties that are exempt from the Rent Act.

When land available for lease or tenancy is not controlled by the Rent Act, the security deposit may be openly negotiated between the landlord and the tenant. There are no restrictions regarding the security deposits on these properties.

If land is controlled by the Rent Act, the security deposit on the residence may not exceed three months. The tenant may not be charged any additional fees on top of this security deposit.

In negotiating a tenancy or rental contract, it is beneficial to consider the following subjects. Discussing fees and responsibilities for the residence will be beneficial for all involved.

Make sure to discuss:

* the amount of the security deposit
* payment terms – specifically the means, manner, and frequency of payment
* which party is responsible for payment of fees, taxes, etc.
* who is responsible for estate repairs
* personal and mutual lease obligations
* additional responsibilities and duties that may apply to the residence

Generally, Sri Lankan landlords will require rent to be paid monthly, whether or not the land is governed by the Rent Act. As a general rule, termination or eviction notices must be given at least one month in advance. Remember that landlords retain the right to lease their accommodations to the tenants of their choosing. The landlord may set the rental price of his choosing. Beyond this, Sri Lankan rental law generally favors the tenant. Most costs are negotiable, and both parties may negotiate accordingly.

PROPERTY FOR SALE IN SRI LANKA: PURCHASING A HOME

If you are seeking land for sale in Sri Lanka, you’re in luck. The purchasing process is quite simple and straight-forward in this country. Purchasing costs are reasonable, though foreigners should note that the country levies a 100% Land Tax against properties purchased by non-native residents. 

Sri Lankans looking to buy a home can expect to pay a Stamp Duty of 3-4% (a fee that covers the processing of documents) and a fee of roughly 3% for the assistance of a lawyer. A Realtor’s Fee of 3% must be paid by the seller. 

Hiring a lawyer is critical to the successful transfer of the residence from one party to another. The lawyer will be responsible for drawing up the contract between the buyer and seller. Without this legal contract, the transfer and sale of the residence cannot be deemed official.

Before a parcel of land can be offered for sale, a lawyer must confirm the deed of ownership with the Sri Lankan Land Registry. This action, in conjunction with the use of an estate agency, will ensure that the residence is being sold by the land’s lawful owner. Only the legal owner of the land is allowed to engage in its sale. If multiple individuals are involved in the land’s ownership, all ought to agree to its sale before continuing with the process.

To officiate the sale, the land transfer contract must be signed by both the buyer and the seller in the presence of a lawyer. Once both parties have signed the contract, the estate officially becomes the possession of the buyer. After the transfer is complete, the lawyer will then take actions to officially register the home in the name of the purchaser.

PAYING FOR A HOME & FINALIZING A PURCHASE

Acquiring land for sale in Sri Lanka generally requires that you pay in cash, as most individuals do not accept credit, checks, or money transfer. Payments are almost always made in rupee. Additional fees include a Stamp Duty fee of LKR 3,000 for the first LKR 100,000 of the buying price, and LKR 4,000 for each additional LKR 100,000 of the price. 

Though it is ideal to purchase an estate in full, it is possible to make an advanced deposit for an estate in the instance that you cannot pay in full. If the seller agrees, a deposit of 10-25% of the estate’s value is expected. A lawyer or trustee can assist you in securing money for the deposit. Sellers generally desire only a brief time lapse between the deposit and the final purchase. 

For the final purchase, it is highly recommended that you are present in Sri Lanka. If you cannot be within the country at the time of purchase, you will likely face higher legal fees. In such cases, a lawyer must be consulted, who will be given power of attorney to purchase the land on your behalf. 

IN CONCLUSION: Though the property laws in Sri Lanka may seem complicated at first, they are actually quite straight-forward. Take your time finding the real estate that is best for you, and consult a lawyer if you have any questions or concerns. If you are prudent in your actions, you will be successful in finding a home in Sri Lanka.