There are two types of contracts used in the Estonian rental market – permanent and fixed-term. While previously the fixed-term contract was the most popular, today it is gradually being replaced by permanent contracts. The biggest difference between the two types of contracts is their term. A permanent lease is concluded for an indefinite period, while a fixed-term lease is concluded for a specific period, and it is impossible to cancel such a contract before the term unilaterally and without a valid reason. “We at Rendin, as well as many property owners and experts, recommend concluding a permanent lease because of its more flexible terms. On the Rendin platform, for example, you can only conclude a permanent lease because our lawyers believe this type of contract is the best for both the landlord and the tenant,” explains Lia Siht, head of the legal department of the secure rental platform Rendin. Due to ignorance of the law, many are not aware of how a lease contract is terminated. The terms of termination directly depend on the type of contract. An open-ended contract can be terminated unilaterally with a three-month notice. The notice must be in writing and the recipient must confirm receipt of the notice. By (written) agreement of the parties, the contract can also be terminated early. According to the Law of Obligations Act (Articles 314-319), an exceptional termination of the contract is permitted if there is a sufficiently compelling reason for terminating the contract and continuing the contract is no longer in the interests of the parties. “A decrease in income or moving to another city or country is not considered a compelling reason,” explains Lia Siht. A fixed-term contract is terminated at the time agreed upon when concluding the contract or earlier by agreement of the parties. It is not possible to unilaterally terminate the contract without a valid reason. “In most cases, this valid reason is a gross breach of the contract or late payment of rent. At the same time, the contract can be terminated in an exceptional case, when the residential premises are in a state dangerous to health,” explains Siht. An open-ended contract allows for a quicker response to various situations. If the landlord has problems with the tenant or the tenant no longer wants to live in the rented premises, an open-ended contract can be terminated unilaterally with a 3-month notice. “Sometimes we encounter situations in which the tenant wants to terminate the lease as soon as possible due to payment difficulties. And our first recommendation is to find a compromise. As a rule, the parties agree that the contract will be terminated immediately after finding a new tenant. If the parties cannot agree, the contract is terminated in accordance with the law, i.e. 3 months after the notice,” explains the head of the legal department at Rendin. The terms of a fixed-term contract are not so flexible. “If the landlord does not agree to the early termination of a fixed-term contract and there are no legal grounds for exceptional termination of the contract, the tenant is liable to the landlord until the term specified in the contract,” says Siht. “Such strict terms of the contract may result in the tenant, who has encountered financial difficulties, abandoning the living space and ceasing to fulfill their obligations, as they see no other way out of the current situation. And the landlord will have to deal with the debts of the old tenant in addition to looking for a new one. It may also be that the tenant simply wants to change their place of residence, but the landlord will keep them until the end of the contract. In the case of an open-ended contract, the tenant can notify the other party of their desire to move out 3 months in advance, and the landlord cannot prevent them from doing so,” the lawyer adds. According to the law, in the case of an open-ended lease, the landlord has the right to increase the rent once a year. “There are two ways to do this: notify the tenant of your intention 30 days in advance, or agree with the tenant when signing the contract that the rent will be increased periodically,” explains Siht. “During a fixed-term contract, the rent can only be increased if the contract is concluded for at least 3 years and contains a clause on increasing the rent. For example, in the case of a two-year fixed-term contract, the rent cannot be increased before the contract expires and a new one is concluded. Even if there is a justified need for increasing the rent, for example, in the event of a significant change in the market situation or an increase in the consumer price index. We also recommend thinking about how justified the rent increase is. Landlords often do not take into account that increasing the rent entails the risk of losing income altogether. In any case, a stable rental relationship is better than constantly increasing the rent and the risk of being without a tenant for a long time,” emphasizes Siht. It is a common misconception among property owners that it is easier to get rid of a problem tenant who does not pay and refuses to move out at the end of a fixed-term contract. “This common misconception raises many questions. Why would a person who, for one reason or another, refuses to fulfill their obligations in connection with paying rent, suddenly begin to adhere to its terms at the end of the contract? If the tenant ignores the agreements, then most likely, they will continue to do so after the end of the contract,” says Siht. It is also worth knowing that every fixed-term contract becomes permanent if the tenant continues to use the living space after the end of the contract and until a new one is concluded. “In the case of problem tenants, regardless of the type of contract, the owner must apply to the Rent Commission or the court with a statement of eviction of the tenant. This process can be long and complicated, and the type of contract or the lease term does not affect it in any way,” explains the lawyer. As a rule, Rendin manages to resolve such situations out of court or faster than usual, thanks to carefully thought-out processes. "If the tenant refuses to pay or to move out of the rental property, we advise the landlord and help to quickly get rid of the defaulter in a legally correct manner. In addition, we compensate the landlord for property damage caused by the tenant in the amount of up to 10 months' rent, as well as three months' unpaid rent and utility bills," explains Liya Siht, head of the legal department at Rendin.
