Malta: New Laws To Support Aviation (Part 2)

Last Updated: 10 February 2017
Article by Max Ganado

The first part of this article (published in The Business Observer, 12th January 2017) dealt with the strategy underpinning the new aviation laws and changes to the law of sale and promises of sale in so far as they related to aircraft and aircraft engines. This part picks up on the contract of lease, regulatory aspects of financial leasing and interest rate rules in leases.

Contracts of lease

Article 1526 of the Civil Code was also amended to the same effect in relation to the leasing of aircraft, which is probably even more important than sales, because for every sale there are probably five leases of the aircraft, if not more. Once again the necessity of a judicial letter – too formalistic and local – which has to be served on the lessor or the lessee, probably both overseas, to terminate a lease of an aircraft has been disapplied and the parties can agree on the methods for notices to each other which can be in writing or even by electronic means. As Maltese law tends to have a bias in favour of possessors of things under leases, when there is a default, a mere notice and demand to return the asset does not usually work due to lessee non-cooperation. This then turns into a veritable nightmare with a lot of delay when the default could be as obvious as the failure to pay the rent!

The law has now been turned around to ensure that when notices of termination for defaults are given, not only should it not be necessary to have the Courts confirmation that a default has taken place, but the court is required to support the lessor in repossessing the aircraft "as expeditiously as possible". This is the only economically acceptable approach which the parties to any lease of aircraft agree to in standard terms. Indeed this is reflected in the Cape Town Convention which Malta ratified in 2010. Here we see Maltese law coming in line with its international obligations in a clear manner to avoid any ambiguity in the courts. The Cape Town Convention would in any case prevail over the Civil Code on this point. This clear provision will now avoid argument in a court as to whether there is a conflict between the Code and Cape Town and whether Cape Town prevails and how. A judge who is not an expert on aviation would reasonably require some time to absorb these kind of revolutions in this little island, not realising that the aviation world out there has long abandoned the rules reflected in our Civil Code.

The reaction in Malta would be to consider the effective dispossession of a lessee in default almost shocking, disregarding that the inefficiencies in repossession would make Malta a jurisdiction which is totally unacceptable to the aircraft leasing industry. No amount of tax incentives, geographic position, pleasant and competitive work places or friendly populations will make up for inefficiency of the law, often unjustly appearing to be the inefficiency of the courts but sometimes assisted by an inefficient or insensitive court system. What our law now states is that if the lease is unjustly terminated, then the lessee can seek damages which is a better reallocation of risk between the parties, one which is normally reflected in an international aircraft leasing contract and its pricing.

Another interesting little detail in this provision is that the same powers are given to the holder of a mortgage over the aircraft. This means that the real party taking risk, being the financier of the aircraft, can enforce the remedy of repossession directly, which is again consistent with Cape Town, and reflects the re-arranged economic allocation of risk in case of a default. This avoids the need for the mortgagee to take a pledge of the lease contract or an assignment of the powers of repossession from the lessor and allows the mortgagee to hop-scotch over the lessor directly to the lessee and take possession directly, without going through its own debtor – the lessor, assuming of course that the lessor does not cure the default himself. It thus avoids the duplication of remedies, the risks of two persons defending the repossession application on different grounds and so on. In a situation where the lessor and the mortgagee have aligned interests, then it makes the whole process very efficient and protective of their combined interests based on identical risks.

Finally the definition of "default" is clarified to state clearly where these strong remedies apply. Arguing over whether a situation or action by the lessee is, or is not, a default may take months before a court. Now the law states the parties can agree on the list of defaults and these also include, apart from breaches of the express lease agreement, a change in the financial condition of the lessee or action which deprives the mortgagee of the level of security it expects to have with his own debtor, the lessor. So if the lessee, for example, fails to insure the aircraft, as required in the lease and naturally in the mortgage, the mortgagee would be able to use this ground of default to repossess the aircraft directly from the lessee.

These rules reflect the major step taken in Cape Town where it is recognised that a lease can be recorded as an international interest and it then has the powers similar to those of a mortgage. Lease is treated as security which is quite anti-intuitive. This had been reflected in the Aircraft Registration Act in 2010 in what is probably one of the most evident shifts of legal policy in the Maltese Civil law system in recent years. It is now echoed in the Civil Code provisions on leases.

Financial Leases

The above developments apply to leases of any kind, be they operating or financial leases. One of the issues which Maltese Law posed in this regard is that financial leasing was treated as a regulated activity under the Financial Institutions Act. This meant that financial lessors, usually SPVs would theoretically need a licence from the MFSA to carry out a financial lease. There were arguments that a single aircraft SPV with one financial lease would not be regular activity in Malta and the law would not apply, but in practice, on advising foreign lessors of the need for regulatory enquiry, it was typical to see Malta being dropped as an option. Most SPVs are set up and operated by credit institutions in any case so regulation of an SPV was seen as an unnecessary cost and burden. By means of a specific amendment to that law, financial leasing of aircraft and ships is now exempt from regulation, even if the SPV is registered or operates in or from Malta and even if the aircraft flies the Maltese flag.

The conditions for the exemption is that the SPV is owned and controlled or financed by regulated entities as defined in relevant EU directives which apply in Malta, and if there is an intermediate trustee, then one looks through it for interpretation. Secondly, the SPV's objects have to be limited to financial leasing of aircraft and ancillary activities, to the exclusion of other types of assets or activities.

This amounts to the removal of what operators consider to be the major obstacle to Malta being used as a centre for the leasing of aircraft, which in practice is the larger opportunity for the island when compared with registration of aircraft which should have less focus when determining strategic policies for the development of Malta as a centre for aviation businesses.

Interest Rates

Malta has always had rules restricting the maximum rate of interest one can contractually agree upon – 8%. This is now academic given the low interest rate environment. It is however always a reservation in legal opinions and certainly the object of enquiry in reviewing international agreements, as this is considered to be a public policy rule. Since the late 1990's many rules have come in to carve out international agreements so as to remove a serious obstacle to growth of international business in Malta. In this review process, the law has now been clarified to state that debts and obligations secured by a mortgage or due under a lease of an aircraft or aircraft engine, whether registered in Malta or otherwise, and whether governed by Maltese law or not, are not subject to interest rate limitations, limits on compounding and the like which appear under the Civil Code or any other law. The most relevant reason for this amendment is that aircraft leases are now covered explicitly. To date the exemption provisions were mainly focused on ships and financial transactions.


This note deals with side issues to the main discussion on aircraft ownership, operations and financing. They are however important issues which simplify the discussion when it comes to using Malta as a jurisdiction for aviation matters. They confirm the wide scope of Malta's approach when developing the aviation industry and show the Government's continuing commitment to make the process smooth, to realign risk assessment of underlying rules of law and generally to make Malta a more feasible option for financiers, lessors and operators of aircraft and aircraft engines.

This article was first published in The Times, 26th January 2017.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.