Landlords to get right to increase controlled rents

The tenants of rent-controlled properties who are enjoying low rents thanks to the 1979 law that converted temporary leases into permanent rental contracts, are going to have to face up to the reality of higher rental payments.

For years, tenants whose leases turned into rental contracts enjoyed their properties at ridiculously low annual rents. But now, judgements from the European Court of Human Rights in Strasbourg have left the government with no choice but to amend the laws – or face having to pay millions in compensation claims and damages in both national and European courts.

The government now intends to bring these leases created by the 1979 law, in line with the recent rent legal amendments of 2009 – a sure guarantee that landlords will be paid higher rents on these properties.

According to its action plan, the amendments will create a mechanism for the revision of the rent, as well as limit the inheritance of tenements, include the introduction of a means test, and also create measures to revert the leases to their owners.

“The amendments will bring the leases created by the 1979 law in line with the general reform of the rent laws by the amendments made to the Civil Code in 2009,” a government source told MaltaToday.

Under the 1979 Act, which amended the Housing Decontrol Ordinance, a temporary emphyteusis gets automatically converted into a permanent rental agreement, but this has been found to be illegal by both the Maltese Constitutional Court and the European Court of Human Rights.

Although the Civil Code gives landlords the right to reclaim their property upon termination of a lease, in 1979 the government passed a law to protect tenants so that any lease of up to 30 years contracted before 21 June, 1979, can be turned into a rental agreement.

“Thousands of families who were leasing homes in the seventies went on to enjoy these properties at low rents, and then bequeathed these contracts to their children, leaving landlords no option but to accept measly rents for houses often worth millions on the marketplace,” one lawyer – whose clients are petitioning the courts to reclaim their rent-controlled property – told MaltaToday.

Under the changes the government will introduce in 2015 to address the injustice of the 1979 Act will be a statutory minimum rent, revisable every three years according to the cost of living index.

Owners will also be allowed to raise the annual rent by a percentage. Under the 2009 amendments to the Civil Code, this is set at 6% of the amount of expenses paid to effect repairs to the rented house.

Tenancies cannot be inherited any longer and will be subject to a cut-off date for persons residing with the tenant for four years our of the last five years, but new rental payments will be determined by a means test.

Landmark decision

The automatic conversion of temporary leases into rental agreements is a primary bone of contention between tenants and landlords, with the latter often up in arms due to the paltry rent-controlled payments they are still receiving.

One such landlord, and authority on the property market, Chris Testaferrata Moroni Viani, had described the situation with MaltaToday as a “mass injustice” on landlords.

“While providing indirect social housing and alleviating poverty concerns, the law has imposed a string of adverse effects on landlords,” Testaferrata had told this newspaper in November 2013.

“Coupled with the paltry rents landlords receive and the fact that tenants can permanently reside in a dwelling owned by third parties, even after the expiration of the original lease, landlords have been facing a situation where they cannot enjoy their own property due to the automatic conversion,” he said.

Conversely, landlords also do not have the chance of taking back their rightful property, sometimes having to settle for rents as low as €116 a year, for example.

In October 2013, the Court of Constitutional Appeal confirmed a landmark ruling that found that the automatic conversion of temporary leases into rental agreements, was illegal.

Lawyers Cedric Mifsud and Michael Camilleri, who submitted the constitutional claim on behalf of their clients, said tenants claiming a permanent right to occupy a property which is not theirs, were now faced with a flawed legal basis for their right.

In the case, the Court of Constitutional Appeal confirmed that tenants Andrè and Tessie Azzopardi could not avail themselves of the 1979 Act to rent a property at Lm100 (€233) a year, after the lease terminated back in 1991.

They previously paid an annual emphyteusis of Lm50 (€116), before the lease was automatically converted to a rental agreement. The rent at law could be reviewed every 15 years.

The landlords, the heirs of Bartolomeo and Giuseppa Bezzina, had leased out their Gharghur property to the Azzopardis back in 1974, for a period of 17 years on an annual rent of Lm50. In 1991, the Azzopardis availed themselves of the right accorded to them by the Housing Decontrol Ordinance, and started renting out the property for Lm100 a year.

The landlords claimed that the real rental value as verified by the court-appointed expert was €9,800 in 2011 – just an example of the sheer disproportionality of the rents

Additionally, the government had to pay the Bezzinas €15,000 in compensation for the rent, just the kind of natural consequence to the unjust law that the government can no longer tolerate.

Amato Gauci ruling

The seminal ruling that is forcing the Maltese government to amend its rent laws is the Amato Gauci case, which Malta lost in 2009 in the European Court of Human Rights.

In the Amato Gauci case, the ECHR said that a fair balance had to be struck between the demands of the general community for housing protection, and the protection of an individual’s fundamental rights.

Given the low rent payable – just €210 in annual rent – in the Amato Gauci case, the European Court said that the Maltese government had “failed to strike the requisite fair balance” and awarded the landlord compensation.

The house had been leased out for Lm90 in 1975 for 25 years, and was later converted into a rental contract in 2000 – without the consent of the owner.

The European Court of Human Rights is considered to be the third level in judicial remedy – once the government is found guilty of compromising the right of the landlords to enjoy one’s property, the ECHR holds Malta liable for damages and demands changes to the law.