Increase in rent should reflect the open market value of the property

The Court should take into account the value of the property when calculating the increase in rent. This was held in a judgement delivered by the Court of Appeal in Maria Carmela Bugelli et vs Saviour Bonnici et on 29 May 2024. Mr Justice Lawrence Mintoff presided over the Court of Appeal.

The Applicants, Maria Carmela Bugelli and others appealed from a decision delivered by the Rent Regulation Board on 5 October 2023. The Board decided that the rent should be increased by 1.1% meaning €9,790 annually, but it did not order the eviction of the Defendants.

From the acts of the case, the Applicants had inherited a property in Bormla. The property was requisitioned in 1986 and given to the Defendants. They paid €83.86 as rent per year.

The Applicants asked the Board to order means test in terms of the Reletting of Urban Property (Regulation) Ordinance and the Civil Code. They also asked the Board to order an increase of a maximum of 2% of the value of the property.

The Housing Authority, which intervened in the case, and the Defendant filed statements of defence. The Defendants argued that they had followed the law when they rented the property and that the increase in rent should not be the maximum rate.

The Board in its decision pointed out that the 2021 amendments referred to the regulations on the means test. The criteria of the means test is the income and the capital of the tenant should not be above the limits established by the Regulations. The Defendants, who are the tenants, are well over 70 years and their income does not exceed €46,500, a limit listed in the Regulations. The Board held that it is obvious that the Defendants passed the means test. It also analysed whether it should establish the maximum rate of increase in rent – 2% of the value of the property.  The property was valued at €890,000. The Board may use its discretion on the percentage it may increase the rent if it is not above 2% of the value of the property. The Board quoted from a Constitutional Court judgment Gerald Camilleri vs Attorney General. In this judgment, the Court held that there is a need to control the increase in rent. The rules are flexible and in terms of Article 12B of the Housing Decontrol Act should calibrate the percentage of increase in rent. The Court held that the Board should aim more for the maximum. The rent can be scaled; however, the rent will have to increase toward the highest rate.

As to when the increase in rent should commence, the Board explained that Article 12B(2) of the Act, does not specify that the increase should commence from 1 January of the year that the application before the Board, but merely it should be calculated from then.

The Applicants appealed this decision on the increase should have been 2% of the value of the property. The Defendants and the Housing Authority held that this appeal should be rejected.

The Court of Appeal first look at the logic of the Board on how it arrived at a 1.1% increase of rent. The Board took into consideration the age of the Defendants, 76 and 78 and that their income and capital are not more than €46,500 as dictated in the Continuation of Tenancies (Means Testing Criteria) Regulations (SL.16.11).

Therefore, the Defendants did satisfy the criteria of the means test. The Court of Appeal agreed that the Board considered the increase of the rent in relation to the Defendant’s income. The value of the property was calculated to be €890,000. The Board also held that it was following the dictates of the Constitutional Court and guided by the Housing (Decontrol Ordinance the interpretation of that law. For example, in Maria Pintley vs State Advocate decided on 1 December 2021, the Constitutional Court held that the increase should commence from the date of the judgement.

The Court of Appeal also took into account those considerations taken by the Rent Regulation Board. The Court held that in order to see whether the maximum increase of 2% on the value of the property, it has to also see what takes place in the free market. The rent for this property can easily fetch 3.5% or 4% on the open market. The technical experts also held that the property could mean that the owners receive a considerable amount of rent if it was to be converted into a commercial property. The property in Bormla had a sea view. As such the Court held it was unfair for the owners to receive 1.1% increase when it deserves much more.

The Court moved to uphold the appeal and ordered that the increase should be 2% of the value of the property.