Controlled rents to rise according to property value in new government plan

Government intends giving owners of rent-controlled properties the right to revise rents upwards to a maximum amount of 2% of the freehold value of the dwelling, as court actions mount against the unconstitutionality of the 1979 Housing Decontrol Ordinance.

Tenants of rent-controlled properties enjoy low rents thanks to the 1979 law that converted temporary leases into permanent rental contracts.

But judgements from the European Court of Human Rights in Strasbourg and in the Maltese courts have left the government with no choice but to amend the laws – or having to face compensation claims and damages in both national and European courts, while tenants face the threat of eviction.

Under the new legal amendments, property owners will be entitled to ask the Rent Regulation Board to revise the rent to an amount not exceeding 2% of the freehold value of the dwelling, and to include new conditions in the lease. The rent will then be revised every six years.

Tenants and owners not in full-time gainful employment will be entitled to legal aid.

The board will also conduct a means test of the tenant, that will be based on the income between 1st January and 31st December of the year preceding that when proceedings are filed, and the capital of the tenant on the 31st December of the said year.

Where the tenant does not meet the income and capital criteria of the means test, the board shall give judgement allowing the tenant five years to vacate the premises.

The compensation for occupation of the premises payable to the owner during this period will amount to double the rent which would have been payable.

If the tenants do meet the means test, the board will give due account to the age of the tenant and the disproportionate burden to the landlord, to determine a gradual increase in rent.

The owner will be allowed to demand the dissolution of the lease “if he can prove through unequivocal evidence that the tenant is not a person in need of the social protection” provided by the law.

The Bill also says that where the Housing Authority or the landlord have offered alternative accommodation suitable to the tenant with a guarantee of “at least 10 years for a rent not in excess of that payable had the tenant continued the lease”, then such tenant will not be deemed as in need of social protection.

The Bill is the first example of what the government had already intimated in an action plan to the Council of Europe’s office for the execution of judgements, to create a mechanism for the revision of the rent, limit the inheritance of tenements, introduce a means test, and also create measures to revert the leases to their owners.

Landmark decision

Under the 1979 Act, which amended the Housing Decontrol Ordinance, a temporary emphyteusis gets automatically converted into a permanent rental agreement.

But this was 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. This limited the revision of rental payments, allowing tenants to pay paltry sums annually.

As a lawyer representing such landlords once told this newspaper three years ago: “Thousands 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.”

The property landlord Chris Testaferrata Moroni Viani, had described the situation with MaltaToday as a “mass injustice on landlords. “

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.

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.