The Malta Independent 26 May 2019, Sunday

Chamber of Commerce welcomes landmark ruling on pre-1995 leases

Thursday, 16 May 2019, 07:23 Last update: about 9 days ago

The Malta Chamber yesterday gave a hearty welcome to the recent landmark ruling declaring that the current legal regime which regulates pre-1995 leases, breaches landlords’ fundamental rights and is effectively unconstitutional.

The Chamber has raised doubts on the current laws in the past, even suggesting that they are in breach of the fundamental human right to own and enjoy private property.

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In a statement, the Chamber said yesterday, “In the current situation, property owners are often stuck leasing out their property for cheeky amounts which were determined decades ago, having also to foot the bill for maintenance costs out of pocket which often runs into the thousands.

“This situation is made more unacceptable when thanks to the current system, property leases are inherited by the subsequent generations, prolonging the unjust situation further.”

The Malta Chamber noted that it has been voicing its position in this sense for many years, most recently in January 2019, upon discussing the subject at length in the context of the ‘Renting as a Housing Alternative’ White Paper.

In its recommendations, the Chamber had said, “Measures that ensure fair market rental value to landlords of pre-June 1995 Leased Properties, such as equitable means testing mechanisms would ensure that social justice is achieved with the landlord, while also potentially increasing the supply of affordable accommodation.

The Chamber observed how numerous tenants may be artificially holding on to properties leased under pre-June 1995 lease agreement conditions due to the insignificant annual cost.

“If the annual cost does not remain insignificant, such tenants would likely terminate the lease agreement, hence allowing the landlord to place the property on the PRS (Private Rental Sector).”

Calling for the introduction of a reliable and functioning Market Value Property Index, the Chamber said that such a tool would be a fundamental cornerstone for the scientific determination of fair market (rental) value of property in Malta.

“This would serve as a guide on the real and fair value of property depending on size, location and amenities. Both tenants and landlords will benefit from an element of reassurance through such an essential market tool, particularly in an economy that remains highly dependent on the property market” the Chamber had said in its document.

Reiterating its agreement with the ruling, the Chamber called on the government “to speedily introduce all the necessary means to address this situation of injustice”.

 

The judgement

Tenants on disproportionately low protected leases entered into before June 1995 can no longer expect to hang on to them, after such leases were declared unconstitutional earlier this month.

The Constitutional Court made the ruling in a case filed by two siblings who were unable to exercise their full property rights over a three storey house with a large garden in central Sliema.
The property is currently leased to a tenant who had lived there with the previous tenant, his grandmother before her death in 1986 with an annual rent of €203, subject to an increase in line with inflation.

The lease was regulated by the Re-letting of Urban Property (Regulations) Ordinance, which stipulates that landlords whose property had been rented out prior to June 1, 1995 had no right to refuse renewal of the lease and had to make do with what it established as ‘fair rent’ despite climbing market values.

Lawyers Edward Debono and Karl Micallef for the landlords argued that the situation caused an enormous discrepancy between what they were actually earning in rent and the potential rental income on the free market. They had also been forced to turn down a €450,000 offer from a potential buyer in 1996 because the tenants had refused to accept alternative accommodation arrangements.

The discrepancy was confirmed by a court-appointed architect who had estimated the house was worth €300,000 and could fetch €1000 per month in rent.

The owners had “no real hope” of gaining effective possession of or income from the premises, they told Mr. Justice Lawrence Mintoff, in view of the fact that the tenants’ children would inherit the lease.

The judge observed that the rent was low in comparison with the market value and that the chances of the plaintiffs regaining possession of the house were “remote.”

Despite amendments brought into effect in 2009, the State had failed to safeguard the rights of owners, declared the court.

The plaintiffs’ Constitutional rights were breached, ruled the court, awarding them €20,000 in damages plus costs payable by the State. The tenants could also not continue to rely on the impugned laws to occupy the premises, it said.

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