Finally, the government has committed itself to solve the rent problem.

Nobody doubts or denies that this is a hot potato. However, one of the roles of politicians is to solve problems of a social nature and create solutions and opportunities that are beneficial to one and all.

The rent issue, both at residential level as well as at commercial level, is an old problem that has been carried forward from one year to another and from one administration to the other.

As times and situations change, so do dues and obligations. The time is ripe for the old and outdated rent laws to be changed. Even the manner in which rental income is taxed needs to be overhauled.

This is a vast and complicated issue and I am certainly not suitably qualified to know all the ins and outs of the issue. However, during this year’s election campaign I met several people who protested in the strongest possible terms that hardly anything has been done to date to solve the problem. I have given the matter some thought and have formed an opinion.

As we all know, property is a very valuable asset. This has been the case ever since man stopped being a nomad. A person’s wealth has always been measured by the amount of land he owns. Is it fair that a few own a lot of land while the vast majority hardly own any at all? And what constitutes a fair rental charge? How should it be calculated? On the space occupied? According to the location? On both space and location? Should it be liberalized? How should it be taxed and at what rate?

Social justice

We all know that times and situations have changed rapidly. Social justice is being practiced, and in recent years the State has offered residences at heavily subsidised rates to several low-income earners and social cases. Moreover, the healthy economic situation the country has enjoyed, together with modern trends, has induced several people not only to purchase their own home, but also to invest in property.

However, there are several instances where tenants are literally squatting on other people’s property. This is the case with practically all those properties that are regulated by the archaic 1939 law. In most cases the rent charged is absolutely farcical. Even more insulting is the fact that various family members can inherit the property. The poor owner has practically no title to his property except that he may be called upon to pay for major repairs!

This is a social problem and as such must be solved by society and not borne by a few individuals. And, since the government represents society at large, then it is the government’s duty to solve the problem. The solution must be a long term one and as fair as possible. This may span a period of say 10 to 15 years, depending on the age and social standing of the tenant. Great care must be taken to administer justice to both the landlord and the tenant. This may be a very difficult balancing act, but I believe that with a decent dose of goodwill and determination a solution will be found.

Inheritance

In my opinion the first problem that needs to be solved without any further delay is the inheritance issue. In the name of justice it is absolutely necessary that relatives who live with members of their family will not be allowed to inherit the premises automatically unless an agreement to this effect is reached with the landlord.

Stock

What I feel should be done is to first take stock of the property which is affected by the 1939 rent law and divide issue in two categories: “people” and “property”.

Each category will in turn be divided into three. Thus people living in such premises will be classified as 1) acute social cases, 2) normal cases and 3) no problem at all.

In turn, the premises involved will be categorized as being 1) sub standard property, 2) normal property and 3) property of high value.

People

1) Acute social cases would include old and/or sick people, the handicapped, low income earners, the unemployed and so on. These people must be helped by the State, either by offering them State-owned premises or by paying the landlord a decent rent.

2) Normal cases would be those considered as middle class, that is people who earn a decent salary, enjoy good health and are fairly well educated. In this case the tenants should be asked to pay a decent rent.

3) The ‘no problem at all’ include rich people who more often than not have property of their own. In this case the rent must be liberalized and if an agreement is not reached the tenant will be asked to vacate the premises.

Property

1) Sub-standard properties include properties that lack hygiene and constitute a health hazard as well as property that are in dire need of repairs. In such instances landlords could be encouraged and assisted to redevelop said properties.

2) Normal properties include dwellings that may not be suitable for redevelopment but which deserve to receive a decent rent. In such instances, a payment plan should be drawn up.

3) Property of a high value includes property that is suitable for redevelopment or is situated in sensitive areas. In such instances tenants may either be asked to pay a fair rent or accept an offer for other suitable premises. In the event that the landlord wishes to develop the property, the tenant cannot put up any resistance as long as he is offered suitable alternative premises until the property is developed and adequate space in the newly developed property.

Commercial property

Even the laws regulating rents on commercial properties must be addressed. This situation requires a different approach and hence different solutions, and the government’s role would be more of a regulator. The size of the premises as well as the location must be taken into consideration. The tenant may be given 10 years to adapt to the liberalised rental cost. Depending on the size of the premises and the sensitivity of the location, there may be situations where the landlord may be asked to offer the tenant alternative premises.

Taxation on rental income

Taxation on rental income is another problem that needs particular attention and a solution. As things stand rental income is taxed in a different way from all other forms of income.

20% maintenance

Whereas practically all income earned by individuals and companies is taxed on their net profit, this is not the case with rental income earned from long lets and from property that is not registered with MTA. In such instances a standard allowance of 20 per cent calculated on the gross income earned is granted and the balance is taxed at the prevailing income tax rates. The only allowable expense is any bank interest that may have been paid after acquiring the property in question.

I consider this method of taxation as unrealistic and hence very unfair. This situation ignores all expenses that are actually incurred, such as wages paid to maintenance men and cleaners, materials purchased to carry out improvements and professional fees paid, besides others. In the case of limited liability companies the situation is even worse since not even such costs like audit fees are allowed!!

Overhaul

I am of the opinion that the method of taxation on rental income should be overhauled. In the case of individuals whose sole source of income are the rental fees they charge, and limited liability companies whose main source of income is derived from rental fees, a normal profit and loss account should be prepared and the net profit taxed at the normal prevailing income tax rates. In the case of individuals or limited liability companies that earn rental income not higher than say 20 per cent of their total income, a final withholding tax of say 15 per cent could be introduced.

Conclusion

Naturally, more complex situations than those mentioned above exist and the people involved will in all probability have better proposals and solutions to offer.

I invite such people to participate in the talks and discussions that the government will be organizing in the forthcoming days so that a fair and equitable solution will be worked out.