Throughout the past century, parties to commercial leases have faced considerable amounts of challenges with a number of them, regrettably, needing yet to be resolved. This is in view of the fact that the legal measures adopted by the legislator in attempting to combat such challenges, have not been as effective as anticipated.

The leading challenge was faced by the lessor which emanated from the protective provision awarded to the lessee as put forward through Act No. XVI of 1979 found in the Reletting Of Urban Property Ordinance which was at the time the regulating Ordinance with regard to contracts of lease. It stipulated that a lessor is not allowed to deny the renewal of the lessee’s lease once it reaches its termination.

Additionally, without the express permission of the Rent Regulation Board, the lessor cannot unilaterally hold discretion over the rate of rent or the addition of any new conditions to the lease.

Eventually, the legislator drew up laws with the intention of gradually eliminating this protection which lessees benefited from at the lessor’s detriment. The first effort to rectify this pre-1995 conundrum was made via Act No. XXXI of 1995, in which the legislator established that contracts of lease constituted after 1 June 1995 will start being regulated solely by the Civil Code.

Nonetheless it is only through the enactment of Act X that this concern was finally addressed, albeit remaining partially unresolved till this very day. Subsequent to such Act, the European Court of Human Rights in the Zammit and Attard Cassar case highlighted the unjust, perturbing effect concerning the fact that the applicant’s property was being rendered free and unencumbered as of the year 2028.

It is true that by virtue of such Act, particularly in Section 1531D of the Civil Code, commercial leases drawn up prior to 1 June 1995 were to be increased from the date of the first payment of rent due after the 1 January 2010 by fifteen percent of the actual rent for three cumulative years and at the specified rate of five percent per annum until the Property Market Value Index is issued by the Minister responsible. However, how beneficial is such a measure when the original rent reflected the market value obtaining, as far back as the pre-World War II period?

The Malta Chamber of Commerce, in the landlord’s interest, proposed a number of recommendations back in 2017 which are still very much applicable to date. One of the eight recommendations was the repealing of Article 1531D and establishing parameters where by 2019, the tenant of a commercial premises pays the landlord a fair market value and thereafter adjust to reflect market rates in 2022 and 2025. Yet today in 2021, nothing of the sort has taken place. As a matter of fact, the 2009 amendments have also been successfully challenged in local Courts through the case of Vincent Curmi vs Attorney General. The significant difference between the rent received and the fair market value estimate of the rent undoubtedly portrayed the lack of proportionality.

Therefore the increase in rent accorded by Act X did not conform to the proportionality rule, which led the Court ruling in favour of the applicant, resulting in a violation of Article 1 Protocol 1 of the European Convention.

In reality, such leases have de facto transformed to indefinite and self-renewing lease contracts with a substantially diminished ability for the landlord to reclaim the title of lease before 2028.

From the way the situation stands to date, Act X has only to a very limited extent managed to resolve the unfair disparity present existing between the parties. Additionally, there is still no level-playing field between pre-1995 commercial tenants and those who followed post-1995.

The main hardships forborne by landlords relate to: The low rental value, the still pending protracted period until they could recover their property, the absence of recourse to procedural safeguards and the hefty rise in the standard of living as obtaining over decades.

These constraints blatantly run contrary to the essential principle of peaceful enjoyment of property.

On the 27 February of this year, the Prime Minister along with the Social Accommodation Minister, proposed new reforms which will see landlords of properties bound under pre-1995 leases being able to claim up to two per cent of the property’s market value in rent.

After analysing the reform announced, one realises that not once were commercial leases mentioned. Landlords of commercial tenements are once again left in a state of limbo as the attention was solely focalised on residential tenements. Does this new reform effectively apply in tandem for both residential and commercial leases? When it comes to statutory administrative regulation, clarity ought be the order of the day.

If such proposed reform does not apply to commercial leases, then this inherently creates a new form of prejudice on such landlords. Whilst landlords of residential leases are set to benefit from this reform, landlords of commercial leases are to keep on enduring the measly amount of rent until the year 2028.

As the Prime Minister stated, ‘balance is the solution’, therefore a balance should be struck between the benefits awarded to landlords of residential tenements and equally to landlords of commercial tenements.

Through the study of the development of commercial leases during the past century, it is self-evident that the legislator has come a long way in attempting to carve optimal legislation in this field. There has been gradual moderation in the rationale of legalistic thought resulting in moderate improvement which has and is, till this present day, seeking to bring about equity between the parties to a contract of commercial lease. Will this new reform address at all the hardship endeavoured by landlords of commercial leases?

Law student Daniel-Luc Farrugia is the author of the dissertation titled - Commercial Leases under Maltese Law: Past and Future Challenges. (May,2020)