Malta’s Unjust Rent Laws

The Government of the Republic of Malta, a member state of the European Union, is unfairly targeting a small group of citizens by forcing them to rent out their properties at below market rates.  Below is the opinion of the European Court in the Case of Buttigieg and Others v. Malta; Application No 22456/15 (http://hudoc.echr.coe.int/eng?i=001-188275):

The Court has previously held that in a situation where the applicants’ predecessor in title had, decades before, knowingly entered into a rent agreement with relevant restrictions (specifically the inability to increase rent or to terminate the lease), the applicants’ predecessor in title could not, at the time, reasonably have had a clear idea of the extent of inflation in property prices in the decades to follow.“

It also affirms that:

“Furthermore, those applicants, who had inherited a property that had already been subject to a lease, had not had the possibility to set the rent themselves (or to freely terminate the agreement). It followed that they could not be said to have waived any rights in that respect.

Accordingly, the Court found that the rent-control regulations and their application in those cases had constituted an interference with the applicants’ right (as landlords) to use their property

 

History

The 1931 law titled “Reletting of Urban Property (Regulation) Chapter 69” was originally enacted to ensure a decent supply of housing at reasonable prices since, at the time, it was common for people to rent rather than purchase property. This was part of a drive to ensure that the limited stock of vacant properties would not be left unoccupied given the high demand.  A Rent Board was established and was given the right to seek out vacant properties and rent them out. 1914 was chosen as a baseline for the setting of fair rent. 

Many property owners were forced into renting out their vacant properties because failure to do so would result in them being reported to the Rent Board. It was common practice for persons to threaten the owners of vacant properties to either sell or rent the property to them or next of kin; less they report the owner to the Rent Board. Many people reluctantly either sold the property or rented it out when threatened with such action.

The Second World War came and went and the country’s economy and social well-being started improving.  The governments of the time did their part to increase the stock of social housing and a number of ordinances related to the 1931 law were issued. The 1959 Housing (Decontrol) Ordinance was one that allowed lessors to regain their property back at the expiry of a temporary emphyteusis agreement. This became the type of rental contract lessors started enacting with lessees. All parties were clearly aware that on expiry of the agreed time-frame the property would revert to the landlord.

The spanner in the wheel was thrown by the 1979 Ordinance that technically nullified the expiry clause of pre-agreed contracts if the lessee was a Maltese national. With this ordinance the lessee could not be evicted and landlords were severely restricted in their ability to adjust rents or conditions in the rental agreements that were never intended to not have a termination. One grievance was the fact that it became possible for relatives of the lessee to inherit the rent with identical conditions to the lessee who had preceded them.

In 1995, the government passed legislation to liberalize the rental market. Rather than enact legislation in which all lessors would be treated equally, it only liberalized new contracts entered into after 1st June 1995.  For new leases after June 1995, the parties were able to negotiate market price rates, have a predefined rental duration, have clauses that prohibited subletting and could include clauses to adjust rates. Pre-1995 had none of this; the properties still earned rent established years before, and had no protection against subletting or the automatic transfer to relations of the original lessor at the same rent as those who had been occupying the property before them.

In 2009 a revision extended the same 1931 conditions so that they would not extend to the grandchildren of the original tenant, yet it did not address properties that had already passed to the grandchildren. This legislation means that there are current property owners who will not be able to take ownership of their property before the next century.  Today there exist property owners who have never been able to access such properties and some never will during their lifetime.


Why is the Maltese Rental unjust?

The 1995 legislation created an anomaly because it differentiated between pre and post 1995 lessors; clearly favouring the latter while burdening the former with responsibilities that should be carried by society as a whole and not by a targeted group of people.

It also differentiated between lessees. Lessees in pre-1995 rents clearly benefited over those who had to pay market rates. The extent of unfair benefits to pre-1995 lessees was further aggravated because siblings, children and grandchildren inherited benefits not afforded to other lessees who would take a [post-1995] lease contemporaneously.

Another legal bias against landlords was an ordinance which nullified a pre-agreed temporary emphyteusis. For all intents and purposes, it was a dictator-style law that completely disregarded any plans and aspirations landlords might have had for their property after the contracted termination of the lease.

 

Landlords are the victims

From appeal No 22/19 GM (Joseph Grima, Georgina Grima, u Doreen Grima v. L-Avukat Ġenerali u Lawrence Aquilina u Iris Aquilina) a property valued at Euro 275,000  by a court appointed architect was earning the landlords Euro 205 per annum because rent could not be adjusted. Furthermore, this amount is taxed, meaning that the net earnings for the landlords is even less.

While receiving a pittance for such properties, any person who inherited such a property would pay property inheritance tax on the property’s current valuation and based on the assumption that it is vacated.

All structural repairs must be borne by landlords. The law allows an increase of 6% on base rent. For a baseline rent of Euro 185 this would amount to Euro 11.10. Many do not justify the legal and architectural fees necessary to process this request and end up simply carrying the costs themselves without passing them on to the lessee. On properties that are so old, maintenance costs are frequent and extremely costly because of the materials and construction techniques used at the time. One such expense could easily wipe 25 years of rent.


Source https://www.centralbankmalta.org/site/Subscriber%20Categories/Real%20Economy%20Indicators/house_prices.xls?rnd=20201212002502

Landlords impacted by pre-1995 legislation are not Malta’s version of Jeff Bezos or Elon Musk. They are people who, in their absolute majority, fall into the low and middle-income tier. Many of them acquired or inherited the properties that were originally purchased decades ago. As can be seen in the chart, the price of real estate was a fraction of what it currently retails at. These are people who live an average lifestyle and whose children had to take mortgages or pay commercial rent rates for their own habitation. These are people who may have a small seaside property but are unable to use it for their own enjoyment.

If they need additional income, they cannot rely on the market value of the property because, with tenants paying rent that is a fraction of the true market value, this is very low. The equity of any property with an incumbent that cannot be evicted and who is  paying unrealistically low rates is as low as it can get. There have been cases, many undocumented, in which landlords were forced into selling such properties at dirt cheap prices when they are in dire straits, such as requiring money to help out their children, cover medical expenses, fund a project or to cover costs related to the property itself (paying inheritance tax or paying for structural repairs). There have been many stories of tenants who would squeeze the price to ridiculous prices when they would realise that the landlord is in a bind and that they practically hold all the negotiation cards. Aging landlords whose source of income is, for example, a pension, do not have the financial, physical and mental strength to battle incumbent tenants. There are no official documents that describe these events because, from a legal perspective, the contract was voluntary and does not document the justification as to why something is sold at a ridiculous price. 

 

The right way to govern

The government should not see the pre-1995 landlords as enemies. It should not attempt to drive public opinion against them and should not tell tenants in such properties that when some of these landlords try to seek legal remedy it will carry their legal costs and will, as has happened, end up assuming liability for any penalties imposed by local and European courts.

The government should stop trying to sell the story that those currently occupying the properties are victims; for starters a proportion of them are not the original tenants; they simply inherited a good thing at the detriment of other members of society and are simply riding this unjust wave.  Secondly since 1995 (and in many cases much longer than that) these tenants, like almost every other member of society, should have made plans, and through hard work and sacrifice planned their future rather than relied on a government leeching other members of the same society. Thirdly lessees that had a contractual end of lease are the victims of legislation that, as has been deemed in many legal challenges, is abusive.

The way the government attempts to justify its behaviour (and make property owners look bad) is to project tenants as being “frail little old widows”.  While it is not universally true, in 1959, 1979 and 1995 many of these would have been virulent spring chickens. If the government truly respects all members making up the Maltese society it should develop projects funded through taxation, rather than abuse a subset of society and target it to, single-handedly,  do its work. 

 

Conclusion

It is clear that the Maltese government has no intention of lifting a finger to right this injustice. Landlords caught up in this conundrum need to stand up to fight for their rights. Those who have the resources should challenge in the various courts. Irrespective of resources, an association to represent lessors’ needs to be set up and supported. This organisation will be able to look at the options that can be taken, direct coordinated campaigns and push the cause at the European level.

It is appropriate to conclude with the Article 1 of Protocol No 1 of the European Court of Human Rights (https://www.echr.coe.int/Documents/Guide_Art_1_Protocol_1_ENG.pdf). This has article has been referenced in many Maltese rent related court cases:

Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.



 

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