Parliament has recently passed Act No. XXII of 2022, amending the Agricultural Leases (Reletting) Act (Chapter 199 of the Laws of Malta). This amendment follows a white paper released by the Government last year with the declared intention of striking a balance between the rights of tenant farmers and the rights of the lessors. This need to strike a balance was highlighted in a ruling of the Constitutional Court by the names of J & C Properties Limited v. Nazzareno Pulis et which found articles 3, 4 and 14 of Chapter 199 to breach the plaintiff’s rights under the Constitution of Malta and the European Convention for the Protection of Human Rights and Fundamental Freedom. As the court observed in its ruling, articles 3 and 4 force lessors to automatically renew the lease upon its expiry, subject to the same conditions, and lessors can only prevent this automatic renewal or change the lease conditions after obtaining the permission of the Rural Leases Control Board (the Board) in very specific circumstances listed under the same articles. Furthermore, the court observed that lessors are prohibited by article 14 from entering into an agreement with the tenants which departs from articles 3 and 4. Act No. XXII of 2022 has amended these three articles.
Lessors of agricultural land given the possibility to increase the rent up to 1.5% or 2%
The first nominal change introduced by Act No. XXII of 2022 is the possibility granted to landlords under article 3(2A) to request the Board to revise the rent up to 1.5% per annum of the land’s free and unencumbered value. Landlords can also request a revision of up to 2% of the said value if the land contains a farmhouse used by the tenant farmers as their sole place of residence. The revision by the Board may be gradual and applies for eight years, after which the same rent shall continue to apply unless the parties agree otherwise or unless the lessor files another application requesting an increase in rent.
Contrary to rent-increase proceedings before the Rent Regulation Board for leases of urban property, landlords requesting such an increase must indicate in their application by how much the rent should increase, and the tenants in their reply must indicate what they deem to be the fair rent of the land. The Board will then take into consideration four factors when calculating the increase:
- The value of the land when valued as agricultural land for agricultural use obtainable on the open market,
- The means of the tenant,
- The circumstances and the condition of the land and
- Any burden that is disproportionate to the lessor.
The amendment also grants power to the Justice Minister to make regulations regarding the procedure, method and criteria that should be followed or to serve as guidelines in the carrying out of estimates of the value of agricultural land, rents for agricultural purposes or residential purposes or agricultural produce.
These factors also differ from the now repealed article 3(2)(c) which prohibited the Board from allowing a change of conditions of the lease (including the amount of rent due) if these were not equitable by comparison with conditions of leases prevailing in comparable fields in the same part of the Island, with the Board having had to take regard principally of four factors:
- The average quality and depth of the soil,
- The nature of the subsoil,
- The direction in which sloping agricultural land is facing, and
- The accessibility of the road and its distance from the closest village.
Additionally, by virtue of the new amendments, if lessors file a case for an increase in rent, tenants of lands containing their sole residence are to be given the option by the Board to discontinue the lease of the farmhouse and continue only the lease of the land at the rent established by the Board according to sub-article 2A.
Recovery of land for development purposes – farmers may opt to retain farmhouse (razzett) or agricultural land
Act No. XXII of 2022 also amended article 4, which lists those situations in which landlords can ask for non-renewal. One such reason is if the landlords want to construct buildings for dwelling, business or industrial purposes on the leased land, provided that the land is not irrigable. Under the old article 4, the Board could not allow non-renewal of the lease for this reason if the leased land contained the sole residence of the tenants (razzett) unless the tenants were allowed to continue leasing their farmhouse under conditions fixed by the Board, or unless the landlords provided them with another accommodation.
Following Act No. XXII of 2022, the Board may give its permission for non-renewal for this reason, provided however that the tenant is given the possibility to either keep leasing the farmhouse at a rent not exceeding 2%, or to discontinue the lease of the farmhouse and instead, lease only the land under those conditions established by the Board. Therefore, it appears that the tenant is given the option of either keeping the farmhouse or the land, and consequently, it would appear that the owners would not be entitled to recover the entire property on this ground. These doubts are further increased by the last proviso, capping the occupation of the farmhouse to eight years. While it is understood that such a capping applies to situations where a tenant opts to retain the farmhouse and relinquishes the rest of the land, the proviso strangely goes states that upon the lapse of 8 years the rent shall remain the same thereafter. This would not make sense given that at that point the entire lease would have lapsed – the lease concerning the land would have already been terminated, whereas the farmhouse would be returned upon the lapse of eight years, leaving no property subject to lease, and consequently, no rent being due. This second part of this proviso thus appears to be an unintended appendix of a previous draft.
Lessors and tenant farmers can agree to depart from the restrictive effects of the law
Lastly, Act No. XXII of 2022 amended article 14 of Chapter 199 which previously prohibited agreements between the parties which deprived tenants of any benefits conferred to them by this law. Article 14 has caused some confusion lately because while articles 3 and 4 allowed the parties to enter into a written agreement to regulate the conditions of the lease, the rent and the lease’s termination, it was not clear whether article 14 prohibited the parties from agreeing on less favourable conditions for the tenant. While the above-mentioned Constitutional Court ruling in J & C Properties Limited v. Nazzareno Pulis et held that article 14 prohibited such agreements, a number of judgments delivered since then by the First Hall of the Civil Court have decided otherwise.
The article has been amended and now makes it clear that article 14 is inapplicable in those cases where the law allows the parties to enter into an agreement. This means that landlords may now enter into a written agreement with the tenants regulating how the lease is to be renewed, its conditions and particularly the amount of rent due.
The question remains: Does the amended law respect the lessors’ right to property?
It is yet to be seen whether Chapter 199 as amended strikes the balance sought, and, more importantly, whether it is compliant with lessors’ constitutional and fundamental human rights. Now that it is clear that lessors are allowed the possibility of entering into agreements with tenants to avoid the recurring application of articles 3 and 4, it remains to be seen what impact this may have on constitutional cases, particularly whether courts hearing landlords’ constitutional claims would require them to prove their efforts to reach an agreement with the tenants, and their failure to reach such agreement despite such efforts. Some might interpret this amendment as not merely a clarification of the previous article but also as an added obstacle imposed on landlords when seeking constitutional redress. This is not to say that the courts will throw out such cases when no agreement is reached, although it is expected that such circumstances may impact the compensation awarded. It remains to be seen what weight the courts will give to the failure to reach an agreement, and, more importantly, whether it will impute any liability on the party responsible for such failure.
Likewise, the capping of the rent to 1.5% of 2% may also be tested constitutionally. One reason for which one First Hall judgment did not find Chapter 199 to violate lessors’ rights is that the court concluded that article 3 did not provide for a maximum rate of rent. In fact, the court concluded that the Board was perfectly entitled under the now-repealed article 3(2)(c) to increase the rent to reflect the current market value. This is no longer the case as now the rent cannot exceed the 1.5% of the 2% rate fixed in article 3 (2A).
Lastly, it should be noted that Act No. XXII of 2022 does not include the eight-year minimum and the sixteen-year maximum duration periods for agricultural leases, as the Government had proposed in its white paper. Given the uncertainty of the proviso to article 4 (2) relating to the continuation or otherwise of agricultural leases following a request for non-renewal on the grounds of development, agricultural leases under Chapter 199 thus remain indefinite unless an agreement between the lessors and the tenant farmers is reached to this effect.
For further information on property law, do not hesitate to contact Dr Simon Galea Testaferrata or any other member of IURIS Advocates.