Act VIII of 2018 was recently enacted by Parliament amending the sub-lease provisions in the Civil Code. The Act introduces new sub-articles to article 1613 of the Civil Code (Chapter 16) which regulates sub-leases, and which prior to this amendment stated that sub-leases of properties entered into before 1st June 1995 were to end on the 31st May 2018.
Malta property rent laws in recent years
Maltese rent laws have for decades been the subject of much controversy, as is evidenced by the extensive case-law on the subject, amongst which constitutional and human rights cases involving the right to property, a number of which were decided by the Maltese Constitutional Court and also by European Court of Human Rights (ECHR). The essence of the contention was, and to a lesser extent remains, the protection granted to tenants to the detriment of owners due to a number of laws introduced over the years giving tenants security of tenure at very low rents.
1995 amendments to the rent laws
A liberalisation in 1995 by virtue of Act XXXI of 1995 set the ball rolling, as a result of which new leases entered into after 1st June 1995 were to be regulated solely by the lease agreement, as opposed to older leases which continued to be controlled by the protective laws kept in force. Owners of properties regulated by such protectionist laws had no choice but to accept the automatic extension of the lease in favour tenants and their successors indefinitely and at controlled rents.
2010 amendments to the rent laws
2010 saw another development with the enactment of Act X of 2009. This law was intended to address the remaining imbalance to the detriment of owners of both residential and commercial properties. Some argue that not enough was done to balance out such injustices. Amongst those amendments was the rule that properties subject to pre-1995 commercial leases, and which were held under a sub-lease, were to come to an end on the 31st May 2018 (as opposed to leases of other commercial tenements that are still occupied by the tenant, and which by virtue of the same amendment are to terminate in 2028). Commercial leases were therefore capped, and would terminate no matter what in 2028, or in the cases of pre-1995 sub-leases, by 2018.
2018 amendments to the rent laws
Sub-leases – extension of sub-leases beyond 2018
Until Act VIII of 2018 was passed in Parliament in April this year, article 1613 of the Civil Code stipulated that in the case of sub-letting of commercial tenements before the 1st June 1995, the lease is to terminate on the 31st May 2018. With this deadline around the corner, the Maltese Parliament thought it fit to intervene and prevent such a provision from ever coming into force. The above-mentioned law introduced a new provision which essentially allows for an extension of the rental period in favour of sub-tenants. Sub-lessees who have been sub-letting commercial properties for at least one year preceding the 31st March 2018 have now been given the right to demand an extension of up to 10 years. The Act allowed a brief window to avail of this opportunity, since the sub-lessee was granted until the 31st May 2018 to file an application to the Rent Regulation Board demanding permission to retain the property for a period that does not exceed the period of the lease, or for 10 years, whichever is the shorter.
With the 31st May gone it is yet to be seen how many sub-lessees have availed themselves of this window to extend their occupancy. What is certain is that owners of properties subject to a sub-lease, who most likely have received far less rent than the tenant has received from the sub-lessee, and who were eagerly awaiting the 31st May 2018 to take over their property, may now have to wait a further 10 years before they can recover it.
Residential Rents & Social Housing
Another amendment currently being proposed by Bill 42 of 2018 aims to amend the Housing (Decontrol) Ordinance (Chapter 158). This law was introduced to regulate Maltese residential properties which were held (or are still held) under an emphyteusis, allowing for the automatic extension of the title over the property upon termination. Instead of returning the property to the owner upon the lapse of the agreed rental period, this law entitled the occupant to convert his title to a lease or to a permanent emphyteusis (depending on time frames) against a rental increase. The proposals now put forward by this bill (introducing a new article 12B) drastically restrain the possibility of increasing such rent, limiting such increases to a mere 2% of the open market value. This would mean that apart from having had to accept a tenant imposed on him indefinitely and at an extremely low rent, an owner would only be entitled to a maximum of 2% return on his property.
This amendment is being proposed to apply even to those residences, referred to in the law as ‘dwelling houses’, whose title lapsed by virtue of a court judgement. Over the years many owners challenged the provisions of Chapter 158 successfully on the grounds that this breached their right to property. Despite several decisions the by the courts declaring such laws anti-constitutional, these provisions were never repealed, and continue to have force of law. Rather than comply with such court orders and repeal these provisions, the Maltese Parliament is now proposing that owners cannot demand eviction, even if so ordered by a court, before first seeking to increase the rent, which as mentioned above, would be capped at a maximum of 2% of the open market value of the property – nominal rate considering that rental return on immovable property in Malta currently stands at approximately 4-5%.
Such amendment is being proposed within a Housing context which appears to be in dire need of reform. However, many feel that such measures, motivated as they are to assist tenants in need, or to secure social housing, ought to be provided solely by the State which is ultimately responsible for social housing, and not loaded squarely onto private individuals. This is therefore very unwelcome news to owners of residential properties subject to old protected leases. This is also a surprising u-turn which contradicts the measures taken back in 2009 to make partial amends with landlords / property owners who had borne the brunt of archaic and protective rent laws for decades. Many feel those amendments did not reach far enough to remedy such grievances. In view of this it was expected that in time other measures would be introduced to finally set the record straight. Instead, the reverse seems to be happening with the Government proposing more laws to further protect tenants to the detriment of owners.
Band Clubs Rents – of social purpose, property owners’ rights and the (in)significance of the Maltese courts on rental matters
The same bill (Bill 42 of 2018) aims to interfere in much the same way in leases of band clubs. This follows a recent decision of the Maltese Courts Carmen Mary Lanzon et vs. Joseph Boffa et concerning the De Paule band club in Paola, ordering the eviction of the club from the property due to its having breached the lease conditions. In what appears to be a clear attempt to avoid the enforcement of this judgement to the benefit of the club, the bill aims to introduce a new provision [1531J (2)] proposing that where :
- A club has been established for at least 50 years prior to 1st January 2018, and
- Said club has occupied a property under lease or emphyteusis (or a combination of both) for at least 50 years prior to 1st January 2018, and
- Said club is still occupying the property on the 1st May 2018, and
- The eviction of the club has been ordered by a final judgement of the Rent Regulation Board or any other Court for any reason (other than non-payment of rent).
the club shall be entitled to carry on occupying the property at a rent amounting to 10 times the rent applicable immediately prior to the eviction order, without further increases otherwise afforded to other clubs under the Conditions Regulating the Leases of Clubs Regulations (S.L. 16.13), which rent shall not be less than €5,000 per annum and not more than 1% of the open market value of the property.
It has yet to be seen whether this bill will be enacted considering the harsh criticism immediately received, not so much because such a law would unnecessarily limit owners rights over their property, but also because it would be deliberately ignoring court judgements, thereby posing a direct challenge to the authority of the Maltese courts.
For further information on the subject contact Dr. Simon Galea Testaferrata