A recent judgment delivered by the First Hall of the Civil Court has declared Act XXIV of 2021 – which introduced the possibility for landlords of pre-1995 leases to request an increase of rent by up to 2% of the value of the property – to be compatible with landlords’ fundamental right to property.
Rent law violations and developments over the years
For several years now, the courts in Malta have constantly found the provisions of the Reletting of Urban Property (Regulation) Ordinance (Chapter 69 of the Laws of Malta) to violate a landlord’s right to property, primarily because these provisions force landlords to lease their properties for a measly rent and seriously limit their possibility of terminating the lease and recovering their property. Despite these provisions being declared to violate both the right to property as protected by the European Convention and the Constitution of Malta, these have never been struck off by the legislator. Instead, several amendments were introduced over the years to try and lift the burden imposed on property owners, with Act XXIV of 2021 being the latest of such amendments.
By virtue of this amendment, landlords can file an application before the Rent Regulation Board requesting it to conduct a means test on the tenant. If it results that the tenant does not have sufficient means and is thus entitled to protection, the rent is increased by the Board to as much as 2% of the property’s market open value. This is the maximum the law allows, and the Board has (until now) the discretion to award less, depending on all circumstances of the case. If, on the other hand, the tenant is deemed to have enough income and capital, the tenant is ordered to evict the premises within two years and to pay a rent fixed by the Board until his eventual eviction.
Over the years landlords have sought redress before the constitutional court against the breach of their right to property. This continues today even after the introduction of Act XXIV of 2021, since a return of 2% is still considerably less than the expected rental return for one’s property. So far, property owners who instituted constitutional proceedings were generally given a declaration by the courts that the provisions found to breach their rights were no longer applicable, meaning that the tenant could no longer seek the protection of such provisions. Such decisions enabled landlords to thereafter sue the tenants for eviction before the Rent Regulation Board (RRB). At times, the constitutional courts went beyond this declaration and also ordered eviction themselves, sparing the landlords the need to institute further proceedings. The above-mentioned judgment, which has become res judicata, departed from this approach.
Facts of the case
The plaintiff owned a property which was leased as a casa-bottega under the Reletting of Urban Property (Regulation) Ordinance. She instituted proceedings before the First Hall claiming a breach of her right to property under the European Convention and requested the court to remedy this breach. The State Advocate raised multiple pleas, one of them being that the court could not give a declaration that the provisions of the law were inapplicable in view of the introduction of Act XXIV of 2021.
The reasoning of the court
The court found that the provisions complained of did breach the plaintiff’s right to property under the European Convention for many years as they imposed on her a disproportionate burden. This notwithstanding, the court held that with the introduction of Act XXIV of 2021, the law no longer breached her rights, as the said Act enabled her to file an action before the RRB demanding an increase of the rent up to 2%. Therefore, while the court agreed that the plaintiff suffered a violation of her rights up to the introduction of Act XXIV of 2021, it accepted the State Advocate’s plea that the violation ended with the enactment of such law. It, therefore, awarded compensation for the violation suffered up to 2021, but refused to award compensation for the period thereafter because it deemed the violation to have ceased.
Implications on rent increases and other constitutional remedies
This judgment has found the recent amendment to be compliant with the right to property, maintaining that it has finally ‘corrected’ the disproportionality imposed on landlords. While the court took note of the fact that the current open market rent rate is 3.5%, it remarked that ECtHR jurisprudence (without referring to any in particular) does not entitle landlords to this full rate if their property is leased for accommodation purposes. Some maintain that if the court acknowledged that 2% does not equate to the full market rates, it ought to have concluded that a breach existed nonetheless, and even awarded the compensation for the period post-2021.
Furthermore, this judgment shows that the court assumed that the rental increase will always amount to 2%, when this is only a presumption, since Act XXIV of 2021 allows an increase up to this rate. In fact, awards of rent increases by the RRB have not always amounted to said maximum rate, with lesser increases being awarded instead. Yet the court disregarded this possibility. Consequently, if the court’s reasoning were to be applied to other cases, there is a strong possibility that landlords in constitutional proceedings are not awarded compensation post-2021 on the basis of this judgment, yet find themselves shortchanged when they later file before the RRB which may award a rental increase that is less than the maximum rate permitted by law. It is understood that this judgment maintains that such a loss (2% instead of 3.5%) is justified because it supposedly matches the burden which landlords are expected to carry in the general interest. This assumption stems from the fact that the court held that 2% is a fair increase. However, the court said nothing of the possibility that landlords may not obtain this increase before the RRB. Two considerations stem from this:
A. What is to happen if the RRB does not award the maximum rate of 2%, but a lower rate? Would the landlord be entitled to compensation for such a breach, and if so, to what extent? Would he have to file separate constitutional proceedings for this and expose himself to further proceedings and legal costs?
B. Does the RRB still enjoy discretion in awarding a rent increase up to 2%, or should it apply the maximum rate in all cases? More importantly, is the RRB now to be considered bound by the conclusion of this judgment that a rent increase of 2% meets the requirements of the right to property? One can argue that an increase that is less than the maximum rate would not be accepted by the constitutional courts and that the RRB would be breaching the landlords’ rights if it proceeds in this manner. It is yet to be seen whether the RRB will apply the maximum rate across the board in fear of awarding a rate that the courts may not accept.
Lastly, it should however be pointed out that in this case, the plaintiff did not request a declaration that the law is inapplicable, nor did she request an eviction order. It is not known whether the court would have decided differently had these remedies been specifically requested.
The sheer number of constitutional cases pending before the Maltese Courts is testament to the fact that Malta’s old rent laws have violated, and remain in breach of, the right to property of many property owners, thus offering multiple opportunities for the Courts to test the reasoning behind this judgement.
For more information on lease and rent laws contact Dr. Simon Galea Testaferrata or any other member of Iuris Advocates.