Rent legislation in Malta: perpetuating the status quo

Almost 30 months ago, i.e. on October 1, 2004, The Times had reported that Family and Social Solidarity Minister Dolores Cristina had announced that Government is to seriously address the problem of rent reform in Malta.

This followed the address at the opening of Parliament by then President Guido de Marco in which he had announced that "rent laws will be revised and incentives will be granted for the use of our sizable stock of empty dwellings".

As yet, little has been done to address this situation, which is very worrying, even in the light of the results of The Sunday Times survey published last week, which clearly showed that the overwhelming majority (83.3%) of the Maltese "believe that it is time to overhaul the unfair 1939 rent laws".

The Malta Chamber of Commerce and Enterprise has been arguing in favour of such a reform as it believes that the reason why people are not renting houses to Maltese is lack of trust. In short, property owners do not trust Maltese legislators. This mistrust is not frivolous but is based on historical facts. Successive governments have legislated with retroactive effect.

Government and the political parties should amend the rent laws because these are clearly unfair on the owners and have been so for decades. The country's political leaders must realise that this situation is harming our country in more ways than one and agree on rectifying the law pertaining to pre-1995 rents. The Chamber envisages three main steps which need to be addressed for the property market to become truly liberalised.

The first relates to "security of tenure". For years, this provision has given rise to social injustice as it offers protection not to the tenants but to relatives of tenants, particularly those who abusively moved into premises in the twilight of their relatives' lives so as to "inherit" favourable rental conditions. The elimination of this unfair protection is deemed to be both socially and politically friendly.

The second is liberalisation of pre-1995 residential rents. The Chamber proposes that a formula acceptable to all parties be devised with a view to hasten the liberalisation process. Rents could be indexed to the 1939 minimum wage or the retail price index. The rents resulting from this exercise shall be effective for a period of, say, five years, after which rents should be totally liberalised. In extreme social cases, Government should subsidise and contribute towards just solutions.

There are cases where the tenants happen to be relatively more affluent than the property owner who could be an old age pensioner relying on rents to supplement a pension. To add insult to injury, as the law currently stands, the property owner is also obliged to finance any maintenance works required in rented properties for petty increases in rent, rendering such increases a total farce.

Thirdly, the Chamber has made its stand on pre-1995 commercial rents amply clear in the past. Such cases give rise to even greater injustice because in these cases the tenant is exploiting protection from antiquated and unfair legislation to the detriment of the rightful beneficiary of profits. In the case of rent of commercial premises, another injustice arises in that Government enjoys certain rights that private property owners do not.

The Chamber's stand on commercial rents is in favour of complete liberalisation. It proposes that current rents should be given a short moratorium after which these will be liberalised. The tenant would be given the right of first refusal to retain the rented property at the new rates and conditions. If the tenant passes away before the moratorium term, a new tenant at free market rates could be sought with immediate effect but the right of first refusal to heirs is to be maintained.

This would not merely eliminate the injustice caused, but also ensure fair competition between operators of similar businesses in nearby locations but with mammoth differences in their rental costs. The Chamber is convinced that this change is not only necessary but, most of all, just and long overdue, also keeping in mind that, in certain cases, high premiums are being paid to tenants with no benefit to the owner.

The status quo continues to impose harsh social injustices to property owners, who may be social cases in their own right. Timely solutions are therefore necessary and the "security of tenure" amendment could constitute an ideal start.

Not to mention those properties under a requisition order, which should be released forthwith and returned to their rightful owners. In these cases, Government is to refund owners for any damages caused to their property during the period of requisition.

The Chamber strongly suggests a positive perspective in effectively tackling the situation rather than a negative stance. If the property owner is placed in a relatively commercially favourable position and is confident that Government will not subsequently renege through retroactive legislation, then s/he will invest and supply property to the renting market.

It would bring a win-win situation, for the property owner, people in the market for housing and the population at large if a vast number of the 22,000 or so permanently vacant properties are not left unutilised. Property owners have suffered enough injustices through legislation which continues to discriminate against them. They should definitely not be burdened further through taxation - the imposition of which was proposed a few years back on vacant property.

The Chamber is certain that an overall review of the rent laws will serve to allow a better development of the local rental market. A mature rental market in Malta is perceived by the Chamber as one of the solutions towards containing the rise in property prices by offering a viable alternative to young people seeking a residence and who now have little choice but to take out huge mortgages required to purchase a property of their own.

Therefore, the Chamber hopes that bold steps are taken on the rent laws. The country must realise that a section of the population cannot continue to benefit from unfair situations that are causing hardships to the nation at large. Surely, it is up to our elected representatives to heed the writing that has been on the wall for far too long.

At a recent council meeting a special committee was set up to monitor closely the rental situation on these islands and to make the necessary representations to ensure that at long last this most serious social injustice to owners is finally addressed.

Mr Galea is the president of the Malta Chamber of Commerce and Enterprise.