Dalli says rent reform Bill is 'a step in the right direction'

Although the proposed rent reform would not give everybody what they were expecting, Social Policy Minister John Dalli said he was sure that with the passage of time the good effects of the reform would be appreciated by most as a step in the right direction.

Introducing the debate in second reading of the Civil Code (Amendment) Bill, Mr Dalli appealed to one and all, but especially the opposition, to be constructive in its contribution to the process. It was important that this be done in order to send a strong and clear signal that the country needed a strong leasing market, and that the age of government intervention in the leasing of accommodation was gone forever.

Earlier, the minister expressed a huge sense of satisfaction that the Bill would result in a big reform in the country. It was a reform that was broadly recognised as needed, and would bring social justice to several people. It was not a reform to draw applause, because not everybody would be getting all they were expecting.

The updating of pre-1995 leases had been made one of the important initiatives of this legislature. This must be made clear in order to avoid misunderstandings. The year 1995 was being mentioned because that was when Parliament had passed new legislation to start addressing the problem. Leases after the enactment of that law had been liberalised and the first steps had been taken to solve one of the greatest social problems in Malta.

Mr Dalli made it clear that the anomalous situation had come upon the country as a result not of bad decisions, but of decisions that were right at the time of enactment but that successive governments had failed to update. With the updating envisaged by this Bill, such problems would no longer be experienced.

There was no doubt that the solution to the problem was not easy. It was a skein that had built up over 60 years and had continued to become more tangled. The current system of leasing had not always existed; in fact the new system that the Bill would bring into effect had existed before the war, but because of the effects of war it had fallen into disuse.

In 1947, the then Labour government had brought in the Housing Act to appease the huge problems brought on by war damage. It had given the government of the day the power to requisition homes and allocate them to the homeless at affordable levels of rent determined by the government, while the accommodation remained the property of the owner. This had been done to address the double problem of lack of accommodation and accommodation being sold at exorbitant prices.

Mr Dalli said that, understandably, this had been the right decision at the time. The Housing Act had originally been enacted for two years, but had then been extended and things had become more complicated. The Dwelling Houses Ordinance of 1949 had brought in restrictions establishing rents on the parameters and rates of 1939. Annual rents of Lm7 were good money at the time, but not today.

Mr Dalli said that if successive governments had had the sense to review these problems periodically the country would not have found itself in today's situation. The post-war measures had been ones of emergency, but in later years it had not been realised that the emergency was over. The existence of those laws in the Civil Code had brought lack of property available for rent.

In 1959 the Constitutional government had brought in the Housing Decontrol Ordinance so that owners of newly-constructed buildings could register them as decontrolled and therefore not subject to requisitioning. This had been a first reaction to, but not the solution of, the problems. It had been a reaction to the state of things when it had been realised that nobody was constructing new buildings because of the fear of requisition.

Between 1962 and 1971 Nationalist administrations had continued with requisitions under existing laws.

From 1971, the Labour government had intensified the requisition process, but it had also constructed several housing estates that were affordable.

In 1976, the Housing Authority had been created with the main aim of allowing the government to take a step back from the administration of renting and depoliticise housing.

Minister Dalli said that despite the setting up of the Housing Authority requisitions still continued under the Housing Department. This had come to an end in 2008 when the Housing Department was integrated in the Housing Authority.

The law enacted in 1970 gave right of protection to leaseholders and denuded owners of their rights. The right of protection was later extended to all persons in the household and owners were actually barred from making use of their own properties.

Mr Dalli said that the same happened when emphyteusis contracts were transferred into rent. If leaseholders paid at least Lm15 per annum in rent, property owners were still held responsible for making alterations. In 1995, the government and Parliament had taken the first step to organise the sector with 54,000 properties which had to be derequisitioned.

In 1996 the labour government had set up a commission for reforming rent laws. Extensive use of the minutes of this commission and of its reports had been made in drafting the present Bill. He also noted that the 1996-98 Labour government under Alfred Sant had not followed Labour policy used in the 1970s and had taken steps to solve the problem.

This reform was a national priority and political parties had to agree to the reform if the lease market was to be made functional. Mr Dalli said that the amendments enacted in 1995 had not led to rent liberalisation because not all leases were included.

This would not be the case now. An ambitious project had been taking place since 2001 with the de-requisitioning of nearly 53,000 properties. Today only some 1,500 requisitions were still in force.

While the reform aimed at liberalising the market, the interests of current leaseholders had to be protected so that a balance could be struck. For this reason the reform had to take place gradually because a climate of trust had to be built.

More than 2,000 suggestions and 800 questions had been received from the public in reaction to the White Paper. The political parties, eight constituted bodies and three government entities had also made formal reports. Tabling an analysis of this feedback, Mr Dalli said the government had considered all proposals and drafted the Bill accordingly.

The government would not intervene in case of written contracts between property owners and leaseholders. Indeed, it wanted to facilitate such agreements. Leases of political party clubs would be liberalised as from 2010. A solution was also being proposed where one room of a residential property was used for commercial purposes, and on garages which were not for personal use.

The government could have drafted a completely new rent law, but on advice had opted for changes to the Civil Code. Special rent laws would remain in force in cases of court litigation.

All rents would be regulated by written contracts which had to be deposited with the Registry Office. The government was also determined to develop an index of property prices for sale and leasing. This index would not be a price order but an indication on how the market was performing.

There were various recommendations in the White Paper that the government had decided not to change, Mr Dalli said. One such case was that the spouse of the leaseholder could remain in the house by right when the spouse died. This would not count as the first lease but whoever inherited from the surviving spouse would be the first lessee.

Secondly, there was the right of one lease, causa mortis. A person was eligible to continue to live in the house if for four of the previous five years he had lived with the leaseholder.

Also, those who had lived with the person but were not eligible causa mortis could continue to live in the property for up to five years, until they came to an agreement with the owner or found a suitable alternative.

Brothers and sisters of the leaseholder could also continue to live in the premises, subject to a means test.

As from next January, the minimum rent would be set at €185. Some had said that this was too high and others had said it was too low. Personally, Mr Dalli felt that it was not too much, and should not cause problems for anyone when it came to payment. Any lease of property for residential use would increase every five years to make up for inflation. Furthermore, the responsibility of the owner would be limited to structural changes, and the owner would not be responsible for any minor maintenance, such as decorating rooms. The White Paper had stipulated that the owner who carried out any of this maintenance could increase the rent by 10 per cent of the cost of the works that had been carried out. This had now changed to six per cent, following comments which the government had received. The argument had been put forward that as the property would ultimately be returned to the owner, this was only fair.

No leaseholder could now make a sub-allocation without permission from the owner. Commercial property could be sub-allocated even before June 1, 2008, but after 10 years the title would revert to the owner.

In the case of any garage which was not a part of a house, and when there was no contract between the parties, the lease would come to an end by January 1,, 2010. When it came to summer residences, the lease would come to an end as from January 1, 2010. Any cases related to leases from now on would fall under the jurisdiction of the Rent Regulation Board.

There had also been a change when it came to children of the leaseholder who were over 16 years old. These could continue to live in their parents' house, even as a joint lease. The lease would be inherited between them, until the last of the siblings passed away. Still, if between them the siblings could afford to move to private property, they too would be subject to a means test. Siblings of the leaseholder or of their spouses could also remain if they underwent a means test.

A fundamental principle of the Bill was that there would be no government interference when there was an established contract between the parties involved. When the contract had no stipulated end date, in all cases the lease would come to an end in 20 years' time, as from June 1, 2008. When there was no contract there would be an increase of 15 per cent per annum between 2009 and 2012, as by then it was hoped that the Property Value Index would have been implemented to help regulation.

When it came to commercial leases without a contract, the lease would close in 20 years' time, and in the case of death, illness or marriage, the spouse or the children would have the right to continue the lease until the end of the transition period stipulated by law.

The recommendation in the White Paper that obliged commercial entities on the Malta Stock Exchange to pass on property in their possession on June 1, 2008, had been removed. Mr Dalli said the lessee's right of first refusal would continue to apply under current regulations.

There were certain aspects that had been introduced into the Bill after general consultation. The aspect of the casa bottega, or a property used as a residence and a commercial entity at the same time, should continue to hold sway after consideration of what was more advantageous for the tenant until his death, not 20 years. The applicable rent would rise to the higher of yardsticks for shop or home. The government would liberalise this sector of the leasing market from January 1, 2010.

A lot of thought was needed about the situation of clubs, because of their strong social impact. This part of the market must be liberalised gradually. The continued existence of most of these institutions was considered necessary, and it must be recognised that during the process of liberalisation there should be specific funds to help the clubs foster culture.

Mr Dalli said that even in its efforts to make things better, the government must draw a line.

The government was doing its best to institute a reform that brought about social justice while not revolutionising the market. Things must be done in a transitory manner, but the reform must spread through Maltese society. It was not really possible to live up to everybody's expectations in one fell swoop, but the Bill was laying the framework to solve the biggest problems.

Concluding, Mr Dalli said the government would be ready to accept the opposition's suggestions of ways of making things better.

The opposition's reaction to Mr Dalli's speech will be carried tomorrow.

At the start of yesterday's sitting, the House unanimously approved the first reading of the Motor Vehicles Registration Tax (Amendment) Bill.