A scheme to give Valletta shop tenants stronger title over properties currently leased from the government has received opposing reviews from two business associations in the capital.

The Republic Street Business Community Association believes that the option to change from a lease to an emphyteusis will bring certainty and opportunities for the majority but the Merchants Street Business Association fears it could also have unintended consequences for the minority who sublet from the tenants.

The scheme enables tenants of government-owned premises to convert their lease agreement into a 45-year emphyteusis (ċens).

It was meant to create a level playing field for shop owners who currently pay dramatically different rents, ranging from full commercial rates to very low ones that have barely changed over the past 50 years.

The scheme updates one introduced by the previous legislation, driven by then minister Jason Azzopardi, which had changed leases from six-month renewable ones to three sets of 15 years each. However, that scheme kept the agreement as a lease, whereas this scheme has changed it to an emphyteusis model, which gives tenants considerably more rights.

Paul Fenech, the president of the Republic Street Business Community Association (RSBCA), said an emphyteusis was basically “ownership but for a set period of time”. For example, it would enable the tenant to use the property as collateral against a loan. An emphyteusis can also be transferred to third parties – although Planning Parliamentary Secretary Michael Falzon stressed that they would not be allowed to do so at “exorbitant rates”.

Minority face uncertainty

Mr Fenech said that although transfers were allowed in theory under lease agreements, it was so complex that many tenants did not bother.

In fact, around 10 of the RSBCA members had applied for the old scheme and most of these are considering applying again under the new scheme, he said.

However, the president of the Merchants Street Business Association, Tonio Camilleri, is concerned by two aspects which could affect its 72 members: what will happen to those subletting from tenants without any legal basis; and whether the annual rates will be too high.

The new scheme would allow applications from sublessors who have a proper agreement with the actual tenant – but it is not clear what would happen to sublessors whose tenant does not have the right to sublet, or who are subletting without a formal agreement.

Shops and property in St John Street, Valletta. Photo: Darrin Zammit Lupi

Mr Falzon said that these irregular sublets would “face consequences” but it is not clear whether the government would see tenant or the sublessor as the guilty party, Mr Camilleri explained.

“Ideally, before announcing the scheme, the Lands Department should have investigated all the lease agreements it has, verifying which ones allow subletting if any, and who actually occupies the premises,” he said.

“It could then have taken action against the leaseholders who were making money out of their illegal activity to the detriment of the sublessors – some of whom may have been there for years and who may have invested in the premises over the years, while being charged very high rents,” Mr Camilleri said.

“Only a handful of sublessors have a contract recognised by the Lands Department. This scheme was meant to provide certainty but in reality it is going to cause havoc!” he said.

Another issue is the amount of ground rent, which varies from €500 per square metre a year in the prime commercial areas, to €20 per square metre for shops on the outskirts of the capital.

The GRTU, on the other hand, is definitely upbeat about the scheme

“What happens to sublessors now? If the government raises the annual rent – some outlets will now be paying more than outlets at The Point – will the leaseholders still sublet to the current tenants but at an even higher rate? Would they evict them, as it would no longer be worth the trouble of subletting? Who would have right of first refusal, the tenant or the sublessor?” Mr Camilleri asked.

Mr Fenech was pragmatic about the issues raised by Mr Camilleri, saying that the important thing was that the scheme was voluntary – and that it would provide clarity for the great majority.

“Why shouldn’t premises in Valletta be rented at market rates? The average shop in Valletta is 30 sq m, which would mean a payment of around €15,000, increasing by 10 per cent every five years. Some tenants were paying less than €100 a year. Yes, it will be a shock for them but was that fair? Was it fair on the taxpayers? Was it fair on other outlets who are trying to compete while having to pay market rates?” Mr Fenech said.

He did have one question mark though: what would happen to tenants who did not apply for emphyteusis?

“If tenants are acting irregularly, then it would not be in their interest to apply for the scheme. What will the government do? Would it eventually raise their rent – in spite of the political unpopularity? Would it simply not renew the lease and ask them to leave? After all, the government has a duty to taxpayers to use its assets fairly,” he said.

The GRTU, on the other hand, is definitely upbeat about the scheme. CEO Abigail Mamo said feedback from members was positive.

“The new scheme is the result of around two years of discussion with Mr Falzon during which we tried together to improve on the previous Valletta Shop Scheme to make it more appealing to the targeted businesses and increase take-up of the scheme.

“A number of the improvements introduced were proposed by GRTU. The main one was the 45-year term of emphyteusis which is a significant improvement from the current situation, where most are renewed every six months or one year. This should boost investment in the establishment and provide tenants with the opportunity of accessing funds from banks and using the establishments themselves as collateral.

“GRTU also managed to negotiate better rates for a number of zones,” she said, adding that the association was now working with the ministry on the relocation of tenants where needed.

The scheme closes in May 2016.