Rent Laws Act X of 2009: A step in the right direction? (Part 3)

In this final part of the series on rent reform, we shall discuss the fiscal incentives introduced and examine the recent judgment of the European Court of Human Rights on the subject.

As stated in the Policy Document issued by the Minister of Social Policy, it is being proposed that two fiscal incentive schemes will be introduced by the end of the year whereby landowners will be able to sell rented residential properties to their tenant, at a reduced final withholding tax of three per cent on the value as long as such deed is entered into by not later than December 31, 2013. The second incentive shall be that all those rents which will remain below the property market value, notwithstanding such amendments, shall be free of income tax.

It is quite evident that by implementing these amendments the legislator went to great lengths to find the right balance between the interests of property owners and those of tenants. It is also apparent that the government wants to introduce a register of rented properties in order to better regulate its income from taxation and this is the reason why rental agreements, from January 1, 2010 must now be in writing “ad validitatem”.

These amendments have been long awaited, and are a sigh of relief for property owners. It was high time for such amendments but the circle has not as yet been completed, the introduced amendments may not be sufficient enough, and this in light of the hereunder judgment delivered by the European Court of Human Rights in the case Philip Amato Gauci vs Republic of Malta decided on September 15.

The judgment most certainly has a bearing on the new rent laws. The European Court of Human Rights was asked to examine whether the conversion into an indefinite lease at the expiration of a temporary emphyteutical grant of 25 years over a maisonette in Sliema was in violation of the plaintiff’s human rights.

The plaintiff, owner of this property, requested the European Court of Human Rights to examine article 12(3) of the Housing Decontrol Ordinance, and claimed that as a result his property rights were infringed because the law imposed on him a unilateral lease relationship for an indefinite time and for an inadequate rent thereby violating Article 1 of Protocol 1 of the European Convention on Human Rights (the peaceful enjoyment of one’s possessions).

In its judgment, the European Court of Human Rights stated, in no uncertain terms, that the application of legislation affecting landlord’s rights over many indeterminate years, constitutes a continued interference of the rights of the owner for the purposes of Article 1 of Protocol 1. The court continued that any interference with property must be supported by an element of proportionality.

In this case, the plaintiff, as a result of the applicable law, was declared to have had to bear a disproportionate and excessive burden.

This was stated on the basis that the rent payable did not reflect in any way the true market value of the property and most certainly did not reflect or come anywhere close to the market rental value in question.

Furthermore, the court considered that the fact that the tenancy could be inherited and was for an indeterminate period, was a further element contributing to the justification that the law resulted in a disproportionate burden that the owner should not shoulder.

As a result of this judgment various questions regarding the proportionality and legitimacy of the provisions contained in Act X of 2009 come to mind. Act X of 2009 is surely a step in the right direction, but may be one which does not give adequate reprieve and proportionality towards property owners.

(This is the final article in a three-part series on rent reform.)

Dr Attard Montalto specialises in civil law at Fenech & Fenech Advocates.