The point about old rentals - Kurt Xerri
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The point about old rentals - Kurt Xerri

The 2010 reform was a missed opportunity

Photo: Darrin Zammit Lupi

Photo: Darrin Zammit Lupi

On May 8, the judgment Anthony Debono et vs The Attorney General, in which a tenant was divested of the protection afforded to him by the law and inexorably condemned to eviction, has perhaps been unduly acclaimed as a “landmark judgment”. 

Besides the fact that it is a First Hall decision potentially subject to appeal, the incompatibility of pre-1995 leases with the European Convention of Human Rights (ECHR) has been clear for, at least, the last 13 years.

The history of rent control in Malta is an extremely complex one and it is a mirror reflection of the main historical vicissitudes of the island, particularly the immediate post-World War II periods and the economic rebuilding of the Maltese sovereign State in the 1970s.

Controls were invariably introduced to respond to shortages of housing and to limit market abuse, in a context where the proportion of tenants in Malta exceeded that of homeowners. It was only in 1985 that the recorded number of owner-occupied dwellings was found to be higher than that of rented units.

Albeit accompanied by controversy, the validity of these rent control instruments was unquestioned both by the local as well as the European Court of Human Rights (ECtHR).  

The watershed moment came when the ECtHR adopted a novel, more liberal interpretation of the Convention in a number of rent-control cases originating from former Soviet states, which had an unavoidable effect on Malta. 

At a European level, in fact, Malta remains the only State along with Slovakia (Bittó vs Slovakia and Bukovčanová vs Slovakia) with serial violations of landlords’ right to property.

The ECtHR’s pronouncements in favour of Maltese landlords in Ghigo vs Malta, Fleri Soler and Camilleri vs Malta and Edwards vs Malta, decided between September and October of 2006, had emphatically declared that despite the lawfulness of the intervention and the State’s legitimate aim of protecting renting households, it could not shift the social and financial burden of supplying social housing onto the private sector, by subjecting landlords to minimal profits.

On the basis of the ECtHR’s recommendation that Malta redefines the parameters of what would constitute a fair rent, decent profit and a tenant in need, the Maltese State initiated a reform process with the aim of restoring an adequate balance between the parties. 

This reform, which came into effect in 2010, was, perhaps, the greatest missed opportunity of all, since not only was the legislator finally provided with a political pretext to address this long-running issue, but it could have afforded to do so in a docile economic climate which had witnessed the first property price slowdown in decades.

As was apparent from the outset, the 2010 reform failed to meet any of its stated objectives. The minimum rent was set at a risible €185 per annum (just to put this figure into perspective, the minimum pension in 2010 amounted to €101 per week, meaning that even in the hardest-hit cases the tenant would not be spending more than four per cent of his or her household income on rent). Moreover, sitting tenants were allowed to remain in the indefinite occupation of those premises regardless of the total value of their assets or the extent of their income. 

Post-2010 ECtHR judgments have unequivocally rejected the Attorney General’s defence that the Maltese State had taken sufficient remedial action to cure these violations (Aquilina vs Malta, 2014). 

The crisis grew deeper. Contrary to the impression that might at times be given locally, the ECtHR never showed much interest in the manner in which the title over the property was formed. Hence, the ECtHR’s principles remained constant regardless of whether the premises had been requisitioned (such as in Ghigo, Fleri Soler and Camilleri and Edwards), originally granted by virtue of emphyteusis or ċens (Amato Gauci vs Malta, 2009) or transferred by a title of lease (Aquilina).  

This line will most likely be pursued by the government even with respect to all the properties that had been originally transferred by title of lease prior to 1995

The elements upon which the ECtHR decided in favour of the landlords was the growing detachment of the statutorily controlled rents from the market value, coupled with the indefinite nature of the protection granted to tenants, which were common factors in all the cases brought against Malta.

This increasing pressure left the Maltese Constitutional Court with no option but to ultimately declare that any tenant residing in a property under any law infringing the ECHR or the Constitution could no longer rely on its protection (Cedric Mifsud vs Avukat Generali, 2013). 

This meant that if challenged by the landlord before a civil court, a previously statutorily-protected tenant would be held equivalent to a squatter and ordered to vacate the premises.

This position was consolidated in subsequent judgments, however, the length of the due judicial processes meant that the threat of mass evictions would only start looming realistically on the Maltese housing market in 2018. The legislator was, therefore, made to respond with a set of emergency amendments which sought to rescue leases originating from prior emphyteutical grants.  

In such cases the sitting tenant would be immediately subjected to a means test and his title to remain in the indefinite occupation of the property would only be confirmed in the case that he satisfies the established criteria in relation to both income and capital. Moreover, the tenant would continue to do so against an annual rent equalling up to two per cent of the value of the leased property.

While this line will most likely be pursued by the government even with respect to all the properties that had been originally transferred by title of lease prior to 1995, the question remains whether this latter remedial intervention by the State would be deemed sufficient by the ECtHR. A preliminary analysis would suggest that it does. 

Although the means test criteria granting protection to a person over 46 years of age who holds up to €200,000 worth of assets and earning up to €42,000 a year (arguably an amount sufficient to purchase a property or to take out a loan) might appear as excessively lenient, the two per cent benchmark complies with the ECtHR standard confirmed in Nobel and Others vs The Netherlands (2013), where two Dutch landlords complaining of returns as low as 1.9 and 2.9 per cent of the value of the property, had their case dismissed.

An objective assessment of the question of old rentals, therefore, demonstrates that what we have been witnessing in the past months is not the result of a sudden, unforeseen crisis but the inevitable consequence of long decades of political dithering and indecisiveness, during which numerous possibilities to rescue the situation were squandered away. 

Although juridically the saga appears to be heading towards an epilogue, much has to be seen whether the tenants satisfying the means test will adjust suitably to the new annual rates, while those failing it will be able to relocate smoothly to alternative premises.  

This underlines the need for the government to sustain its effort in ensuring adequate access to housing to all those households facing uncertainty.  

The regulation of the liberalised private rented sector, the housing benefit for renting households, the facilitation of home ownership through social loans and equity sharing schemes together with a consistent supply of affordable rental accommodation are some of the proposed measures which may alleviate the impact of any necessarycorrective action.

Kurt Xerri is a member of the Department of Civil Law at the University of Malta.

This is a Times of Malta print opinion piece

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