New rent rates proposed in the new Controlled Leases Reform Act – a blessing or a farce?

A Bill has been tabled in Parliament in order to introduce the Controlled Leases Reform Act, 2021. This new law is intended to amend the laws which cap the rent chargeable on pre-1995 leases at the €185 plus the increase in cost of living every three years.

 

Back in 2018 the Housing (Decontrol) Ordinance was amended to introduce a procedure whereby the owner of a property which had originally been granted on temporary enfyteusis and which converted into a protected lease since the occupant was a Maltese citizen using the property as their ordinary residence could ask the Rent Regulation Board to review the rent or to order the occupant to leave the property on the lapse of five years if it was found that they have means which are deemed sufficient to disqualify them from continuing to enjoy the protected lease.

 

In terms of the 2018 amendments to the Housing (Decontrol) Ordinance, the owner of a property which had originally been granted on temporary enfyteusis and which converted into a protected lease is entitled to ask the Rent Regulation Board for the rent be revised to an amount not exceeding 2% per annum of the open market freehold value of the property on the 1st January of the year during which the application is filed and that new conditions be established in respect of the lease.

 

By and large the Controlled Leases Reform Act seems to be following this approach taken back in 2018 when the Act to amend the Housing (Decontrol) Ordinance was promulgated.

 

This means that the landlord shall be entitled to file an application before the Board requesting that the rent due in regard to a protected lease be reviewed for an amount not exceeding 2% per annum of the free and open market value of the premises on 1 January of the year in which the application is filed and in order to establish new conditions regarding the lease.

 

As applies to properties which had originally been granted on temporary enfyteusis and which have converted into a protected lease, if it is found that the tenant has means in excess of those established in the Continuation of Tenancies (Means Testing Criteria) Regulations the Rent Regulation Board is bound to give judgement allowing the tenant a period of five years to vacate the premises. The compensation for occupation of the premises payable to the owner during the said five-year period shall amount to double the rent which would have been payable in terms of this Ordinance.

 

Suffice it to say that the 2018 amendments to the Housing (Decontrol) Ordinance have certainly not solved the problem for property owners – although slightly better than the €185 plus increase in cost of living currently established by law, annual rents the up to 2% per annum of the freehold value certainly falls short of the real rental rates established by the free market of demand and supply.

 

What many people fail to notice is that the freehold value of a property is generally based on a mix of attributes including such things as location, amenities, the neighbourhood, property condition, age and layout, meaning that account is already taken of the particular state of repair that a property is in. Market trends are then applied once more in order to reach the rental value, which often generally equate to at least around 5% per annum of the freehold value of the property.

 

Various judgements have ended up increasing the rent to 1% of the value attributed to the property, allegedly on the open market, sometimes giving rise to rents of as little as €100 per month. One need not need to vivid an imagination to realise that, whilst continuing to solve Malta’s social housing problems, this has not gone very far to compensating property owners who continue to be deprived of their property, irrespective of their personal circumstances.

Since the proposed Controlled Leases Reform Act is based on the current procedure, it will surely give rise to more lawsuits claiming the breach of the property owner’s fundamental human right to the enjoyment of their property in view of the continued forced reletting ordered by the Rent Regulation Board.

 

Another aspect which will certainly be looked into is the rental rate to be once more forcefully imposed on property owners given that even if the top threshold rent of 2% is imposed, this is still a far cry from what one real open market rental rates.

 

Whilst this new regime should help ensure that many people who cannot afford to pay current market rental rates can continue to live in properties which have been their family homes since before 1995, it will remain to be seen whether or not these changes will be sufficient for property owners to embrace them.

 

N.B. The information provided herein does not constitute legal advice. For further information, please feel free to call +356 99491230 or send an email to avukatdemaria@gmail.com.