Re-balancing the Respective Rights & Obligations of Lessors and Lessees

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This article was written by​ Dr. Stephen Muscat and Daniel Vancell

Introduction

The Reletting of Urban Property (Regulation) Ordinance, Chapter 69 of the Laws of Malta (the "Ordinance"), has been recently amended by virtue of Act XXIV of 20211. The main goal for the introduction of the Ordinance, originally, was to protect the interest of the public by establishing a type of lease which would automatically renew itself and could not be terminated unilaterally upon its expiration. A problem that arose under the Ordinance was the fact that this law placed a restriction on the amount of rent a lessor may demand, effectively rendering the lease incapable of rent increases to reflect the then current free market value of the premises, as well as disallowing the lessor from terminating the lease.

Procedure before the Courts of Constitutional Jurisdiction

In order to remedy these obstacles, lessors are resorting to the Courts of Constitutional Jurisdiction. With reference to the case of Margaret Caruana et vs. L-Avukat Generali et, the lessor will usually ask the Court to:

  • Declare that their fundamental rights established under Article 37 of the Maltese Constitution and Article 1 Protocol 1 of the European Convention on Human Rights are being violated by the Ordinance;
  • Declare that the lessee may no longer enjoy the protection afforded by the Ordinance, and
  • To fix compensation owed to the lessor for the infringement of the above rights.

In what now seems to be a foregone conclusion, which is recurring in the cases being put forward before the courts of constitutional jurisdiction, these courts declare the existence of a disproportionate and excessive burden being placed on lessors, when assessing all the relevant elements including the relatively low rental value of the premises and the lack of procedural safeguards in the application of the law, as can be seen in the above-mentioned case. The Court in the said case further stated that the State "failed to strike the requisite fair balance between the general interests of the community and the protection of the applicants' right to the enjoyment of their property"2.

In the course of delivering a judgment, the Constitutional Court will affirm whether or not there has been a violation of the lessor's human right to enjoyment of property. In the case that a violation is found, the Court will proceed to liquidate the amount of compensation to be paid by the State Advocate to the lessor.

Moreover, a lessor may also request the eviction of the lessee. However, an order for eviction by the Constitutional Court is a rare occurrence, and the court will more often than not state that the lessee is no longer able to rely on the law that is declared to be violating the lessor's right to enjoy his property. This can be clearly seen in the above mentioned case where the Court quoted the case of Angela sive Gina Balzan vs. L-Onorevoli Prim Ministru et, in which the Constitutional Court stated that: "Din il-Qorti ma tistax tagħti ordni li twassal, wisq probabbli, għat-tkeċċija tal-konjugi Bajada mill-fond inkwistjoni, meta l-protezzjoni nfisha, mogħtija lilhom mill-Gvern, mhux leziva għad-drittijiet tas-sid. Veru li jista jingħad li, f`dan il-kaz, il- konjugi Bajada ma ħaqqhomx jibqgħu fil-post ladarba għandhom proprjeta` immobbli oħra, pero`, għal dan ma ħasibx il-Legislatur, u ma jaħtux il-konjugi Bajada li jippruvaw jieħdu vantaġġ mil-liġi kif inhi"3. Therefore, in order to evict a lessee, a lessor would be required to file another case before the Rent Regulation Board (the "Board"), tasked to declare whether or, in a given case, a lessee is entitled to remain in the property in question or not which, in the case of those so-called protected leases, that is those leases that commenced before June 1st, 1995, will depend on whether or not the lessee has the financial means to rent property in the open market. Essentially, following the enactment of Act XXIV if the lessee has the financial means in terms of a set of criteria, then the Board will order the eviction of the lessee; inversely, if the lessee is found not to have the financial means, then the Board will not order eviction but will order an increase in rent up to a maximum of 2% of the property's value on the open market.

Means test criteria

The means test was established by Act 10 of 2009 is still being used by the Board. This test is carried out so as to establish whether a lessor may, either evict the lessee or change the conditions, including the rent payable, of the premises.

In order to increase the rent, the lessor may apply to the Board requesting it to review the rent to an amount not exceeding 2% per annum of the free and open market value of the dwelling-house on the 1st of January of the year in which the application is filed4.

Once a request regarding a dwelling-house is made by the lessor, the Housing Authority shall be notified of the request, and it has the right to participate as an intervenor in the proceedings5. However, the Housing Authority may only participate in proceedings as an amicus curiae (i.e. not a party to litigation but it is permitted by the Court to advise on the matter in question).

According to Article 4A, sub-article (3)(c) of the Ordinance, the Board, in the early stages of the proceedings, shall conduct a means test of the lessee based upon the Continuation of Tenancies (Means Testing Criteria) Subsidiary Legislation 16.115. The means test sets out to determine a lessee's income between the 1st of January and 31st December of the year immediately preceding the year in which the application is filed and the lessee's capital as of the 1st of January of 2021, or five years prior to the filing of the application before the Rent Regulation Board to see whether or not the lessee satisfies the criteria.

In the case that the lessee does not satisfy the criteria of the means test (i.e., the lessee has an income or capital which is higher than that which is established under S.L. 16.11), the Board will allow the lessee a period of two (2) years to vacate the dwelling-house, during which time the Board shall determine the rent payable. However, where the lessee satisfies the criteria of the means test (i.e., the lessee does not have an income or capital which is higher than what is established under S.L. 16.11), the Board shall proceed according to Article 4A (5) et sequitur of the Ordinance to grant permission to the lessor to impose new conditions or increase the rent.

Guidelines of the Board on the means test criteria

The Board in the case of Iwanik Krzystof sive Christopher vs. Camilleri Francis et stated that when establishing the rent payable, the Board must consider a number of factors including: the amount of rent paid by the lessee, the value of the leased property, the lessee's age, the lessee's means, whether there exists a disproportionate burden on the lessor and the lessee's personal and financial circumstances in pursuit of adequate and appropriate housing.

European Court of Human Rights

The European Court of Human Rights' opinion on the means test criteria was clearly portrayed in the case of Cauchi vs. Malta. The Court in this case was called upon to examine the effectiveness of the means test as a remedy, in which it brought forward several points regarding the means test criteria. Firstly, the Court heavily criticized the fact that once the Maltese Court of Constitutional Jurisdiction decides in favor of the lessor, the lessee would nonetheless remain in occupation of the premises. The Court on this matter could not accept the fact that the lessor would remain a "victim of an interference which no longer pursues a legitimate aim"7.

The Court further stated that in the absence of an eviction of the lessee, a gradual increase of the rent over the years fails to bring the violation of the lessor's human right to enjoyment of property to an end. Another point which was delved into was that the establishment of rent is based upon the means of the lessee which could still bring about a low rent, leaving the lessor to bear the financial and social costs of providing housing. In light of these considerations, the Court concluded that it could not confirm the effectiveness of the means test as a remedy, thereby finding a violation of Article 13 of the European Convention on Human Rights.

[1] ACT No. XXIV of 2021 (An Act to amend the laws relative to protected residential leases.)

[2] Para.61 of the case of Margaret Caruana et vs. L-Avukat Generali et

[3] Pg. 48-49 of the case of Margaret Caruana et vs. L-Avukat Generali et

[4] (Chapter 69 RELETTING OF URBAN PROPERTY (REGULATION) ORDINANCE), art. 4A (2)

[5] ibid, art. 4A (3)(a)

[6] Subsidiary Legislation 16.11 CONTINUATION OF TENANCIES (MEANS TESTING CRITERIA) REGULATIONS

[7] Para. 82 of the case of Cauchi v. Malta decided on the 25th March 2021


Disclaimer

This document does not purport to give legal, financial or tax advice. Should you require further information or legal assistance, please do not hesitate to contact Dr. Stephen Muscat

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