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  • Dr Carlos Bugeja

The Two-Percent (2%) Rule

In the past few weeks, rent laws have stirred a lot of debate, particularly since the Prime Minister of Malta, Hon. Dr Robert Abela announced the proposal of a new law, that will seek to once and for all resolve the legal calamity faced by our old law of lease, particularly in respect of pre-1995 protected leases.


For this 'new' law to pass, one must wait, for the law has got to first go through a number of processes until it is ultimately passed by means of a proper Act of Parliament. Having said that, it must be noted that a law similar to that set to be introduced already exists, a law that regulates rents that were born out of the infamous article 12 of the Housing (Decontrol) Ordinance, Chapter 158 of the Laws of Malta.

The constitutional problems created by article 12 are known by many. Article 12 is that law that forcibly converts temporary emphyteutical concessions (that is a 'ċens' that expires) into a perpetual lease, even against the landlord's will. So, a landlord would have conceded possession of his property to another, expecting to get it back upon the expiry of the grant, only to be surprised with a law that prohibited him from taking back his property, instead having to accept having the ċens transformed into a perpetual lease, with minimal and sparse increases in rent. Both our Constitutional Court and the European Court of Human Rights have time and time again declared this law to be in breach of the owner's right to enjoy his property, a right guaranteed under the European Convention on Human Rights. Many tenants suddenly risked to be evicted our of their property, some of whom were elderly people.


Act XXVII of 2018 was eventually passed into law, in an attempt to alleviate the social and economic problems created by these constitutional pronouncements.


This 'new' law (article 12B) provides for a new mechanism; the landlord may file an application before the Rent Regulation Board requesting that the lessee is subjected to a means test. Where the tenant does not meet the income and capital criteria of the means test, the Board shall, after hearing any evidence, and submissions produced by the parties, give judgement allowing the tenant a period of five years to vacate the premises. This five year period is mandatory, and the Rent Regulation Board cannot deviate. If on the other hand, the tenant satisfies the means test, then the Board will proceed to provide for an increase in the rent, which revision shall be to an amount not exceeding two percent per annum of the open market freehold value of the property on the 1st January of the year during which the application is filed. The Rent Regulation Board may provide for a revision of less than two percent (by looking at a number of factors, such as the age of the tenant), and may also order that the revision is made gradually. The Housing Authority participates in these proceedings as amicus curiae (as friend of the Court).


Whether or not this mechanism will survive the scrutiny of the courts remains to be seen. So far, we had judgments that stated that as much as possible, the Rent Regulation Board must fix a rent which is close to that maximum of 2%, and we also had judgments low-key endorsing the suitability of this law (eg. Paul Azzopardi et pro et noe vs Joseph Elich - 27/01/2021, Constitutional Court). A few days ago, on 25 March 2021, we had a judgment of the ECtHR (Cauchi vs Malta, 14013/19) which expressed serious doubts about this law, stating that '... the Court cannot accept that Article 12B was designed to deal effectively and meaningfully with the issue of the disproportionate interference arising from the applicable rent laws, which has already been recognised by the domestic courts. Furthermore, despite the passage of nearly two years since its introduction, no material has been provided to the Court to enable it to dispel the above-mentioned concern, that is, to show that the discretion of the RRB is leading to awards of adequate rent capable of bringing the violation to an end within a reasonable time.'


We await more clear judgments in this respect.


So far, this mechanism can only be availed of in those cases where the lessee is in occupation of a dwelling house under title of lease created by virtue of a previous title of emphyteusis or sub-emphyteusis which commenced before the 1st June 1995. The new law seeks to change this limitation, and makes this mechanism applicable to all leases.


Dr Carlos Bugeja is a Partner at PROLEGAL Advocates.

 

Disclaimer: This article is not to be construed as being legal advice, and is not to be acted on as such. Should you require further information or legal assistance, please do not hesitate to contact Dr Carlos Bugeja at carlos@prolegal.mt.


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