The Constitutional Court has more than doubled the damages to be awarded to the owners of a rented commercial property in Sliema, ordering the State to fork out €250,000 after finding that the law prejudiced landlords.

The case involved a prime site property on The Strand, acquired under a 109-year emphyteusis in 1919 and subsequently leased to Supermarkets (1960) Limited in October 1976 at Lm4,000 annual rent, subject to a 5% rise at five year intervals for the first 15 years of the lease.

When negotiating a new lease agreement in 1994, the landlords insisted on a new annual rent of Lm8,000, which the tenants refused to accept.

The dispute landed before the Rent Regulation Board which fixed the rent at Lm6,500.

That sum was confirmed on appeal, thus prompting the landlords to refuse payment of the rent, filing a constitutional application in November 2015, claiming a breach of their fundamental rights and arguing that the rent at €29,195 was inadequate, given the location and dimensions of the premises.

Earlier this year, the First Hall, Civil Court, awarded the landlords €100,000 in moral and pecuniary damages, payable by the State, with the court declaring that, “when exercising that discretion through the setting up of mechanisms to protect one category (the tenants) (the state) did not have a free hand to disproportionately prejudice the rights of another category (the landlord.)”

Meanwhile, the landlords have signed a fresh lease agreement with the supermarket company, valid up to end December 2027.

In view of that agreement, the company renounced its appeal against the first court judgment, while the landlords dropped their claims against the company, as expressed in their appeal, whereby they called for higher compensation.

The State Advocate also filed an appeal, arguing that the landlords had willingly signed the lease agreement and that the awarded damages of €100,000 were excessive.

Yet, the Constitutional Court, presided by Chief Justice Mark Chetcuti together with  Justices Giannino Caruana Demajo and Anthony Ellul, rejected the State’s appeal whilst upholding the landlords’ request seeking higher compensation.

Shooting down the first argument by the State Advocate, the court observed that most of the present-day applicants were only the successors in title of the original landlords.

Moreover, who could have imagined in 1976 that the property was to experience such an inflation in value and that the landlords of commercial premises would derive such high profits, “especially in certain localities like Sliema?” the court said.

Citing case law of the European Court of Human Rights, the Court concluded that the State Advocate’s reasoning was not right.

As for the other argument that the damages awarded were excessive, the court, after taking note of various factors, concluded that the sum of €100,000 was “truly conservative.”

Not only was the property in a prime location but the technical expert’s valuation report for the rent of the finished premises had marked a shift from €36,000 in 1991 to €144,000 in 2016.

Given that commercial leases were ‘protected’ up to June 1, 2028, the landlords were being denied a higher profit, getting a mere 18.6% of the rent which the property would have fetched on the open market, based on the valuations for 2016.

The 2010 amendments to rental laws sought to safeguard tenants for a definite term of 18 years, which term, according to the court, was too long, especially since in the case of commercial premises, “social welfare” considerations were not at play.

When all was considered, the court rejected the State Advocate’s appeal, increasing the compensation to €250,000 subject to 5% interest from date of judgment, otherwise confirming the decision of the first court.

Lawyers Joseph Ellis and Martin Farrugia assisted the landlords.