In difficult times, tenants may find themselves with an excess of rented space they do not need or can afford. The easiest thing would be for one to terminate the lease and return the property to the landlord, if only the landlord would be that much accommodating. Sometimes, as the rent market grows, it would make sense for the tenant to pass the lease to a third party, charge a higher rent and rack up profit.
This is permissible, as long as the original landlord – the owner – would have allowed it. Article 1614 (1) of the Civil Code states that the lessee is not entitled to sublet a thing or to assign its lease, unless such right was agreed upon in the contract. Nowadays, the right of subletting is rarely allowed, but in the past – in a different era – it was common to allow one’s tenant to pass the property leased to a new tenant, whether through assignment or sublease.
Throughout the years, our courts have seen hundreds of crafty (and admittedly, creative) arrangements (be it management agreements, the creation of ghost companies or the transfer of shares of a tenant company) executed in order to mask illegal subleases into something else seemingly genuine.
But our courts and law caught up with these schemes, and today, any form of agreement by means of which a lessee transfers to third parties the possession of a premises or of a business operated from the commercial tenement, however it is denominated, is still considered to be a sublease. And if it is not permitted, it makes ground for eviction.
Many people have made some serious money through sublease which had been originally allowed at a time when the rent market was not what it is today. It is not rare to find a tenant paying some €200 a year in rent, while making thousands through subletting it to a third party. There is nothing illegal about that.
And in these cases, the original landlord cannot do much, for he is a part of a legal chain (owner › lessee › sub-lessee) which he is duty-bound to respect. It is not unheard of for this chain to be even longer, for the lease to be passed on several times and ending up with a number of sub-lessees (or so to speak, a sub-lessee, then a sub-sub-lessee, then a sub-sub-sub-lessee, and so on).
Throughout the years, our courts have seen hundreds of crafty arrangements executed in order to mask illegal subleases into something else seemingly genuine
In the case of ‘81 & 82 Limited v Mario Borg’ (decided by the Rent Regulation Board on November 4, 2020 (1134/2013JD)), the plaintiffs sued the respondent, claiming that he had no legal title under which he could occupy a property they owned in The Strand, Sliema. They asked that he be evicted.
Among other things, the respondent claimed that he held the property under a title of sublease, granted to him by the original lessee.
So far so good – if not for an intriguing plot twist, that occurred five years into the lawsuit.
While the case was being heard in court, the plaintiffs had met with the heir of the original tenant who signed an agreement, renouncing to the original lease for a fee, thus terminating the original lease agreement. This was done without the respondents’ (the sub-lessee) consent or knowledge. And just like that, the first link of the chain was broken, because the first lease had ended.
What did this mean for the sublease, which in a way was the offspring of an original lease that existed no more? Could the subtenant claim any rights over the property once the original tenancy had ended?
In its judgment, the Rent Regulation Board quoted several past judgments that delved into this quandary. It stated that it appeared that the owners of the property had never acknowledged the respondent as their direct lessee, and thus the respondent maintained his character as sub-lessee, and nothing more than that. It held that when the sub-lessee is not directly acknowledged by the original lessor, when the original lease is terminated, so are any derivative leases in favour of any sub-lessees.
The rights of the sub-lessee depend on the rights of the original lessee, for without the original lease, there cannot be a sublease. The subletting of a lease is different from an assignment of a lease. The latter is merely a transfer of rights had by the lessee, while the former brings about the creation of a new contract to which the original lessor is not party.
To the owner and original lessor, the sub-lessee is merely a third party. Therefore, the survival of the sublease is completely dependent on the survival of the original lease. Indeed, when granting a sublease, the lessee is only entitled to grant that which he has, and not more; if the sublease survived the termination of the lease, it would mean that the sub-lessee would be conferred more rights than his originator.
It is also irrelevant how the original lease is terminated – the most important thing to note is that when the ‘master’ lease is terminated, so are any agreements that are derivative to same.
Therefore, once in this case the heir of the original lessee renounced to the lease, the sublease held by the respondent had to be considered as having also been terminated. In this legal chain, once the first link is broken, the subsequent links simply do not hold any longer. This process is automatic and inevitable.
Having made these considerations, the Rent Regulation Board decided the case by ordering the eviction of the respondent but ordered each party to pay its own costs.
The respondent can appeal within 20 days from the delivery of the judgment.
Carlos Bugeja is a partner at Azzopardi, Borg & Abela Advocates.
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