The government has appealed against a “landmark” judgment on the unconstitutionality of old property rents but this is not expected to slow the momentum in favour of owners’ rights, according to specialist lawyers.
The widely expected appeal does not diminish the impact of the sentence delivered by the First Hall in its constitutional jurisdiction: Mr Justice Lawrence Mintoff’s ruling has paved the way for an entire class of residential property leases to be deemed unconstitutional.
“The sentence implies that all residential rents with current annual rent of €209 can be declared unconstitutional because of the principle of proportionality between tenant and owner,” said Edward Debono, the lawyer of the plaintiffs who were awarded €20,000 in damages.
Private individuals can never be called upon to bear the burden of social measures designed to protect and safeguard other citizens, for as long as [the private individuals] are not adequately compensated [by the State]- Mr Justice Lawrence Mintoff
“It’s a landmark decision because, while Act X of 2009 had been declared unconstitutional as to commercial rents and requisitioned properties in previous cases, this is the first time that non-requisitioned residential rents have been considered unconstitutional.”
In its legal submissions the government had attempted to draw this distinction: it pleaded that there was no violation of owners’ property rights because the property still belonged to the plaintiffs, that the State hadn’t requisitioned the property in dispute but only “controlled” the rent, and that the lease was a private matter between tenants and owners.
Mr Justice Mintoff dismissed these pleas. Taking a cue from pronouncements of the European Court of Human Rights, he argued that while the State had legislated to ensure people had a place of abode, it had neglected the interests of property owners.
He wrote: “Private individuals can never be called upon to bear the burden of social measures designed to protect and safeguard other citizens, for as long as [the private individuals] are not adequately compensated [by the State]”. Dr Debono, one of the leading specialist lawyers in property rights cases, revealed that since that sentence was delivered he has had other property owners in the same situation inquiring about initiating lawsuits.
“Some people want to forge ahead with filing causes in spite of the appeal – there is the feeling that the original judgment will be upheld on appeal – although others prefer to wait until the appeal is concluded.”
All classes of pre-1995 rents have now been deemed unconstitutional in a string of judgments over the years that include the latest one. The number of households held under all the old rental laws has been estimated at around 32,000 by the NSO. That amounts to over 15 per cent of households in Malta.
The appeal that the government filed is expected to take six months to be decided.
Old rental laws all found unconstitutional
The constitutional courts have now denounced the two laws that regulate pre-1995 property rents – Chapter 158 and Chapter 69 – as well as the amendments of 2009 that were designed to bring the breaches of property rights under Chapter 69 to a gradual, managed resolution.
Chapter 158 governs properties that were originally leased under title of emphyteusis or ground rent – leased for a specified number of years at a specified annual ground rent – which were then converted into perpetual leaseholds by legal amendments in 1979.
This class of leaseholds were repudiated in a decisive judgment in 2009 – Amato Gauci vs Malta – by the ECHR. That court found that “a disproportionate and excessive burden was placed on the applicant” and that “it follows that the Maltese State failed to strike the requisite fair balance between the general interests of the community and the protection of the applicant’s right to property”.
That judgment was reiterated in a string of subsequent lawsuits in Malta and Strasbourg.
Then, in a 2014 case represented by Michael Camilleri, an associate of Mamo TCV Advocates, a Maltese constitutional court went further by ruling that tenancy governed by Chapter 158 could no longer be considered perpetual. This raised the spectre of eviction orders being sought. Eviction was averted in this case when the parties clinched an out-of-court arrangement.
Dr Camilleri, a human rights lawyer who has specialised in taking property rights cases to Strasbourg, talked to this newspaper about a seminal judgment at the turn of this year in one of his cases at the ECHR. It involved emphyteusis or ground rent agreed after 1979 which, despite the fact that the owner was cognizant of the legal restrictions on his ability to raise rent and get the tenants out, was still judged in breach of property rights.
“The ECHR maintained that although the owner knew what he was signing up to, he couldn’t predict how the law or situation would evolve over many years,” said Dr Camilleri. “Legal provisions granting tenants perpetual wide-ranging rights were problematic from that perspective. The ECHR looks at the wider situation, whether the law is balanced and proportionate – the rise in property prices means the owners have been subsidising the social welfare system.”
Amendments to Chapter 158 two years ago attempted to rebalance the competing interests by introducing a mechanism for owners to get a raise in rent and subsequently get the tenants out. Owners can now take the case to the Rent Regulation Board, presided by a magistrate, who can raise the rent to two per cent of the property price – the exact amount is set commensurately with the tenant’s financial capability – and oblige the tenant to vacate the property after five years if he has sufficient means for alternative arrangements.
“The problem is that these changes have introduced yet another court procedure, which costs money and takes time,” Dr Camilleri said. “Moreover, in case of a judgment from constitutional court saying tenancy is unconstitutional, the owner has to take the case to the Rent Regulation Board instead of filing directly for eviction. This matter has yet to be clarified.”
Meanwhile, the other old law – Chapter 69 – governed ordinary rents agreed between owner and tenant. It zealously protected tenants and their descendants from eviction and arbitrary increases in rent. The law was eventually changed in 1995: rents since 1995 have empowered owners to evict the tenant or raise the rent discretionally upon expiry of the private agreement. All the cases that are being challenged in court are of rents made prior to 1995, which are inheritable.
These rents were modulated by Act X of 2009 in a bid to bring the complications arising from the unconstitutionality of rental laws to a gradual, managed closure. That law raised the bar for inheritance of rental agreements: heirs had to be living for four of five years prior to 2009 with the tenants and pass a means test. It uniformly raised rents to €185 annually, plus cyclical increases in keeping with cost of living indices – these rents currently stand at €209 annually.
“The court [Mr Justice Mintoff] has now said that the rise in annual rent established by Act X of 2009 is in most cases insufficient given the disproportional market value of property,” Dr Debono said. “This is what’s innovative about the judgment.”
Another innovation in the judgement is the pronouncement that perpetual tenancy under the provisions of Chapter 69 can no longer be assured. This doesn’t imply automatic eviction. The highest court has maintained in past cases that it is not within the scope of the constitutional courts to order eviction; owners would have to request it in the ordinary civil court.
“The trend in court decisions,” Dr Camilleri said, “has been to lean in favour of interests of property owners, but there are still obstacles and finer details in laws that complicate owners’ property rights.”
Laws that violate human rights remain unchanged
Mr Justice Mintoff’s judgment “declares” that the laws governing the rent – Chapter 69 as well as Act X of 2009 – are “inconsistent with Article 37(1) of the Constitution and Article 1 of the first protocol of the Convention [of human rights], and these laws can be considered as having no effect between the parties [owners and tenants].”
The implication is that these legal provisions still stand for everyone else. Judge Emeritus Giovanni Bonello, who served at the ECHR, writes in his book Misunderstanding the Constitution that this situation has the “dazzling effect of the very same law being valid and invalid at the same time”.
In expanded comments to this newspaper, he said that having a law found to violate human rights to be only invalid for the particular plaintiff who challenged it “has huge negative effects”.
“Among these, the courts are obliged to apply a law that the Constitutional Court has already found to be null and void. And every person in a similar situation has to reapply to the Constitutional Court to obtain a new declaration of nullity – an immense waste of resources and expenses.”
In previous classes of leasehold cases, the string of constitutional challenges became a rhythm of repetition, with the same laws denounced for the same reasons. The ECHR has in recent years almost invariably raised damages awarded to property owners by the local courts.
Last December, the Council of Europe’s Venice Commission recommended devising a system common to much of the democratic world: the automatic revocation of any law deemed unconstitutional by the Constitutional Court.
In Malta, discretionary power to amend or revoke any law deemed unconstitutional is vested in Parliament. Although the UK has a similar arrangement, the difference in Malta is that the Maltese Constitution expressly holds that the Constitution is the “supreme law” that “shall prevail and any other law shall, to the extent of the inconsistency [with the Constitution], be void”.
In this context, Judge Emeritus Bonello accuses the Constitutional Court of “impotence” and “abdication” in his book which was serialised in this newspaper.
When contacted, he elaborated on another “negative effect” arising from the possibility “that the Constitutional Court can rule white in one case, black in the next, and white again in the third”.
“Certainty of the law should be a cardinal principle for the courts,” he said, adding that “uncertainty of the law” is a “carnival that only happens in Malta.”
Social aim of law on controlled rents: is it legitimate?
The number of rents governed by post-1995 legal provisions, which empowered owners to freely raise rents and evict tenants on expiry of private rental agreements, has been estimated at three to four per cent of households in Malta, or 6,000 to 8,000.
The rapid rises in property prices coupled with high demand have led this class of rents to thresholds of unaffordability for a cohort of middle earners. Stories of sudden spikes in rent pushing tenants into homelessness or miserable abodes, or to living at friends’ or relatives’ houses, have led to calls on the government to control rent prices.
The government has been reluctant to impose controls on prices, and in a White Paper issued last October it proposed instead a raft of measures designed to provide greater stability to tenants.
Yet price controls as such are not inherently anathema to constitutional courts. Dr Camilleri explained that the ECHR does consider “whether the law on controlled rents has a legitimate aim”, including the “social aspect” of any legislation. This applies to residential rents as well as rents of community benefit, such as town band clubs.
The bane for human rights courts has been the disproportion in the old laws that put the burden of social protection almost solely on property owners. The sentence of Mr Justice Mintoff extended this reasoning to the meagre increase in annual rents of the 2009 legislation.
The more recent legal tweakings, that made it possible for another class of old rents to go up to two per cent of the property price, raised them halfway to market levels – annual rents on the open market are typically equivalent to four to five per cent of property price.
The recent White Paper proposes pegging rents to property prices. This is already the case in the free market, and social campaigners are hoping for legislative parameters that provide greater financial relief to tenants.
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