The sole owner of an Mdina palazzo has been awarded over €1 million in damages from the state after being unjustly deprived of the full enjoyment of his €4.5 million specimen of classic architecture leased out in 1976.

This was the outcome of yet another judgment in an unrelenting succession handed down by the constitutional courts over similar claims by other landlords.

The latest judgment was delivered by Mr Justice Joseph Zammit McKeon on the day he retired from the bench.

It stemmed from an action instituted in 2019 by an applicant who had acquired ownership of the three-storey palazzo, situated in one of Mdina’s main squares, by means of a family partition back in 2008.

However, neither the applicant nor his predecessor in title could effectively enjoy the property nor claim possession of it, since the palazzo was occupied by the person who had leased it out from the landlords in 1976 for 10 years at an annual rent of Lm800.

Three years later, Act XXIII of 1979 came into force, bringing about “a significant and substantial change” regarding decontrolled residences occupied under title of temporary emphyteusis or sub-emphyteusis or lease.

So when the original lease expired in 1986, the tenants lawfully retained possession of the decontrolled property as their ordinary residence, on condition that as from December 1981 the rent would be increased proportionately in line with national minimum wage increments. The current annual rent stands at €7,652.

In 2019, the landlord filed an application before the First Hall, Civil Court in its constitutional jurisdiction, against the state and the tenant, claiming a breach of his fundamental rights in terms of the Constitution of Malta and the European Court of Human Rights.

A technical expert appointed by the court valued the property, when freehold, at €4.5 million, with an annual rental value of €135,000.

The court observed that the valuation reflected “the current market for a property of such kind, namely one of the prime palazzos in every aspect, situated at Mdina”.

It added there was undoubtedly a market for such a property and prospective buyers capable of matching the price.

State’s inertia

In a detailed judgment analysing the current relationship between landlords and tenants on pre-1979 leases, Mr Justice Zammit McKeon observed that while providing protection to tenants, Act XXIII had created a scenario where, for many years, landlords lacked adequate protection. On account of the state’s inertia to intervene with positive measures, they had suffered a breach of rights.

Although the state had wide discretion to legislate on social accommodation problems, any interference with owners’ rights had to be lawful, motivated by a legitimate purpose and resulting in a just balance.

When it comes to fundamental rights, ‘better late than never’ makes no sense

The scenario created by the 1979 law was accepted for many years by landlords, even if somewhat “reluctantly,” observed the court.

The state, it said, had made the wrong choice when failing to update its laws in line with economic and social developments.

Prompted into action by a succession of lawsuits, the government sought to tweak the system through amendments in 2009/2010, making it possible to increase the rent at three-year instead of 15-year intervals.

But those changes were not enough to redress the balance, since the landlord’s rights were still unjustly curtailed, the judge said.

Faced with a long line of claims by such owners, the courts were called upon to analyse all party interests to ascertain that “no one was made to shoulder an excessive and disproportionate burden as a result of state interference”.

‘It’s the citizen who suffers’

In matters of breach of fundamental rights, the saying “meglio tardi che mai” (better late than never)… makes no sense”. In a democratic society founded on the rule of law, the state had a duty to address such wrong “immediately and without delay”.

Failing this, it is the “citizen, at the basis of state organs, who suffers”.

In this case, the rent paid was “objectively low” when compared to open market values. But the current economic situation was “far better than that prevailing in 1979, though certainly not rosy for everyone, especially those vulnerable or disadvantaged or at the lowest rank of society”, the court observed.

It upheld the applicant’s claim, declaring a breach of rights.

The principal remedy was to award compensation for damages payable by the state which was responsible for the law that resulted in such breach, said the court, further suggesting guidelines for calculating pecuniary damages.

Taking note of the rental value of the palazzo between 1986 and 2019, then deducting the rent paid over 33 years, the court reached a value of €2,397,221.

However, that amount was reduced by 35 per cent in view of the state’s legitimate, even if delayed, attempt to address the imbalance through legislative intervention, and by a further 35 per cent on account of the passive approach of the applicant and his predecessor, who had only sought legal action in 2019.

Pecuniary damages thus worked out to €1,012,826.

The court awarded a further €5,000 in moral damages due to the state’s inertia to update legislation despite judgments clearly pointing in this direction.

The court said it was not the appropriate forum to decide upon the termination of the lease but the tenant could no longer rely on current laws to retain occupancy.

It ordered a copy of final judgment was to be forwarded to the speaker in Parliament.

Lawyers Edward and Nick Debono and Karl Micallef assisted the applicant.