GRTU Budget proposals: RENT Reform

GRTU has already presented its proposal, based on facts, case studies and consultation with members.  Unfortunately, this cannot be said for the way the White Paper was drawn up.  This White Paper is a big disappointment for GRTU especially at a time when the European Union is implementing the Small Business Act aimed primarily at issues safeguarding the interests of small enterprises in relation to other economic factors that hamper their growth and development, which gives major importance to enterprises and the emphasis of each Directive is built on the "think small first principle".

The 1995 reform gave Malta the most liberal rent law in the whole of the EU. Today however, while other Member States fought first and foremost to safeguard the interests of enterprise owners, thus recognising that security of tenure is important for the encouragement of entrepreneurship and the generation of productive work, the Maltese Government accepted that the rights of property owners are superior to those of investors in enterprise whether commercial, craft, services or manufacturing.

GRTU has studied the rent laws for commercial establishments in other countries, including that of the country presently holding the EU presidency, France.  The rent law in France is a good one and of advantage to all the parties concerned.  While France's Act provides just protection for all those who rent, it also provides specific protection for those who rent.  For this reason, we appeal for the study of France's law because many of its essential measures are missing from the White Paper.

GRTU believes that the approach adopted by the French Government and by other Governments in other Member States is the line to take. They give tenants rent for their furthering of an economic activity on assurance of security of tenure for a long enough period to enable the recuperation of investments in rented business premises. The French law also gives the opportunity to trace compensation for the goodwill and investment made during the period of rent in the case of its termination after the stipulated period established at law.

In France the stipulated period is 9 years. In Malta GRTU would have been happy to sit with Government and other stakeholders to establish what period is appropriate for Malta, given the level of development of the economy and the limited supply of land particularly in areas suitable in investments in economic activities through rented properties.

GRTU firmly believes that the basic framework should have been agreed upon first. An exercise would have been developed so that post 1995 and pre 1995 agreements on rented commercial properties would have been placed within one legal framework.

What GRTU is now proposing is that the Ministry of Finance would issue appropriate fiscal incentives so that all tenants in pre 1995 are encouraged to buy the property rented to them. This together with positive fiscal incentives such as suspension of all taxation due, on property transfer and tax on income, from such transfer to owners of properties who accept to sell their pre 1995 tenants.

After the lapse of the fiscal holiday period which GRTU proposes to be 5 years, Government would than allow a minimum period of 10 years to all tenants who fail to take up the special buying concession to continue to enjoy the tenancy under the terms of whatever contract they are bound under. After the lapse of the 10 year period the new Rent law will become applicable to all contracts of rent of premise from which to render an economic activity and not a residential activity.

The new Rent law will give all tenants an automatic 10 year security of tenure which is theirs by right. At the end of the legally stipulated period, rent is either renewed for other periods, as agreed between the two parties, or if not renewed land owners will have to pay compensation for goodwill and improvements invested by tenants. A special Arbitration Tribunal will than decide the exact amount of compensation due when settlement is not reached by the two parties. The law will determine the criteria for the estimation of the compensation due so that evaluators will not decide arbitrarily or subjectively.

GRTU proposes that Budget 2009 should set the stage for the rent reform of rented commercial properties before any reform of commercial property is enacted. GRTU insists that the Rent Reform as currently proposed by Government should establish first and enact to satisfy the need for the Reform of Rented Residential Property and postpone the Reform of Rented Commercial Property for a period long enough to assess the impact of the fiscal schemes being proposed by GRTU.

The issue of rent of Commercial Property is fundamental for the strengthening, encouragement and sustainment of entrepreneurship of small and medium enterprises. In particular if Government erroneously in a mad rash to liberalise, regardless of the impact on employment of productive work and economic value added, will enact a reform which is not conductive by the generation of real economic growth.

An additional idea is a scheme for tax relief from capital gains so that the owner of the establishment is able to sell, this also being in favour of residential property.  With a grant of €25,000 on property of €12,000 and investing €12 million in this grant, a large proportion of property is removed from the market.  The Government still profits from the combination of stamp, income tax and VAT.  Each step taken towards this scheme would be one forward and not backwards.

GRTU's detailed proposals have already been published.