SME Chamber

GRTU submits position on Rent Reform Bill

 Following meetings for different groups of tenants and owners to discuss the Rent Reform Bill and also a number of meetings on a personal basis where the GRTU lawyer viewed the different contractual obligations, GRTU was now in a position to provide Hon John Dalli and Hon Charles Muscat with GRTU's final Position Paper on the Rent Reform Bill.

GRTU feels we presented a comprehensive paper which we asked should be taken carefully into consideration and discussed at Committee Stage. GRTU also made itself fully available for follow-up meetings to explain further our views.

GRTU's paper argued as follows:

For an object or reason as to why the need for this reform was felt GRTU feels that for the reform to create a social justice it does not have to create an injustice with the tenants of leased properties, this by disregarding all they have worked for and all the money they paid to the owners of leased properties over the years.

An enterprise is very important for both the Maltese and European economy – "the backbone of our economy"- and Government must promote and defend enterprise in line with the Small Business Act.

Though many business owners represented by GRTU are also property owners, GRTU explained that we consider that property ownership of enterprise owners as one important store of wealth, that accumulates from the earnings of an economic activity in the form of enterprise, whatever the private economic activity.

The Bill outlines what will constitute a binding Contract and it also creates a situation where the legislators` intervention is interfering and intervening in between the contractual obligations reached between the two parties in pre-June 1995 contractual agreements were no end date is stipulated.

The Bill has placed the legislator in a position to break what was up till today considered an unbreakable contract with its intervention between two contracting parties. It is interfering with individual enterprise business plans based on existing contractual obligations reached within the framework of existing laws.

The Bill must not interfere with any contractual obligation reached between two parties or where the possibility for a contractual agreement existed even if none of the parties preferred to make use of it and where no law prohibited action that contracting parties could freely adopt.

Where pre-June 1995 contracts are clear and stipulate all the essential elements to make a contract binding, independently of whether a contract is definite or not, they must be still regarded as valid contracts, as on the day they were signed, and they cannot be broken.

The contracts were signed by both parties knowingly, the majority in the presence of fully qualified notaries in the capacity of legal persons, some being themselves legislators at the time. In the same way a purchase contract is not broken when the purchased item increases in value, in the same way a lease contact is not broken because the value of the property increases.

Many titles of lease have been assigned throughout the years without novation and thus many such assignments reflected the practically life-time guarantee a lessee had by virtue of the pre-1995 social laws. Such contracts and/or assignments were made at a hefty expense by way of exorbitant "key-money". The Bill discards such expenses incurred by lessees outright.

The Bill stipulated that for pre-1995 commercial contract, unless a different agreement is reached after 1st January 2009, rent will increase by a fixed rate of 15%. The 15% shall increase each year up till 31st December 2012.

It feels it is not acceptable that a blanket approach is adopted for the increase in rent. Rent cannot increase in the same manner for all tenants since there are cases were rent is already high and others were rent even increases periodically.

GRTU questioned on what bases was the 15% increase was calculated and how this related in real terms to inflation. GRTU asked for a rational complete with a study of what this will mean in terms of impact on the relevant stakeholders. Cases were reported were a significant some of money was paid to the landlord for him to agree not to increase the rent. Other cases also reported where sole traders admit they will have to close should this 15% increase each year occur, is Government aware of this?

The Bill further stipulates that on 1st Jan 2013 rent must be agreed upon between the parties. If no agreement is reached any party may apply to the Rent Board to fix the fair rent, established according to the Property Market Value Index.

GRTU feels 2013 is too early to expect businesses to have adjusted to what might be a drastic change in the rent they pay. A longer transition period is required both for the rent to start to increase and for the tenant to be thrown to the mercy of the landlord. This in line with the drastic effects such a short transition period might have- closure of business and loss of jobs.

Many members have already voiced their opinion that a 15% increase is exorbitant and that they will be forced to close shop as a result.

Should the Rent Board be required to fix the fair rent and evaluate property values, due consideration should be given to the economic value added the property has achieved through the efforts of the tenant's entrepreneurship through the same property. 

Also taken into consideration should be the original cost of construction or purchase value of the building and the returns enjoyed by the property owner as rents and other remuneration and premiums paid over the years by the tenant for privileges granted under the same rent/lease arrangement. The current market values of rented properties should be considered as secondary to the returns enjoyed on the original investment

GRTU requested a formula be put in place for the Rent Board to be able to make such calculation.

The Rent Reform Bill makes certain specifications for contract renewals and inheritance of lease. It states that the tenant of a commercial property shall be that occupying the property on the 1st of June 2008 under a valid title of lease as well as the husband or wife of such tenant, provided these are living together not legally separated, and also in the event of death the heirs who are his natural or legal children.

GRTU while being in agreement with this principle feels that unlike other countries Malta has little if any supportive schemes for the succession of family owned private businesses by members of the same family or by others.

The principle of succession of businesses in rented properties should be recognised and members of the family of the tenants or others nominated by the tenants as successors should be given the necessary safeguards so that the enterprise will continue to survive.

A clause which GRTU feels is grossly unjust is where it stipulates a commercial contract made before 1st June 1995 shall in any case terminate within twenty years from 1st June 2008 unless another contract or lease has been made.

GRTU feels that in the same way that employees, and wage earners are provided with legal protection against unfair dismissal, self employed business owners whose livelihood, that of their families and of their employees depend on the enterprise operating from rented properties should continue to enjoy the safeguards that exist under current legislation ensuring that their livelihood will not depend on the whims of the property owner renting the enterprise property.

In addition Government has recently given the population in general the right to work even after reaching the personable age. With a practical confiscation of business premises within twenty years time the law will directly discriminate against the business sector. 

Business owners throughout these years thought they had a legal and binding agreement but it seems suddenly this is being nullified because it does not have the closure or renewal clause. It is unacceptable both in the case of definite and indefinite contacts that a contract is terminated within twenty years, due primarily to the fact that this impinges on the rights arising from Contract Law under Title IV of Chapter 16 applicable to synallagmatic contracts as well as the fundamental rights and freedoms of the individual in relation to property enshrined in our constitution under articles 32(a) and 39 of seq.

Only the original expiry, if any, as defined in the original contract will be accepted. Should the contact be, as unjustly imposed by this act, terminated against the principles agreed upon in the contract a fair agreement must be reached between the parties.

If no agreement is reached and the contact is put to an end the tenant must be given compensation by the landlord for any works (repairs, maintenance and embellishment) carried out by the tenant, and goodwill (the added value given to the property by the operation of that enterprise)

A prime clause which GRTU does not agree with is where the Bill states that a contract made between the parties prior to the 1st June 1995 that allows for automatic renewals shall be considered as a contract for an unspecified period and shall terminate within twenty years from 1st June 2008.

This to GRTU is not acceptable where contracts are clear and stipulate the necessities, independently of whether a contract is definite or not, they must be still regarded as contracts and they can not be broken.

Another instance in the Bill where GRTU would appreciate more flexibility is in the application for change of use. The Bill states that dissolution of the contract may be demanded where the tenant uses the premises for other purposes than that agreed upon or in a manner which may prejudice the landlord.

GRTU however feels that the rapid changes taking place in the Maltese economy are necessitating the change of genre of business for a substantial number of old established enterprises. This transformation is today being precluded or restricted as enterprises operating from rental properties fear the loss of the enterprise safeguards that they enjoy under current laws should they seek to move on from one genre to the other to better meet current and future enterprise needs.

The Bill should extend security of tenure for tenants who progress from one genre of business to new genre of business utilising the same rental property. This safeguard should by subject to a framework of acceptable and prescribed forms of compensation to property owners.

The tenant should be given the opportunity of change of use from that stipulated from the contact if this does not jeopardise the landlord. Should the Rent Board find, after hearing both parties, that there is no reason to stop the tenant from applying for change of use this will be granted to the tenant.

GRTU also added an important aspect to include: giving tenants the opportunity to buy the rented property. The Reform should include incentives and options that give the possibility of a safe landing to the enterprises that will be very negatively hit by the Reform. GRTU proposes that the reform package should include precise forms that enable entrepreneurs in rented commercial properties to buy the property on favourable terms not unlike schemes that have been provided for tenants in Government owned residential properties.

Enterprises operating from rented commercial premises should be given the opportunity to buy and acquire the property at commercial value with discounts set according to the number of years the business has been occupying the premises. The business would also be allowed recognition for the investments done in the property. The credit for the number of years the property has been occupied together with the credits for the value of the investments done in the property should together obtain a maximum discount on the market value of the property of up to 50%. Suitable tax credits should be made available so that tenants would be encouraged to take this option. Moreover this option should apply irrespectively of whether the rented property is privately owned or Government owned.

The safeguards and options available for the purchase and acquisition of the property by enterprise tenants should apply irrespectively of whether the property is held by title of lease or of a lease subject to ground rent (cens).

GRTU is presently awaiting constructive feedback on our position.

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