SME Chamber

Not Too Late to be Fair

In its Bill proposing rent reform Government has decided to abandon enterprise. By enterprise I mean entrepreneurs small, medium or large, who invest their money, borrow and re-invest hard-earned returns to turn a dream into a profitable business that employs themselves, their family and other employees and create economic value added. The entrepreneur creates work through endeavor. He's not a hoarder or speculator. He's a creator of wealth through enterprise.

Jobs do not grow on trees. There was a time, not so long ago, when people like me involved in business promotion and business start-ups. Knocked on people's doors to encourage them to go into business and create enterprise. Many medium and large businesses that thrive today were born years back through the spirit of entrepreneurship that some individuals possessed. Indeed, many businesses started with very little and now they are pillars of success. Many others did not grow so much but in their own way they are also successful. These enterprises serviced and continue to service the community faithfully. They are the grocers, minimarkets, supermarkets, the iron mongers, the bars, the butchers, the bazaars, the domestic appliances dealers, the car repairers, bicycles shops and the other shops of all size and form that keep the life in many towns and villages lively and busy. Most have learned to put aside enough to buy their premises or to start in rented premises and then move out to newly build premises in newer areas.

But not all had the vision, the financial strength or the ability to move. They stayed small while continuing to service the community. They received no assistance from any government and they asked for none. The only protection they enjoyed to help them exist and stay in business come through the rent laws. This was before all the talk about SME protection, Think Small First and all the other slogans heard today became so popular. The Maltese authorities did practically nothing else to effectively help the smaller entrepreneur to start and stay in business. The only business support that existed was the protection from summary eviction by the owner of the premises from were he operated. The law protected the tools of the self employed from confiscation and protected his licenced premises. Nothing else stood as safeguard of the self employed and the small business owner.

Many premises today under rent protection cost practically nothing as construction costs when originally built. Some of these places cost not more than a couple of hundreds to build or buy. The owners received a rent which was then considered just and enough. Through the years this rent in money terms became insignificant. Owners therefore invented all sorts of devices available at low to get additional payments from tenants for privileges that tenants requested from time to time. And a market for these rent protected premises grew alongside the market for non-protected properties but always within the very limited market for rents.  Many owners of rented properties made good money in spite of the restrictions. Landowners learned how to handle the situation. Those who didn't, of course, suffered and fair enough they've asked for the reform.

The law is now changing. Enterprises now move from absolute protection to no protection at all. This is not correct. The first question that needs to be asked is why enterprise is no longer protected. There are clauses in the Reform Bill that protect many small enterprises now under perpetual protection till 2010 and others for 20 years, but effectively the protection has been abandoned in principle. Many small businesses have their days numbered. Most have already decided to call it a day, close shop and retire. The Maltese Government and Opposition now no longer believe enterprise ought to be protected from eviction beyond what is written in a rent contract. In this they are in a minority in the E.U. Most European countries continue to believe that enterprise needs safeguards. That job's protection remains a priority.

Most other governments in Europe distinguish between property rented for residence purposes and for that rented for enterprise use. Those who move in rented property and create work for themselves and for others and provide a service to the community are given protection. Why assist a foreign investor to open factory in Malta and give no protection at all to a small entrepreneur who wants to manage a small enterprise? France presents an interesting enterprise promotion policy: come to France, start your own business and you have a minimum 9-year protection at law if in rented property. You take up a garage or other premises, turn it into a business and you have nine year's protection from eviction. Rented commercial property in France is renewable after nine years and if the rent contract is ended the tenant owner is guaranteed compensation at law. Land owners know that when they rent to enterprise owners for whatever commercial reason, the tenants cannot be evicted before a lapse of 9 years and that in the absence of a renewal they have to pay compensation for the value added to the property through the investments of the tenant.

The capital value added that the premises gains after nine years does not belong only to the landlord alone. A garage or any other premises unlicensed without any goodwill and without the investment necessary to make it an enterprise, grows in value but not as much as a licenced premises with investments and goodwill made and earned by the tenant. The latter appreciates in value much more then the former. The capital gains after nine years belong to whom? Do they belong to the landlord alone? French law says no. If rent is to be renegotiated the "gains" given to the property by both the property owner and the tenant owner is recognized and the renegotiated rent is not dictated only by the owner. It is not dictated only by the market value of property in the general property market. The owner could after nine years evict but he has to pay the capital gains awarded to the building by the tenant owner during the period of his tenancy and reward him/her accordingly. Because for the French enterprise matters. It does not grow on trees. Jobs matter. Its entrepreneurs small, medium or large who create jobs. The law in France protects job creators.

Why are we in Malta abandoning this basic principle? Let's have rent reform but let us not forget enterprise. The new reform does not give due recognition to what tenants have contributed. It looks only at what they have gained over the years that rent was protected. No one is arguing that rent should not be adjusted. But it should not be adjusted without due consideration to the contribution of the tenant to the value gained by the property during the full period of the tenancy. Enterprise owners should not be thrown out simply because the legislator today thinks differently from the legislator of the past. Today's legislator has no mandate to do this.

No law can impose without due compensation. A government  that rightly compensated dockyard workers, that compensate hearse owners and all others who suffered as a result of government decision, cannot simply allow small business owners to be kicked out of their enterprise without due compensation. Government and opposition cannot jointly be responsible for this injustice. They are still in time to re-consider and adjust.

It's never too late to be fair.

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