SME Chamber

The Rent Reform Bill is still far from being acceptable

 GRTU has this morning outlined its final recommendations on the Rent Reform Bill that were presented to the Minister for Social Policy, the Leader of the Opposition and the Members of Parliament during a press conference.

GRTU President Paul Abela explained that GRTU has on the 2nd of March 2009 sent its formal position on the Rent Reform Bill to be discussed at Committee Stage in Parliament. GRTU's formal position was drawn up following several meetings for different groups of tenants and owners to discuss the Rent Reform Bill and meetings on a one-to-one basis of in-depth contract analysis.

Vince Farrugia Director General of GRTU explained that we consider the 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. 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. On these lines GRTU has felt the need to once again raise the proposals it deems are essential especially in times when closing of enterprises and job losses are something we do not need.

GRTU's legal adviser Dr Jan Karl Farrugia outlined GRTU's proposals as follows:

One of GRTU's major objections on the Bill is on the validity of contracts. GRTU sustains that where pre-June 1995 contracts are clear and contain all the essential elements to make a contract binding, independently of whether a contract is definite or not, it must be still regarded as a valid contract, unbreakable especially by a third party.

It is unacceptable that the legislator, in this case a third party, interferes and intervenes between the contractual obligations reached between the two parties based on existing contractual obligations reached within the framework of existing laws. The contracts were signed by both parties knowingly, the majority in the presence of Notaries or Lawyers in their professional capacity. In the same way a purchase contract is not broken when the purchased item increases in value, a lease contact is not broken because the value of the property increases.

In the same way employees and wage earners are provided with legal protection against unfair dismissal, 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.

The Rent Bill also establishes a 15% annual increase of rent up till 2012 after which the rent must be renegotiated with the landlord. To GRTU 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. No justification for the choice of 15% was given and no impact assessment was carried out. Cases are common were a significant sum of money was paid to the landlord for him to agree not to increase the rent or to ascertain length of lease term.

In addition 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.

Should the clause on the revision on rent be accepted due consideration should be given to the added economic value the property has achieved through the efforts of the tenant's entrepreneurship over the same property. Taken into consideration should also 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 lease arrangement, as well as the structural improvements carried out.

As to inheritance of lease GRTU feels 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.

Change of Use is another aspect GRTU feels the Bill should be more versed to the current economic situation. Economic changes are necessitating the change of genre for old established enterprises. The tenant should be given the opportunity of change of use from that stipulated in 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 on the other hand particularly agrees with the Bill's Non Uso clause were a tenant who chooses to pay the rent regularly but does not operate his enterprise is hindering other enterprises form establishing their enterprise in those premises, sometimes prime locations. This of course does not include closure for a period due to works that need to be carried out in the establishment.

GRTU also feels that certain important aspects were not considered or at least not sufficiently in the Bill. The use of Government property for instance should still be used as a tool of assistance to enterprise, including preferential rental treatment, within the framework of an agreed small business promotion strategy.

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 by giving the tenants an option to buy the property on favourable terms and get 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. These should together obtain a maximum discount on the market value of the property of up to 50%. This option should apply irrespectively of whether the rented property is privately owned or Government owned.

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