Real Estate and Construction

State ordered to pay property owners €800,000 in compensation

The State has been ordered by the courts to pay €800,000 to the owners of leased property in a prime site of Valletta, who were ” unjustly deprived of full enjoyment thereof once the lease expired in 1977.”

The plaintiffs were assisted by Dr Edward DeBono and Dr Nicholas DeBono.

Read the full article on today’s edition of the Times of Malta here: bit.ly/3MoevtO

Solving Disputes Over Private Residential Leases: The Ideal Forum?

Author: Nicholas DeBono, Associate

Despite the economic effects of the pandemic, Malta still boasts and enjoys a booming property market. The broad foreign base of working expats continues to supply an immense demand, especially for the leasing of residential or commercial tenements. In order to ensure that their property is consistently occupied and leased, many landlords place their property on the rental market. Naturally, with the increase in property available for rent, disputes between the landlords and the tenants are not few and far between. The interpretation of the lease agreement, the release of the rental deposit and damage inflicted on and within the property – are just a few examples of the disputes which commonly arise between the two parties. However, what is the adequate forum to effectively and efficiently solve these disputes? How can one expect to be fairly adjudicated on the merits of such disputes?

In 2019, Chapter 604 of the Laws of Malta was promulgated. This is commonly known as the “Private Residential Leases Act”. The law now requires all landlords to register their lease agreement with the Housing Authority. The raison d’etre of this clause is to safeguard abuse by either party to the tenancy agreement as well as to foster a controlled environment in which both the landlord and tenant are simultaneously protected in terms of the force of the lease and the consequences that may arise out of that agreement governing the parties. Amongst other obligations attributed to the lessor, the legislator’s main intention for this law was to formulate a specialised, sufficient and practical mode of solving disputes arising from the residential lease.

Furthermore, the law obliges the parties to include an inventory in the form of documentary

evidence, attesting to the condition of the tenement as well as the state of any furniture and domestic appliances supplied by the lessor at the start of the lease. This provides a guarantee and security to both the landlord and the tenant, that at the end of the lease, if any damages result or any items originally within the property, are missing, the lease contract contains a black on white list of the items inside the tenement and their original state at the commencement of the lease contract.

Interestingly, the law also provides for fair and just compensation in the event that the tenant does not adhere to the termination conditions of the lease contract by illegally occupying the tenement without a valid title at law, effectively, prohibiting the landlord from regaining possession of his property.

To limit the further burden on an already inundated Court, the Act also establishes an Adjudication Panel for Private Leases (the “Adjudicating Panel”) for the consideration and determination of “lesser” matters which do not require the intervention of the Court. This Adjudicating Panel has the competence to settle matters that relate to private residential leases and is limited in its jurisdiction as it is only authorised to deal with claims that do not exceed €5,000. The Adjudicating Panel consists of a chairperson and between two to four professionals who have experience in the legal or real estate sector. Claims to the Adjudicating Panel are made in writing and the defendant has ten days to reply to the claim brought against him. The procedural nature of cases before the Adjudicating Panel are similar to the standard procedure implemented before a court of law. Notably, to ensure the expediency of these proceedings and to reflect the versatile nature of the disputes at hand, the legislator has constrained the panel of adjudicators with regard to the time period in which they are obliged to deliver their judgment. Contrasted with the excessive prolongation of matters in court, this time-saving benefit has accordingly induced interested parties to avoid court proceedings for disputes related to a lease agreement altogether and has promoted the alternative option of settling such disputes in front of the Adjudicating Panel instead. The decision of the Adjudicating Panel is appealable on a point of law after twenty days from its decision to the Court of Appeal in its Inferior Jurisdiction.

The spirit of this legislation significantly embodies and promotes the “out-of-court” mentality that the legislator is evidently trying to foster – and this, together with the increased regularisation of what was previously an unmonitored and disorderly rental market. This has lead to a more efficient system which is forced to hasten the delivery of judgments to be able to solve disputes and effectively lay them to rest.

The ECHR signals its uneasiness with the amendments made to the Housing (Decontrol) Ordinance by Act XXVII of 2018

Author: Christian Ellul, Trainee Associate

The case of Cauchi vs Malta decided by the European Court of Human Rights on the 25 March 2021 revolved around a house situated in Hal-Ghaxaq of which the landlord was the applicant. This property was rented way back in 1967 to third parties at an annual rent of €58 under a title of temporary emphyteusis. It was later transferred to other third parties as a sub-emphyteusis. Although the emphytheutical term ended in February 1984, the sub-emphytheuta availed himself of Act XIII of 1979 which to the owner’s detriment meant that the emphytheuta could still retain the property under a title of lease. With the introduction of Act X of 2009, from January 2010, the sub-emphytheuta started paying €185 yearly which increased to €200 yearly in January 2017 for property which was valued at €174,000 by the government’s own expert.

The owner instituted proceedings in 2017 and the First Hall of the Civil Court in its Constitutional Jurisdiction, holding in favour of the owner, declared that the landlord was not receiving fair and adequate compensation in exchange for the burden imposed by law by these rent laws. Consequently, the First Instance court liquidated EUR 20,000 in pecuniary and non-pecuniary damages. However, regrettably the court stopped short from ordering eviction and instead declared that the tenants could no longer rely on Article 12(2(b)(i) of the Housing (Decontrol) Ordinance which was granting the perpetual protection.

The owner, unhappy with the compensation but also mindful of a pattern of Constitutional Court judgments which “systematically reduced the awards given by first-instance courts” resorted with an application before the European Court instead of appealing to the Constitutional Court. Indeed, the applicant reasoned that had he pursued his case further domestically, the Constitutional Court would unlikely accede to his claim of eviction which is the only remedy which could bring  an end to the breach of his fundamental rights under the Convention.

In response to the plea raised by the State Advocate that local remedies had not been exhausted prior to the ECHR application, the European Court clarified that the rule in Article 35 of the Convention obliging an exhaustion of local remedies prior to a filing a petition before the ECHR is based on the understanding that such domestic remedies are sufficiently to deal with the substance of an “arguable complaint” and which may grant appropriate relief. The international court reiterated that there are special circumstances which absolve the applicant from the obligation to exhaust the domestic remedies. In this light, the ECHR rejecting the plea of the State Advocate, held that although the constitutional redress proceedings are an effective remedy in theory, they are not so in practice. This is because the Constitutional Court has regularly failed to prevent continuation of the violation in a two-fold manner. Firstly, by failing to order eviction and secondly, by awarding compensation not deemed to be adequate.

However, the significance of this judgment was the ECHR pronouncement on the amendments made to Chapter 158 by Act XXVII of 2018 which were pleaded by the State as giving a suitable remedy to the owners. Prior to the introduction of this amendment act, an owner in possession of a judgment declaring that his tenant can no longer rely on the perpetual protection provided by Chapter 158 had tangible prospects of re-possessing his property.

However, this position had changed through these amendments. Indeed, the applicant argued that the introduction of Act No. XXVII of 2018 not only failed to provide a suitable procedural safeguard but was another cumbersome legal obstacle. Via the new procedure, a tenant who qualified under the established means test (which is not particularly onerous) would continue to reside in the property at a protected rent set at a maximum of 2% of the market value of the property. Even if he did not qualify under the means test, the tenant would be able to continue residing there for 5 years. The court was critical of this “new” law. The ECHR held that it cannot accept a situation where an unmeritorious tenant who does not qualify under a means test continues to live in the tenement for at least 5 years. On the other hand, the court held that even in cases which merit protection, the methodology to be employed by the Rent Regulation Board (RRB) as stipulated in Article 12B is one which can still leave the owner to bear most of the social and financial costs of providing housing to the individual as opposed to the State. Although the rent can increase to 2% of the property’s sale value, this is nothing more than the maximum than can be paid. In fact, the amount to be paid is likely to be much less given that the board must take into consideration the means of the tenant. The court concluded that the method established in Article 12B of Chapter 158 is still likely to result in low rents, consequently it fails to deal effectively and meaningfully with the issue of the disproportionate interference arising from the applicable rent laws.

Whilst also noting in orbiter, in reference to Article 12B(11), that this novel procedure was introduced with the aim of stultifying court judgments ordering eviction, the court declared that the right to property of the owner and the right to an effective remedy under Article 1 Protocol 1 of the Convention and Article 13 of the Convention had been violated by Act XXVII of 2018 . Consequently, it ordered the state to pay the victim a global amount of 31,440 euros covering pecuniary, non-pecuniary damages and costs.

Dr. Edward DeBono and Dr. Michael Camilleri assisted the applicant.

Related articles on the Press:

https://timesofmalta.com/articles/view/european-court-berates-malta-for-violation-of-property-rights.862321

An Mdina Palazzo the subject of a landmark human rights judgment

Author: Christian Ellul, Trainee Associate

In the case of Mark Pace vs State Advocate et the Civil Court, First Hall (Constitutional Jurisdiction) presided by Mr. Justice Joseph Zammit McKeon, during his last court sitting following an illustrious career on the bench, gave yet another landmark judgment on the 18th of March 2021, awarding the owner of a historic Mdina Palazzo, €1, 017,826 in damages after declaring that the application of Chapter 158 of the Laws of Malta over the said property violated the applicants fundamental rights.

The property subject to the Constitutional proceedings is “Palazzo Gourgion” prominently situated in St. Paul’s Square in Mdina. In 1976 by means of a private writing the predecessors in title of the applicant leased this historic Palazzo to the late husband of the respondent. Although the original rent period was for a period of 10 years, the owners of the Palazzo were caught within the shackles of the legal amendments introduced by Act XXIII of 1979. Through these amendments, Maltese tenants who were at the time residing in ordinary residences subject to ground rent or subject to lease over decontrolled property acquired the right to continue residing in such premises practically indefinitely. The court reasoned that as a result, Chapter 158 gave the respondent lessee the right to continue renewing such lease making it practically impossible for the applicant to take back possession of his property.

The court after making an in-depth analysis of the obtaining jurisprudence emanating both from the Constitutional Court and the European Court of Human Rights upheld the claims of the applicant holding that Chapter 158 of the Laws of Malta, more specifically Article 5 of that act, violated the applicants’ right to property under Article 37 of the Constitution and Article 1 Protocol 1 of the European Convention on Human Rights.

In determining the pecuniary damages to be awarded, the court enunciated several factors to be taken as guide in determining the amount to be liquidated. It held that the starting point is the “maximum lease value”. According to the court appointed expert, this amounted to €2,649,754 for the period between December 1986 up till November 2019 which corresponds to the period during which the lessee enjoyed protection under the aforesaid law. From this amount, the rent already paid was deducted followed by a further 35% deduction attributable to the “legitimate intervention of the state” through such legislation. Finally this amount was subject to an additional 35% deduction attributable to what the court referred to as the passiveness of the applicant in waiting a number of years before taking action.

Through this methodical exercise the court arrived at a final figure of €1,012,826 that was liquidated as pecuniary damages whereas an additional €5,000 were awarded as non-pecuniary (moral) damages, both payable to the applicant by the state. While the court fell short of ordering eviction, obiter dictum, it held that the respondent cannot continue resting on protections granted under Chapter 158 of the Laws of Malta to continue living in this prestigious Palazzo.

The applicant owner was assisted by Dr Edward DeBono, Dr Karl Micallef and Dr Nicholas DeBono

Full article on the Sunday Times of Malta may be read here: http://bit.ly/3tJ6BB7

Court once again confirms unconstitutionality of pre-1995 residential leases

In yet another judgement delivered yesterday by Mr Justice Grazio Mercieca presiding over the First Hall of the Civil Court in its Constitutional Jurisdiction, in the names Joseph Grima et vs Avukat Generali et, the said court, once again, and in no uncertain terms, confirmed that Chapter 69 of the Laws of Malta and Act X of 2009 which protect sitting tenants in pre-June 1995 leases are in blatant breach of the European Convention on Human Rights and of the Constitution of Malta and can therefore no longer be invoked by the sitting tenant in order to continue renewing his lease on an indefinite basis, effectively translating in a termination of the said lease.

The Court also awarded €35,000 in damages payable to plaintiffs Grima by the Attorney General, more than double the average amount usually awarded in similar cases, along with all costs of the proceedings, on account of the fact that the legal regime in question which gave the sitting tenant Lawrence Aquilina the right to continue renewing the lease ad infinitum at a paltry rent, despite the amendments of Act X of 2009, is in breach of the owners’ constitutional rights, and was allowed to remain on the statute book when it was manifestly clear that such dispositions of the law breached the fundamental human rights of the owners.

Plaintiffs were represented by Dr Edward DeBono and Dr Karl Micallef.