Vince Farrugia | Sunday, 09 August 2009
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Rent reform is an unjust law

The GRTU considers the Rent Reform Act, just approved in parliament to amend the Civil Code, as the worst land-grabbing piece of legislation since Lorry Sant’s notorious development area schemes 30 years ago.
From the very beginning, during the only half-hour consultation meeting Minister John Dalli deemed fit to give GRTU (as the only national body representing tenants in rented commercial properties), we made our position amply clear as soon as the White Paper was published. Since its launch at MCESD over a year ago till its approval in parliament, GRTU reviewed countless commercial lease contracts and, building on its members’ suggestions through a consultation process, GRTU submitted a set of well thought-out proposals: an exercise that should have been carried out by government.
Some weeks before the law’s approval in parliament, GRTU contacted the Ministry for Social Policy to express its disappointment that the Act had passed the second reading with amendments, and that the GRTU and its members were being kept in the dark as to what these amendments were. Our members were devastated to see that government decided to stand its ground even though this meant jeopardising their livelihood, that of their family and their employees. Calls from understandingly upset members inundated GRTU.
With disbelief, GRTU learnt that no significant alterations to the bill were made and therefore all the work GRTU and its members had put in the proposals had yielded no result; we seriously doubt if our proposals to the bill were even read, considering that not as much as an acknowledgement was received. This is true both for us and for all our members who sent in their individual comments.
The only significant proposal we saw accepted was GRTU’s proposal to the introduction of the concept of casa-bottega. These were cases previously omitted from the White Paper and later, following our recommendations, introduced. The most important proposals GRTU did not see accepted included a longer transition period if government approved the reform as planned; security of tenure for tenants who progressed from one genre of business to another; and the clear recognition of the premium paid at the beginning of a lease and a compensatory mechanism to be put in place should the lease be terminated. In addition GRTU had also proposed that enterprises operating from rented commercial premises would be given the opportunity to buy the property at a commercial value with discounts set according to the number of years the business has been occupying the premises.
GRTU agreed that a certain amount of abuse was being created by the old laws. We also agreed that new rents needed to be placed under a sort of standard. GRTU therefore agreed with certain aspects of the law since they will not jeopardise neither the enterprise nor the landlord but it is at the advantage to both to have these legal rights established.
For instance GRTU agreed with the termination of contract where rent is not paid punctually, the authorisation of a lease by the Rent Board of a property found suitable for lease, with the areas related to maintenance and repairs, dissolution of the contract in the event of failure to use the premises for a commercial purpose according to the contract and if the premises is abandoned and suffers damages, and that the tenant is not entitled to sub-let unless such right was agreed upon in the contract.
It is difficult to give an exact figure when calculating the impact of the law because not all Maltese entrepreneurs will be affected in the same manner. Those not having periodic increases in rent will experience an immediate increase of 15% compounded annually as of next year until the current rent is doubled. This means that where an enterprise has a low turnover, these cumulative increases might drive them out of business even if rent is low. And where an enterprise pays already a high rent, of which we have many cases, these will experience a tremendous increase in lease, with obvious negative effects.
We fail to understand on what basis the blanket increase of 15% was fixed. If government had carried out a study, like we did, it would have realised that increasing the rent at the same rate for an enterprise paying €30 a year and another paying €3,000 lacks sense. We have spoken to persons who have paid a hefty premium in order to maintain their already high rent without any increases; it is utterly unjust to change the rules of the game arising from a legally binding agreement and keeping a closed eye on the premiums paid and under what conditions.
In the longer term, pre-1995 contracts not having a termination date will terminate by June 2028. Therefore within little over 18 years such enterprises will have their contract terminated, meaning that if the landlord decides not to re-negotiate or extend, their business will be very negatively affected. Potentially, if an enterprise consists of only one shop and the landlord after the next 18 years decides to keep the property, then the business has nowhere to operate from. Where the landlord decides to re-rent it must be done through a new contract. Most of the businesses will not be able to sustain a new contract, especially after the high premium they paid in order to guarantee the circumstances they were in prior to government’s decision to change them.
As a basic objection to the law, GRTU objects to government changing the rights laid down in the rent agreements. A contract of lease is as binding as a contract of sale. In the same manner that you cannot ask for the difference brought by the market price’s increase for the garage you sold 10 years ago, you do not increase a rent that – as laid down in the contract – should not be increased, or terminate contracts that should not terminate unless by breach of the lessee’s legal and/or contractual obligations.
All in all GRTU feels the rent law amendments to the Civil Code are a huge blow to Maltese entrepreneurs. If one believes that safeguarding the life of an enterprise is a cardinal rule and that enterprises cannot be left to die, it can never be regarded as a positive development. As a Chamber representing business we can never agree to amendments to legislation which will kill businesses and will as early as next year put them in greater hardship than they are in today. GRTU is for enterprise.
These amendments are a sham where private interests have prevailed at the expense of businesses. We knocked on all doors and none were answered. When a law includes elements that are manifestly unjust, discriminatory and deny citizens rights that are their prerogative under the country’s Constitution, the law can never be acceptable even if supported by government and Opposition. GRTU prefers that the law is reviewed without recourse to the Superior Courts, including the Constitutional Court, since the rent law amendments as they stand are unacceptable.

Vince Farrugia is director-general of the Chamber of SMEs (GRTU)


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