Is Your Property Eligible for a Rent Increase?

Is Your Property Eligible for a Rent Increase?

23 September 2022

The new Controlled Residential Leases Reform Act referred to as “the biggest social reform in our country” by Housing Minister Roderick Galdes, came into force on 1 June 2021. This reform amends Malta’s pre-1995 rent agreements, ensuring a fair return for close to 10,000 Landlords that had signed protecting leases before 1995. If you’re a landlord bound under a pre-1995 lease or you’ve inherited a property holding a pre-1995 lease, read on.

The pre-1995 rent agreements

Pre-1995 rent agreements gave rise to forced landlord-tenant relationships for indefinite periods of time, with rent payable for much below the market value, at times for as low as €200 a year. To add insult to injury, the law did not allow such landlords to increase rent to match property market values.

Following the drastic increase in property prices witnessed over the past couple of years, several landlords contested in front of the courts due to the significant losses experienced from being deprived of their right to a fair return on their properties. Both the European Court of Human Rights and the Maltese Courts deemed the pre-1995 rent laws unconstitutional, forcing the local government to amend the rental laws.

The new Controlled Residential Leases Reform Act

With the new changes in place, landlords can claim up to 2% of the property’s market value in rent. The process requires landlords to commence proceedings with the Rent Regulation Board (“RRB”), whereby an architect will be appointed to evaluate the property value. Such an exercise can be revised at the landlord’s request every six years. The RRB will also conduct a ‘means test’ of the tenant, to establish whether the tenant deserves the State’s social protection or otherwise. The means test is a threshold in line with the Continuation of Tenancies Regulations considering the income and capital assets of the tenant.

Tenants whose income and assets do not exceed the maximum thresholds in the means test shall be supported by the Housing Authority through a generous housing benefit, which shall come in two forms. A benefits scheme intended for pensioners and social welfare beneficiaries shall fully subsidise the increase in rents up to €10,000 a year per family. Another benefit scheme aimed at tenants that enjoy full-time gainful employment shall ensure that no more than 25% of the beneficiary’s disposable income is spent on rent. Thus, the subsidy will cover the difference between this figure and the augmented rent payable to the landlord up to €10,000 each year. On the other hand, tenants who exceed the income and capital thresholds set by the means test shall be ordered to vacate the property within five years from the date of the judgement, with the rent doubling in the interim.

In addition to the above and in line with past court rulings, landlords bound by pre-1995 leases on their properties can claim damages due to a lack of enjoyment of their properties in past years. Damages awarded to the injured party will be claimed from the state funding and not the tenant.

At AE legal, our team of skilled professionals are equipped to assist you with rent control and litigation procedures guiding you to get compensation for your losses in an honest and transparent manner. Reach out to Joseph Grech on jgrech@ae.com.mt for more information.