That the GRTU was not amused by efforts to amend Malta’s archaic rent laws is no big secret. Now that fresh laws have been announced, CHARLOT ZAHRA speaks to GRTU Director-General Vince Farrugia to see how he feels about the last act in the rent reform saga
What is the Malta Chamber of Small and Medium Enterprises (GRTU)’s initial reaction to the approval by Parliament of the Rent Reform Law? GRTU expressed its reservations to the Rent Reform as proposed by Government way back since the White Paper was launched at MCESD over a year ago, till the end when it was approved by Parliament recently. GRTU has reviewed countless commercial lease contracts and building on its members` suggestions, we have submitted a good number of well thought proposals, based on consultation with business and a thorough study of the contracts that would have been altered, an exercise which should have been carried out by government.
GRTU was very disappointed to learn from the papers that the law had been approved by Parliament.
Some weeks before the approval, GRTU had contacted the Ministry for Social Policy to express its disappointment that the Act had passed its second reading with amendments while our members were being kept in the dark as to what these amendments were.
The reply we received from the ministry was that somebody had to take a final decision and that the GRTU, like everybody else, would be informed through the Government Gazette when the Act was approved.
It was useless to explain that not only GRTU is a social partner at law but also that GRTU in its members has stakeholders who as it stood will have their businesses closed down.
With disbelief, GRTU studied the law and learnt that no significant alterations to the Bill were made and therefore all the work GRTU and its members had put in the proposals gave no result, we seriously doubt if our proposals to the bill were even read.
As to our members` reaction, they were devastated to see that government decided to stand his ground even though this meant jeopardising their livelihood, that of their family and of their employees. Calls from understandingly upset members inundated GRTU.
How will the new laws affect Maltese entrepreneurs and SMEs? 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 per cent a year as of next year.
This might be negative in two circumstances. Where an enterprise has a low turnover these cumulative increases might drive them out of business even if rent is low.
Where however 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.
On a longer term, all contacts without a termination date will terminate within 20 years starting 2008.
Therefore enterprises within 18 years will have their contract terminated, meaning that if the landlord decides not to re-rent to them, their business will be very negatively affected.
Potentially speaking 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 had paid in order to guarantee the circumstances they were in until government decided to change them.
Which are those proposals in the approved rent reform with which the GRTU disagrees mostly?
There are two significant changes that will occur to businesses operating form a leased property with a pre-June 1995 commercial contract.
The law states that unless the rent has already periodic increases between 1 Jan 2010 and 31 Dec 2013 rent will increase 15 per cent each year. Following this, rent must be agreed upon from scratch between the parties.
If no agreement is reached any party may apply to the Rent Board to fix the fair rent, established according to the Property Market Value Index.
We first of all fail to understand on what basis the blanket increase of 15 per cent was fixed.
If government had carried out the study like we did, it would have realised that increasing the rent for an enterprise paying €30 a year and another paying €3000 at the same rates lacks sense.
We have spoken to persons who have paid a hefty premium in order to keep their already high rent without any increases; it is utterly unjust to change the rules of the game and keeping a closed eye for premiums paid.
The law also states that a commercial contract made before 1 June 1995 shall in any case terminate within twenty years from 1 June 2008 unless another contract or lease has been made laying down a specific period.
As a basic objection to the law, GRTU objects to government changing the rights laid down in the contract and agreements. A contract of lease is as binding as a contract of sale.
In the same way, you cannot ask for the difference brought by market price increase of the garage you have sold 10 years ago; you do not increase rent that as laid down in the contract should not increase and terminate contracts that should never terminate. Obviously unless agreed to by both parties.
Which are those proposals in the approved rent reform with which the GRTU agrees mostly? Why? GRTU agreed that a certain amount of abuse was being created by the old laws. We also agreed that new rents needed to be given a sort of standard. The more significant areas of the bill we agreed upon are below:
Dissolution of contract or election to compel may be requested by the party aggrieved if either fails to perform his obligation. Payment for damages may also be requested.
Contracts are not dissolved by the death of the landlord or the tenant.
Where tenant fails to pay rent punctually, the contract may be terminated after the landlord calls upon the tenant by a judicial letter and the tenant still fails to pay within 15 days from notification.
All owners of the property shall make a lease of a property that is co-owned by more than one person.
The Rent Board may at the request of a co-owner authorise a lease of a property found suitable for lease, advantageous and it is not shown that any of the co-owners have a just cause to oppose.
The co-owner who has in general given his consent to lease, or in spite of his opposition the Rent Board or court has given the authorisation to lease, may nevertheless exercise the right of preference unless he has waived this right.
The tenant is responsible for the external ordinary maintenance of the property, and all repairs other than structural repairs.
If the ordinary repairs are not carried out appropriately the landlord can request the Rent Board to authorise him to carry out such repairs at the expense of the tenant.
The tenant has the right to choose to carry structural repairs at his expense, which will retain the same rent. With this he will however lose the right of the compensation of costs at the termination of the lease.
The landlord is responsible for the structural repairs. If these have been carried out due to necessity and not due to his own fault the annual rent will increase by 6 per cent of the costs incurred. If it was due to the fault of the tenant the lease can be immediately terminated.
The tenant shall have the right to carry out, without the need of proceedings, urgent repairs at the expense of the landlord. As reimbursement the rent will be retained.
Failure to use the premises for a commercial purpose according to the contract shall be deemed bad use and may result in Dissolution of the contract.
Dissolution of the contract will also occur if the premises are abandoned and suffer damages. In such case the tenant is liable to damages.
The tenant is not entitled to sublet unless such right was agreed upon in the contract.
GRTU agreed because these are part of the standards that needed to be put in place. These will not jeopardise neither the enterprise nor the landlord. It is at the advantage of both to have these legal rights established.
Which of your recommendations were not accepted by government? The majority of proposals were not accepted. As mentioned earlier, our proposals were justified and built on a study or contracts carried out by the GRTU.
At MCESD level, GRTU requested from government a full Economic and Social Impact Assessment Report, knowing this was an essential step for such an important law.
When GRTU asked Minister Dalli whether a socioeconomic impact assessment was undertaken and if statistical figures showing how many businesses will be affected were available, the minister replied that statistical data was not available.
He said that other data gathered would certainly serve as well informed decision taking exercise. We feel the outcome of the law shows there was no well informed decision taking.
Out of our first set of proposals GRTU introduced the situation of casa-bottega. These were previously omitted from the white paper and later, following our recommendations, introduced.
More detailed proposals were given to the bill. As explained earlier no significant changes were seen from the Bill to the Act and therefore at that stage no proposals were taken up further.
We doubt our last position was even taken into consideration, considering not even an acknowledgement was received. This is true both for us and for all our members who have sent their individual comments.
Government however, has not accepted our recommendations on:
Interference in contracts where it comes to duration;
Interference in contracts where it comes to rent increase;
A longer transition period if government approved reform as planned.;
The Bill to extend security of tenure for tenants who progress from one genre of business to new genre of business utilising the same rental property.
This safeguard should by subject to a framework of acceptable and prescribed forms of compensation to property owners.
The tenant should be given the opportunity of change of use from that stipulated from 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.
The Bill stated that where the tenant is a company, the cumulative inter vivios transfer of 50 per cent of the shareholding, transfer of the actual controlling power of the administration of such company or of the control of the business conducted from the premises shall be considered as sublease. GRTU was in total disagreement.
This goes against the fundamental principles of Company Law. The Article as drafted even limits the rights of directors apart from stakeholders rights.
Premium: The premium paid at the beginning of a lease to ensure advantageous aspects of the lease are retained should be clearly recognised if this Act should come in force and changes in the original contract be made.
A compensatory mechanism should be put in place should the lease be terminated, this should be set up by the Rent Board.
Opportunity to buy: Enterprises operating from rented commercial premises should be given the opportunity to buy and acquire the property at commercial value with discounts set according to the number of years the business has been occupying the premises.
The business would also be allowed recognition for the investments done in the property.
The 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 should together obtain a maximum discount on the market value of the property of up to 50 per cent.
All in all, you are saying that this last reform will not be a positive measure for Maltese entrepreneurs. Why? All in all no, it is anything but a positive measure for Maltese Entrepreneurs.
If one believes that safeguarding the life of an enterprise is an immaculate rule and that enterprises cannot be left to die, no it can never be regarded as a positive development.
As a Chamber representing business we can never agree to a law which will kill businesses and will as early as next year put them in a worse hardship than they are in today.
We represent a vast variety of businesses and of course a vast variety of interests, nothing however can prejudice enterprise.
Within GRTU we have tenants, we have landlords and we have both. We are however for the enterprise. No law can prejudice the survival of the enterprise.
This law is a sham where private interests have prevailed at the expense of business - a law to which everyone but us have bowed their heads and accepted.
We knocked all the 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 Constitutional Court as the Law as it stands is unacceptable.
A positive law would be helping enterprises retain their employees not giving them another reason to dismiss. Positive would be hearing business and not having business on its knees pleading to be heard.
