Communicated on 8 February 2017

FOURTH SECTION

Application no. 62978/15 David GRECH and others against Malta lodged on 15 December 2015

STATEMENT OF FACTS

A list of the applicants is set out in the appendix. They are represented before this Court by Dr Franco Vassallo a lawyer practicing in Valletta.

A. The circumstances of the case

The facts of the case, as submitted by the applicants, may be summarised as follows.

1. Background to the case

The applicants are joint owners of the property at number 204, High Street, Mosta , Malta (hereinafter referred to as “Property A”). Property A is located adjacent to another property that is also jointly owned by the applicants, namely Villa Grech -Mifsud, High Street, Mosta (hereinafter referred to as “Property B”) . The applicants became owners either through inheritance or donation from their parents on various dates between 1991 and 2011.

In 1923, the applicants ’ ascendants entered into a rent agreement with Nicolo ’ Isouard Band Club Association (hereinafter referred to as the “Band Club”), whereby they willingly rented Property A to the Band Club for twenty pounds sterling annually (approximately 23.84 euros (EUR)). In 1947 the rent was increased to twenty-four pounds sterling annually (around EUR 28.62).

In 1970, LG, one of the applicants ’ ascendants, filed an application before the Rent Regulation Board (hereinafter referred to as “the Board”), on behalf of all the joint owners at the time, whereby he requested that the annual rent be raised. On 15 December 1970 the Board upheld the request and increased the rent to sixty pounds sterling annually (approximately EUR 71.60), to be paid six months in advance.

On 14 August 1978 the applicants ’ ascendants entered into a new lease agreement with the Band Club, whereby they willingly rented Property A and part of the garden of Property B (hereinafter, jointly referred to as “the rented property”) to the Band Club for 120 Maltese l iri annually ((MTL) ‑ approximately EUR 279.52), to be paid six months in advance.

LG, who died during the constitutional redress proceedings (see hereunder), gave evidence before the Civil Court (First Hall), in its constitutional competence, to the effect that the annual rent due to the applicants was that of MTL 136 (EUR 316.80), and that the Band Club was actually paying MTL 130 annually (EUR 302.82). These amounts do not correspond to those agreed upon within the rent agreement of 14 August 1978. In the mentioned proceedings the court concluded that, on an unspecified date, the applicants and the Band Club had entered into a verbal agreement, whereby the annual rent due was increased because the Band Club had requested the use of a further part of the garden of Property B.

On 28 October 1980 and again on 10 January 1983 LG complained with the Band Club about its use of the rented property as a discotheque and as a restaurant.

In 2004 and 2005 the Band Club had requested that it be able to rent a further part of the garden of Property B and for it to purchase the part of the property that was being utilized as the seat of the club. The applicants refused.

On 8 August 2009 the applicants appointed an architect who estimated that the rented property ought to at least attract a rental income of EUR 36,700 yearly.

According to the applicants, on December 2009 the Band Club bought a property, located in Sqaq Grech Mifsud, that touched with the property it rents from the applicants. In order to buy this property the Band Club was lent the sum of EUR 65,000 by the President of the Band Club. The sum lent is to be paid over a span of ten years from the day of the contract.

2. Constitutional redress proceedings

On 12 February 2010 the applicants or their ascendants (as owners, hereafter referred to as “the owners”) filed an application before the Civil Court (First Hall) in its constitutional competence. They claimed that they had suffered a violation of their right to access to a court as protected under Article 6 of the Convention, since the law impacted the remedies that the Board could offer them, including the manner in which a remedy providing for a raise in rent ought to be calculated. The owners also claimed that their right to peaceful enjoyment of their property, as protected under Article 1 of Protocol No. 1 to the Convention, had been violated. They referred to Article 4 in conjunction with Article 3 of the Reletting of Urban Property (Regulation) Ordinance (hereinafter referred to as ‘ the Ordinance ’ ), which precluded them from increasing the rent to reflect the market value of the rented property. The owners further submitted that in 2009 the law had been amended allowing for an increase in rent and the establishment of a cut-off date for existing “protected rents”. However, the amendments in the law did not cover properties rented as clubs. Therefore, in contrast with other commercial rents, the annual rent for the club could not be raised and the rent contract could not be terminated.

On 15 July 2015 the Civil Court (First Hall), in its constitutional competence, found no violation under Article 6 of the Convention. However, the court decided that the owners had suffered a violation of their rights as protected under Article 1 of Protocol No. 1 to the Convention, and awarded them the sum of EUR 50,000 in compensation.

The court noted the Attorney General ’ s (hereinafter referred to as “the AG”) arguments against the owners whereby he contended that: the owners ’ ascendants had not been forced to enter into the rental agreement with the Band Club, they had willingly entered into the agreement which at the time they deemed just; when the owners ’ ascendants had entered into the agreement the special legal dispositions regulating the renting of a property as a club (introduced through the enactment of the Reletting of Urban Property (regulation) Ordinance) were already in place and therefore the owners ’ ascendants had entered into the agreement with full knowledge of the consequences it would lead to; therefore they had brought the situation upon themselves and could not allege a violation of their rights, nor should the owners be resorting to the courts to alter their situation.

The court noted that, in 1923, when the owners had entered into the first rental agreement with the Band Club, the laws enacting the special dispositions concerning renting a property as a club had not yet come into force. The special dispositions came into play between the first rental agreement (1923) and the second rental agreement (1978). The court considered that the rental agreement of 14 August 1978 was an extension of the first rental agreement - the first agreement having been entered into before the special dispositions had come into force. Therefore, the court rejected the AG ’ s arguments.

As to Article 6 the court noted that the provision did not provide an absolute right to access to a court. In the present case a remedy did exist. However, it was limited as to the circumstances in which it could be used and the amount by which the rent payable to owners of a property rented as a club could be raised. Nevertheless, the right to access to a court or tribunal would be satisfied if the person was provided with a remedy in the law, even if the remedy was constricted. Therefore, the Board was an available remedy. Further, the court noted that Article 4 of the Ordinance could not be read in isolation as the Board was given further competences. Article 1531 J of the Civil Code, when r ead in conjunction with Article 4 of the Ordinance, provided a mechanism that provided for the establishment of a just balance between the rights of the owners of a property, the persons renting the property and the public interest. However, the court acknowledged that this mechanism was not yet in force when the owners filed proceedings before it. Nevertheless, the situation was addressed on 1 January 2014 by means of new legislation which provided for an increase in rent received by owners of properties rented as clubs. Such regulation provided for owners to receive a percentage of the profits made by such clubs through their economic activities, other than those for philanthropic reasons. In the court ’ s view the raise in rent which was automatic meant that recourse before the Board was no longer necessary.

As to Article 1 of Protocol No. 1 the court accepted that clubs play a social role in Maltese society, even to date. With this social interest the State was permitted a level of interference. The legality of such interference had not been contested. However, when comparing the circumstances in which the rent agreement had originally been entered into, to the present day circumstances, the element of proportionality had not been respected and thus the applicant ’ s rights had been breached .

As to the owners ’ request for the court to establish a raise in the rent payable to them, the court considered that it was not its role to take on functions that the Constitution granted to another organ of the state, just as much as it could not “erase” ( t ħ assar ) laws unless it found that they had “no effect” ( ma jiswewx ). Thus, it was not competent to give the remedy requested by the applicants. This decision was reinforced by the introduction of the new laws in 2014 which updated the rents payable.

The court considered that when the owners requested damage they had failed to provide any proof. The estimate provided by the ex parte architect did not suffice due to the criteria used and the approximate manner in which the calculations had been done. Therefore, the owners ’ request for damage was denied. However, some form of compensation was due. In calculating it the court considered that the violation consisted of an interference with the property of the owners and not the taking thereof. Moreover, the owners were not requesting that the property be granted back to them. Taking all the circumstances of the case into consideration, the evidence presented before it and the applicable laws, the court concluded that it was just to provide the owners with compensation in the sum of EUR 50,000.

On 29 July 2014 the AG filed an appeal before the Constitutional Court. On 25 August 2014 the owners replied to the AG ’ s appeal and filed their own appeal concerning Article 6 and Article 1 of Protocol No. 1 to the Convention in connection with the lack of justification for the interference and its disproportionality, as well as the amount of compensation awarded.

On 6 February 2014 the Constitutional Court held that the owners ’ appeal had been filed outside the set time-limits and therefore declared it inadmissible. The owners had replied to the AG ’ s appeal on 25 August 2014 while their reply should have been submitted by 1 August 2014.

On 26 June 2015 the Constitutional court partially revoked the sentence of the first-instance court. It concluded that the owners had not suffered a violation of their rights as protecte d by Article 1 of Protocol No. 1 to the Convention and therefore no compensation was due. The costs of proceedings at both instances were to be paid by the owners.

The Constitutional Court observed that the complaint concerned two rental agreements that were entered into in 1923 and 1978 respectively, between which special legal dispositions concerning properties rented as clubs were introduced. Unlike the first-instance court, the Constitutional Court concluded that the agreement of 14 August 1978 amounted to novation (see relevant domestic law). It was a new rent agreement concerning a larger property and a higher annual rent payable. The intentions of the parties in the original agreement were set aside, and were now regulated by means of a new agreement. The court considered that on 14 August 1978 Articles 3 and 4 of the Ordinance were already in force. Thus, the parties had willingly entered into the agreement with full knowledge of the consequences it would lead to. Therefore the owners could not allege a violation of their rights. The principle volenti non fit injuria applied. The court concluded that the case of the owners did not concern the renunciation of a human right, but rather the exercise on the part of the owners to dispose of their property as they desired. From the evidence presented before it, the Constitutional Court concluded that the agreement of 14 August 1978 established clearly that the owners wanted to enter into a rental agreement for a larger property, with a higher rent to be paid by the Band Club, and had done so. Therefore the owners had not suffered a violation of their property rights.

B. Relevant domestic law

Article 1531I and Article 1531J of the Civil Code, Chapter 16 of the Laws of Malta, read as follows:

“1531I. In the case of commercial premises leased prior to 1 st June, 1995, the tenant shall be considered to be the person who occupies the tenement under a valid title of lease on the 1st June, 2008, as well as the husband or wife of such tenant, provided they are living together and are not legally separated, and also in the event of the death of the tenant, his heirs who are related by consanguinity or by affinity up to the grade of cousins inclusively:

Provided that a lease of commercial premises made before the 1st June, 1995 shall in any case terminate within twenty years which start running from the 1st June, 2008 unless a contract of lease has been made stipulating a specific period. When a contract of lease made prior to the 1st June, 1995 for a speci fic period and which on the 1st January, 2010 the original period "di fermo " or "di rispetto " is still running and such period of lease has not yet been automatically extended by law, then in that case the period or periods stipulated in the contract shall apply. A contract made prior to the 1st June, 1995 and which is to be renewed automatically or at the sole discretion of the tenant, shall be deemed as if it is not a contract made for a specific period and shall as such terminate within twenty years which start running from the 1st June, 2008.

1531J. In the case of a tenement leased to an entity and used as a club before the 1 st June, 1995 including but not limited to a musical, philanthropic, social, sport or political entity, when its lease is for a specific period and on the 1st January, 2010 the original period "di fermo " or "di rispetto " is still running and the lease has not yet been automatically extended by law, then in that case the period of lease established in the contract shall apply. In all other instances where the contract of lease was made prior to the 1st June, 1995 the law and all definitions as in force on the 1 st June, 1995 shall continue to apply:

Provided that notwithstanding the provisions of the law as in force before the 1 st June, 1995, the Minister responsible for accommodation may from time to time make regulations to regulate the conditions of lease of clubs so that a fair balance may be reached between the rights of the lessor, of the tenant and the public interest”.

The Reletting of Urban Property (Regulation) Ordinance, Chapter 69 of the Laws of Malta, was introduced by means of Ordinance XXI of 1931, on 19 June 1931. Article 2, Article 3 and Article 4, in so far as relevant, provide that:

“2. In this Ordinance, unless the context otherwise requires -

the expression "club" means any club registered as such at the Office of the Commissioner of Police under the appropriate provisions of law.

3. It shall not be lawful for the lessor of any premises, at the expiration of the period of tenancy (whether such period be conventional, legal, customary or consequential on the provisions of this Ordinance), to refuse the renewal of the lease or to raise the rent or impose new conditions for the renewal of the lease without the permission of the Board.

4. (1) The Board shall grant the said permission in the following cases:

( a ) if the lessor is bound to carry out or has reasonable cause for making any alterations or works other than ordinary repairs;

( b ) if the proposed rent does not exceed 40% over and above the fair rent (to be, where necessary, fixed by valuation), at which the premises were leased or could have been leased at any time prior to the 4th of August, 1914: the Board may fix such fair rent.

(2) The expenses of the said valuation shall be paid by the lessor or by the tenant or by both in such proportion as the Board shall direct”.

In 2014, the Conditions Regulating the Leases of Clubs Regulations, Subsidiary Legislation Chapter 16.13 of the Laws of Malta were introduced through Legal Notice 195 of 2014. In so far as relevant, these Regulations provide that:

“2. (1) The rent of a club as referred to in Article 1531J of the Civil Code which is paid on the basis of a lease entered into before the 1st June 1995 shall, unless otherwise agreed upon in writing after the 1st January 2014, or agreed upon in writing prior to the 1 st June 1995 with regard to a lease which was still in its original period di fermo or di rispetto on the 1st January 2014, as from the date of the first payment of rent due after the 1st January 2014, be increased by a fixed rate of ten per cent over the rent payable in respect of the previous year and shall continue to be increased as from the date of the first payment of rent due after the 1st January of each year until and including the year 2016 by ten per cent over the previous rent.

(2) The rent as from the first payment of rent due after the 1 st January 2017 shall be increased by a fixed rate of five per cent over the rent payable in 2016. Such rent shall continue to be increased by five per cent per annum until the 31 December 2023 and the rent shall thereafter increase every year according to the index of inflation for the previous year.

3. (1) Where club premises or part thereof to which these regulations apply are used for the generation of income through an economic activity carried out in the said premises, then as from the 1st January 2015 the tenant of the said premises shall also pay the person entitled to receive the rent a sum equivalent to five per cent of the annual income derived by the club from the said economic activity, other than income derived from fundraising or philanthropic activities organized and managed by the club itself:

Provided that for the purposes of this regulation, income generated from economic activity means any income which is directly or indirectly derived from the bar and, or restaurant and from any lease, sub-lease, leas of a going-concern or a management agreement of the said premises that is leased out as a club or part thereof.

(2) The amount referred to in sub-regulation (1) shall be calculated on an annual basis and shall be payable by the 30 th September of the following year with the first payment being due in respect of the year 2015 by the 30th September 2016.

(3) The annual income referred to in sub-regulation (1) shall be calculated on the basis of financial statements signed by a certified public accountant in the case of clubs having an income of less than €200,000 per annum and by audited financial statements in the case of clubs having an income of €200,000 or more per annum ” .

In so far as relevant Article 1179 of the Civil Code, Chapter 16 of the Laws of Malta, reads as follows:

“Novation takes place -

( a ) when the debtor contracts towards his creditor a new debt, and this is substituted for the old one which is extinguished;”

COMPLAINT

The applicants complain about the ongoing interference with their property rights in breach of Article 1 of Protocol No. 1 to the Convention. Up until 2014 the applicants were bound to renew the lease automatically on a yearly basis and were prohibited from imposing an increase in rent. Following the introduction, in 2014, of the Conditions Regulating the Leases of Clubs Regulations, there was a possibility for a raise in rent which was nevertheless very limited and could not be considered to be an effective remedy. Furthermore, the applicants complain that the agreement cannot be terminated, impacting the value of the property, and their ability to ever enjoy it as its owners. Thus, no fair balance had been established between the protection of their fundamental right to enjoy their property and the community at large.

QUESTIONS TO THE PARTIES

1. Has there been an interference with the applicants ’ right to peaceful enjoyment of their possessions, within the m eaning of Article 1 of Protocol No. 1?

2. If so, was the interference in question in the public interest, within the meaning of Article 1 of Protocol No. 1?

3. If so, did that interference impose an excessive individual burden on the applicants? In particular, was the rent received by the applicants until 2014, proportionate to the interference complained of? Was the rent received after 2014 in line with the relevant amendments, proportionate to the interference complained of?

4. In the periods before and after 2014, did the applicants have at their disposal adequate procedural safeguards ensuring that the operation of the system and its impact on their property rights as landlords were neither arbitrary nor unforeseeable?

Appendix

N o .

Firstname LASTNAME

Birth date

Nationality

Place of residence

David GRECH

18/04/1957

Maltese

Attard , Malta

Melvin GITALI

14/07/1965

British

Surrey, United Kingdom

Joyoti Mary GRECH CATO

20/03/1963

British

Brighton, United Kingdom

Christopher GRECH

25/02/1960

British

Washington DC, United States

Mary Josephine GRECH

01/11/1924

Maltese

Mosta ,

Malta

Dorothy HIGGINS

15/12/1952

Maltese

County Down, United Kingdom