By Robert Ross-Clunis
The Rent Control Law
As a starting point, it is important to clarify that the Rent Control Law of 1983 (as amended) (“the Law”) applies only to (a) properties that were built before 31 December 1999 and (b) properties that are located in “controlled areas”, which essentially are those located within the municipal boundaries of the major cities in Cyprus.
The effects of the applicability of the Law are multiple, the most important of which are:
Tenants automatically become statutory tenants upon the expiration of the first term of the related tenancy agreement, regardless of the length of the term, in which case the Tenancy Agreement continues to apply ad infinitum and the tenant is granted additional rights by virtue of the Law.
Once a tenant’s status is statutory, the owner can only remove a tenant from the property for very specific reasons. The non-payment, or part-payment, of rent is one of these reasons which, until the introduction in January 2020 of a fast-track eviction process, it took approximately 3-5 years to obtain an Eviction Order by the Courts. During this time, tenants often take advantage of the Court proceedings and do not pay their rent during this time while they still maintain possession and use of the property.
The government sets out whether the rent can be increased or not. To put things into perspective, the government has not allowed, since 2013 (and until 2021), any increase in the rent of statutory tenants.
The above is in stark contrast to properties built since 2000, where owners can, inter alia, (a) agree to the applicable rent without government involvement (and any increase thereto), (b) choose whether to extend the Tenancy Agreement upon expiry of its term and (c) utilise the basis of Contract Law in order to quickly and effectively evict tenants who are in breach of their agreement, or whose term has expired without any agreed extension.
Residence vs Business Tenancies
The biggest problem with the Law is that there is no distinction between residential and business tenants, since both can become statutory tenants. A statutory tenant, in the traditional sense of the term taken from the English legal system that the Law is based on, relates only to residential tenancies and different rules apply to business tenants.
While it is perfectly reasonable and justifiable to provide additional rights by law to residential tenants, it is both immoral and unconscionable to afford the same rights to business tenants.
It should not be (and is not) easy to evict tenants who are renting a property to use as a residence, due to the potential difficulty of finding another place to live (which is a basic human right, and the right to reside in a property is also safeguarded by the Cyprus Constitution) and the terrifying thought of being left without a home as a consequence of eviction. It is clear that the current legislation does not afford the same protection or rights to all residential tenancies, creating a large divide between those who live in properties built before 31 December 1999 (and within controlled areas) or properties built after that date.
On the other hand, if a business tenant is unable to pay due rent for any reason, the owners of the property suffer together with the business by being unable to swiftly evict business tenants and offer their property (if they so choose) to a business tenant who will be able to pay the agreed rent (and also potentially establish a successful and profitable business that will do more good to society in general). Unlike residences, there is no “human right” to be the owner of a business.
The political structure of society in Cyprus is, like most of the Western World, based on capitalism. Yet the current Law, combined with an ineffective Justice system, creates a situation where some owners are expected to accept the fact that their business tenants have losses and are unable to pay the rent, while clearly the tenants have never been forced to share their profits when their businesses were performing well. Owning a business is a privilege, but the payment of rent is a contractual / legal obligation that the government cannot dismiss or interfere with (nor can it forego the Constitutional Right of property owners to take advantage of their property as they see fit).
Two Rental Markets
The fact that the Law only applies to certain properties (that make up approximately 50% of the properties within the controlled areas) automatically means that any measures the government takes in relation to the Law, affects only a very specific part of the population and does more harm than good in the grand scheme of things – particularly since this also creates two very different property rental markets in Cyprus.
This difference is especially evident in the city of Limassol, where citizens are complaining of high rent prices since there is no statutory rent control that applies to the large numbers of properties that have been constructed the last few years, and owners are free to contract and agree with tenants to any rental prices they see fit without any Government involvement.
Therefore 50% of the properties within cities that are subject to the Law have remained at the same level of rent for the last 7 years, while newer property developments have seen sharp increases during this period.
In times of crisis, the Cyprus government has shown its willingness (a) to prohibit any increase in rent for statutory tenancies (2013 financial crisis) and (b) to freeze the recent amendment to evict tenants under a fast-track procedure if they do not pay rent (Covid-19).
If the previous decisions of the government are used as a precedent for the new recently introduced measures to stop evictions, there is a great danger that they will keep extending the eviction of tenants for a prolonged period of time.
While the intentions behind such actions might be positive, they fail to take into account the other side of the coin: the owners of such properties have for a number of years (since 2013 and until 2021) been penalised severely by not being able to increase the rent, and at the same time have been unable to evict tenants (particularly businesses) due to the length of time and potential cost they would incur if they chose to enforce their rights in the Cyprus courts. A number of tenants might be afforded some needed protection, but all owners without exception of such properties suffer as a result of these actions.
Unfortunately, the above matters are rarely presented clearly to the public at large, and the mass media generally tend to favour showing the side of the tenants, who they normally to present as less fortunate, while dismissing the views of property owners (who clearly do not have as loud a voice to represent them as tenants do). And while the media makes refers to high levels of rent within cities, they often do not mention that most long-standing tenants within city limits pay an extremely low level of rent due to the Law and Government actions.
Contrary to popular belief, most owners of properties that are subject to the Law are not wealthy and rely heavily on whatever little rent they receive from their tenants in order to survive.
Any individual or company interested in acquiring a property in Cyprus for purposes of investment, and particularly to rent out the property, should be extremely wary of the time the property was built, as well as the location of the property.
While there are ways for property owners to protect themselves, these are beyond the scope and not the point of this article.
The recent events brought about by Covid-19 have affected the whole world, and it is indeed unfortunate that people have (and will) lose their jobs, and that their businesses are in danger of going bankrupt.
Although the government did provide financial assistance to businesses so their rents and operating expenses could be paid, there are a large number of cases where the tenants merely pocketed the funds they received and refused to pay the owners’ rent for the months of lockdown. This, however, was never mentioned in any media, and the troubles caused to property owners as a result.
It is imperative that property owners provide a firm stand against any further extension of the freezing of the fast-track eviction process for non-payment of rent. All residential tenants (regardless of the applicability of the Law) should be protected if necessary and the government should step in to ensure that they will have a place to reside in case of eviction.
Businesses that are not viable and that the government will not support directly should be allowed to shut down. In this way, the property can be released and new tenants can be brought in who will establish a new and (hopefully) flourishing business that can support the tenant, provide the owner with his due rent and act as a pillar of support to with new fresh money, new jobs, more employment, new activities and not stagnation that only the property owners’ have to endure.
- Robert Ross-Clunis, Legal Counsel, Limassol