The real estate market determines rental values

Prevailing real estate market conditions affect rental values of properties accordingly, though for those subject to rent control there is the protection of the court. Determination of fair rent in statutory tenancies according to the reservation of article 8(4)(a) of the Rent Control Law is done by researching average and market rents in the proximity area. If the rent of a property is lower than 90 per cent of the average, it can be increased to this percentage, unless the tenant is a refugee in which case the percentage cannot exceed 80 per cent.

For the determination of the fair rent, the preparation of a report by an expert valuer, either private or court appointed, is required. Moreover, two years must have elapsed from the date the tenant took possession of the premises or from the date of the last rent increase or decrease.

Article 8(5) of the law provides that the market and the average rent of the area must be calculated, and all circumstances (except personal ones) be taken into account, including age, size, location and condition of the property and, in the case of listed buildings, whether works have been carried out and at what cost, as well as the services provided to the premises.

The legal framework and procedure to determine fair rent was explained in a judgment issued by the president of the rent control court on June 30. A landlord had requested determination of the rent of his shop. The court emphasised that while in paragraph (a) of article 8 there is a provision for the determination of the fair rent at a percentage which “will be determined every two years by the council of ministers”, in the immediately following paragraph (the reservation of this article) there is a different provision. In this reservation, reference is made to the “average rents of the proximity area” being used to determine rent.

The court stated that it is obvious that the percentage of the first section of article 8(4)(a) has remained zero since April 21, 2013 in an attempt to limit the fallout from the economic recession of 2013 and thereafter. The case, however, of the reservation is different. The provision for the determination of the rent, based on the rents average rents, may be amended or abolished only by a legislative act. The court noted that while Cyprus was experiencing the recession, various proposed bills were submitted to parliament for the abolition of the reservation of the second section the article. However, none secured the majority support and the provisions remain unchanged to this day.

The court concluded that consequently the market is now left by the state to adjust rents. The rent control court, in the cases of applications for the determination of fair rent, freely applies the provisions of the reservation. To find out average and market rents in an area, the court is assisted by the valuer of the land registry of the district in question, and if the parties disagree with the report of the valuer, they have the right to appoint their own and submit their own report.

The court did not accept the tenant’s suggestion that the increase in the rent of statutory tenancies has been banned, stating that with the zeroing of the percentage of the first section of article 8(4), the only mechanism for determining the rent is that of calculating the average rents of the proximity area. It accepted the suggestion in the land registry valuer’s report and decided an increase in the rent of the shop was justified, issuing an order determining the fair rent of the shop retrospectively from the filing of the application.

George Coucounis is a lawyer practising in Larnaca and the founder of George Coucounis LLC, Advocates & Legal Consultants, [email protected]