It has been many times that my clients have expressed the question as to when and how the rental amounts increase. This question is voiced by both Landlords and Tenants of real estate.
To begin with, let us make it clear that the foundation of our debate rests on the fact that there are two categories of property. Explicitly, there are those that fall under the framework of the Rent (Control) Act of 1983 (N. 23/1983), as well as those which do not fall under this legal framework.
Understandably, the next question should be as follows: ‘What are the properties covered by the Rent (Control) Act?’
- Those in rental controlled areas according to the relevant legislation, which essentially covers 99.9% of the real estate in question, both within the cities and in the surrounding areas.
It should be noted that the list of rent controlled areas is available and in the possession of the Registrar of each District Court.
- For those that were built upto 31/12/1999.
- Rents which have elapsed (there is no rental document in force), but the Tenant continues to remain in the property by paying the rent as normal.
For a property to be considered as falling within the 'Rent (Control) Act', i.e. Cases and/or Disputes of the Tenant with the Landlord, these have to be heard in a special court called the Rent Control Court and three (3) of the above conditions must apply cumulatively. In such a case, the Tenant is referred to as a permanent Tenant.
Where there is a permanent Tenant, the maximum rent increase is determined by a relevant communiqué from the Ministry of Justice and Public Order every two years.
Article 8 of the Rent Law of 1983 provides that no increase may be imposed on a permanent Tenant, except as the law stipulates.
In the event that the Landlord of the premises, for whatever reason, claims an increase in rent or where the Tenant considers that the rent imposed on him/her is increased unfairly, he/she has the legitimate right to apply to the Court to regulate and/or determine the appropriate rental. There is, however, an explicit reservation that no application is registered before the expiry of two years from the date on which the Tenant took possession of the property or from the date on which the last increase or decrease of the relevant rental took place.
The maximum limit for the increase in the rent set by the Court, as provided for in article 8 (4) (a), may not exceed the percentage which the Council of Ministers, on the recommendation of the Minister of Justice and Public Order, lays down every two years with its Order, which initially was 14%, was reduced to 8% and then, consecutively as from 22/4/2013 to 21/4/2021, to 0%.
As a result, the Tenant covered by the Rent (Control) Act, is given the opportunity to refuse any increase in the payable rent that the Landlord may require from him.
However, the Landlord also has the right, if the rent paid by the Tenant is significantly lower than the market rental, to apply in Court to request for 90% of the market rental. The same, of course, applies from the Tenant's side. That is, if he/she believes that the rent he/she pays is more than the market rental, he/she is entitled to ask for a reduction in rent through the judicial route. In this case, the Tenant will need to proceed with an appraisal by an independent evaluator and submit the claim to the Rent Control Court.
Therefore, if the Tenants paid rent is lower than 90% of the average, it can be increased and determined on the basis of the percentage of 90%, unless the Tenant has been displaced or struggling, in which event the percentage may not exceed 80%.
The above are expansively analyzed in the decisions of the Rent Control Court of Limassol, which concern applications for determining the rent payable in an area covered by the Rent (Control) Act.
In one of the Cases, the paid rent was very low compared with the average of the rents in the area and at the time the application was submitted, the rate of 90% was applied, whereas the maximum increase was 0%. The Court referred to the order from the Council of Ministers in force during the period in question, namely that the maximum increase was 0%. He stressed, however, that this reduction in the rate of increase does not affect the provision of the immediately subsequent reservation of article 8 (4) (a) of the law, which states that the rent can reach 90% of the average rents in the area. He added that the law excludes in article 8 (5) the factors taken into account when considering applications for rentals, such as the personal circumstances of the parties. Accordingly, the Tenant's claim of a reduction in the turnover of the business could not be used by the Court since this obviously falls under 'personal circumstances'. The Court ultimately adopted expert assessments, concluding that 90% of the average rents in the area were 5 times higher than the rent being paid, so it increased the rent accordingly.
In another Case, according to the decision dated 22/2/2019, the Court found from the Assessment Officer's report that 90% of the average rents in the area were as much as the market rental, so it did not consider that the relevant application justified an increase.
Consequently, it can be concluded that most problems arise when rents are either lower or higher than the market rental. Therefore, it is very important for rents to draw near to the market rental value, and to avoid any problems that are certainly not advantageous to the Tenants, let alone the Landlords.
The content of this article intends to provide a general guide to the subject matter. Specialist advice should be sought on each particular case.
Lawyer, Partner and Director of the Paphos Office of the Law Firm, Michael Kyprianou & Co LLC