Temporary Ground Rents in Malta Property

Anton John Mifsud | Published on 22 Jan 2013 | Updated on 06 Feb 2013

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The legal institute of ‘emphyteusis’, once very popular throughout the continent, has nowadays fallen into disuse in many jurisdictions throughout the world. The same cannot be said for Malta where emphyteusis - although its popularity has certainly diminished over the years - is still a common feature of the local property market.

Emphyteusis is a contract whereby one of the contracting parties grants to the other, in perpetuity or for a time, a tenement for a stated yearly rent or ground-rent which the latter binds himself to pay to the former, either in money or in kind, as an acknowledgment of the tenure.[1]

The rights and obligations of the parties

A title of emphyteusis is the strongest title which a person who is the not the owner of a property can have on that same property. In fact, the emphyteuta is allowed rights which normally one would associate with absolute ownership e.g. the emphyteuta may alter the surface of the property, provided he does not thereby cause any deterioration thereof. Obviously, the parties to a deed of emphyteusis can always agree otherwise in order to safeguard their rights – especially in the case of a temporary emphyteusis, whereby the property will revert to the bare owner after the lapse of the stated period of time. Naturally, being a ‘quasi-owner’ the emphyteuta is bound to carry out any obligation imposed by law on the owners of buildings or lands.

The emphyteuta is also entitled to any profit which the property may yield, and thus he may rent the property out to third parties and enjoy the rent accordingly. More significantly, he is also allowed to dispose of the property which he holds under emphyteusis, and this without requiring the consent of the bare owner, or even notwithstanding his opposition. In order to strike a balance between the rights and obligations of the parties, the old emphyteuta is not freed from his obligations (e.g. to pay rent and to keep the property in order) unless the new emphyteuta is acknowledged by the owner.

It is quite a common practice for owners to require the payment of a laudemium in the case that the property is alienated by the emphyteuta to a third party. In this manner, the bare owner can continue to derive an advantage from the property. In order for such right to be exercised, provision for the same needs to have been made in the emphyteutical grant, and the emphyteusis needs to be for a period exceeding twenty years. Under Maltese law, laudemium is capped at a maximum of the equivalent of one year’s groundrent, something that cannot be derogtaed from, not even if there is the consent of both parties to the transaction.

Reversion of the property to the owner

A temporary emphyteusis ceases on the expiration of the time expressly agreed upon. There is no need for any of the parties to send any judicial letter or other official communication, given that the lease expires in virtue of the express provision of the law itself. As a consequence, the property reverts to the bare owner together with any improvements which the emphyteuta may have affected in the property, generally without the emphyteuta being compensated for such improvements.

Redemption of groundrent

Given that by its own nature, a temporary emphyteusis lapses on the end of the period agreed upon, the legislator has thought it fit not to give the emphyteuta the automatic right to redeem the relevant groundrent – as opposed to what happens in the case of a perpetual emphyteusis.

However, this does not mean that the parties cannot agree otherwise. In fact, although it is not common to find cases whereby there exists the possibility of redeeming a temporary groundrent, one cannot say that such cases do not exist. The most common cases whereby this right is agreed upon contractually between the parties is in relation to high-end properties located in Special Designated Areas. Special Designated Areas are prime residency areas intended to provide top-end facilities and amenities such as restaurants, supermarkets, spas and marinas within the same area. Of course, although most of the cases whereby the possibility to redeem the temporary groundrent exists relate to a Special Designated Area, nothing stops two contracting parties from agreeing on the same right on property which is outside a Special Designated Area.

Given that the matter is not regulated by the law, and thus the procedures relevant to the redemption of perpetual emphyteusis do not apply, the procedure as to how such redemption can be bought about are to be established between the parties. Normally, the rate of capitalisation of the groundrent would be set at 3%, meaning that the annual groundrent has to be multiplied by 33.3 times. Obviously, nothing stops the parties from agreeing on a different rate of capitalization, or even from requiring the payment of a premium apart from the payment of the capitalized sum.

Conclusion

Although the process of acquiring or disposing of property subject to emphyteusis is fairly straightforward it is however advised that you appoint legal representatives who will be able to guide you throughout the process, given the challenges that certain situations might give rise to. The same applies to the procurement of advice in relation to redemption procedures.

 

 


[1] Article 1494 – Civil Code, CAP. 16 of the Laws of Malta.

 


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