UIPI Rentals & Housing Committee Report on the problems of rent controls and housing.






By RNDr Tomislav Simecek
President of the Czech Republic House Owners Association (OSMD)
and of the Rentals & Housing Committee of UIPI




See the Decision of the Human Rights Court against Poland, concerning compensation for rent control

Introduction

Since UIPI represents the private rented sector, the UIPI Rentals and Housing working committee was one of the first established. Rental housing has been probably subjected to the most massive and severe oppression from state legislation as compared to other real estate related activities. First rent regulatory measures and tenant protection legislation were introduced during and after the World War I.
Most of these oppressive measures have been adopted mainly due to political than social or economical reasons. It has always been a question of political climate, if the situation in rental housing is improving or becoming worse. Introduction of these measures is usually triggered by some socially sensitive situation of the housing market such as significant increase of rents in case of sudden shortage of vacancies (caused by war, earthquake or massive immigration) or scandalized unscrupulous behaviour of some landlords during economical recession combined with political pressure from tenant lobby. Recently it is often ideologically supported by intentional misinterpretation of the so-called "right to housing" (introduced as part of the concept of a welfare state and contained nowadays in some international proclamations or even in the legislation of some countries). The basic misinterpretation is based on the fact that tenants do not exercise their "right" against the government that has agreed to take this responsibility but against the landlords, violating their more principal property rights. The temptation of the executive to transfer the cost of such social support on the providers of housing instead of introducing some sort of housing or rent allowances is strong. Rent regulation is introduced usually as a temporary measure, but remains for decades or even centuries. Once the rent regulation is in force, it is always accompanied by restrictions of the contractual freedom of lease and rent agreements, because the tenants have lost their mightiest weapon of the free market they used to have, which was the threat of finding another landlord on the functioning housing market for the same market rent. The more severe the rent regulation is, then usually the more severe the restrictions of the property rights of landlords are. When combined with the communist class antagonism doctrine this developed in the previous Eastern block countries into a system of assigning tenants into privately owned houses, giving them permanent right to use and exchange the assigned apartments with other tenants for a symbolic , that was being set not by the market or sound economic calculation, but by the state executive. Political influence and good international organisation of tenants combined with the fact that the number of votes in elections, that the tenants can offer is usually an order of magnitude greater than the number of votes of the landlords is threatening that similar tendencies may gain fertile soil in other than communist countries as well. Once such a system is established it is very hard to get rid of it, since many smart and wealthy tenants start to enjoy the advantage of living for symbolic rents and may become influential enough to keep the system in force for very long time, pretending that it is serving ?social justice? and saves the state budget at the same time.

The roots of this violation of the basic human rights upon which the western market economy oriented civilisation is based and which have been originally formulated in the Magna Charta can be understood from the fact that the real basic human rights are all so called negative rights. These are rights giving every citizen the freedom of doing things where the others are only obliged not to interfere. While the newly introduced "positive rights", which do not belong among the real basic human rights and represent only the doctrine of a welfare state, are incorrectly mixed with the real human rights. These are the right to work, right for medical care, right for support after retirement, right for education, right for housing and we should not be surprised if many more such ?rights? emerge in the future. All these ?rights? indicate in fact that people who seek these commodities should get the same chance as others and in case of unavoidable misfortune have the right to seek help from the government. Therefore the governments have to prepare funds so that they can meet the demand for work by unemployment benefits, demand for support after retirement by pensions, demand for medical care by health insurance, they have a separate chapter in the state budget for financing public education, but they are only reluctantly setting aside a separate chapter for the support of those in unavoidable need for help to be able to pay the usual price for minimum decent housing services. Therefore we would like to stress, that involvement in the introduction of well designed personal rent allowances is essential for achieving success in deregulating rents to an acceptable level and in order to bring the usual return on invested capital and limit then the unnecessary legislation for the tenant?s protection.

The situation in rental sector is in all countries given by the state of the related legislation. This legislation is covering three main aspects and is usually prepared by three different ministries.
1. Landlord tenant law, which sets the limitations of the contractual freedom for rent or lease agreements and gives the rules for enforcement of the rights that both parties have agreed upon and also of additional rights that usually the tenants are granted by law.
2. Rent regulation or rules describe agreement of the rent in different segments of the housing sector and also sets how these rents can be adjusted with time.
3. Shelter, rent or housing allowances, provided by the public sector and serving as a social net for people in social need to be able to afford a certain minimum level of decent housing. A very important question is whether these allowances are available also for tenants in the private rental sector or whether the government has chosen instead bricks and mortar subsidies as its main instrument and tries to provide housing for deformed prices pretending that it is meant as a social net for the poor, but usually serves those most sly.

Some basic information about the situation in different countries can be found on our web site in the regular national reports. We will restrict ourselves here to more general problems of rental housing.

The battlefield

As stated above, all the restrictions laid upon landlords are based on enforceable legislation and legal regulation and therefore only the legislative bodies and governmental bodies empowered to issue regulative decrees can change the situation. The only institutions that can help are the courts and in particular constitutional courts because many of the most severe oppressive regulations are often in conflict with the basic constitutional rights and the convention on human rights. Unfortunately courts are empowered only to enforce other legislation or to abrogate such legislation that is in contradiction with the constitutional rights, but they have not the right to make any corrections of the existing legislation.

It is therefore mandatory to spend most effort on achieving understanding and support of the public opinion for any needed changes of such oppressive system, because the politicians will not support any change that would not gain sufficient public support. For this purpose it is necessary to have strong arguments for the advantages of decent free market solutions, comparison with more liberal countries and detailed economical analysis of the losses caused by severe regulation of legal and economical conditions of rental sector. The existence of efficient allowances for people in social need is extremely important. The frequent misuse of bricks and mortar subsidies has to be compared with personal means tested rent allowances as an instrument much cheaper and better for those in real social need, providing them with the freedom of choice of housing and full freedom of workforce mobility decreasing thus unemployment and the level of other social benefits.

It is usually necessary to combine these public relation activities with plaintiff to the constitutional courts that may force the legislative bodies to change the existing legislation.
Cooperation with as many liberal political parties also helps a lot in the process of formulation of the new proposed legislation. Unfortunately here the rivalry between various parties often makes the idea of some joint strategy and joint proposal hard to achieve.

Legal background

Housing is not actually a real basic human right?. All rights have corresponding obligations. If I have a right to property, everyone else has the obligation to refrain from stealing it or trespassing upon it. If you have an inviolable right in your person, everyone else has an obligation to leave you unmolested. Note that these are negative rights. They make it incumbent upon people to refrain, to cease and desist, to avoid certain aggressive behaviour. But they impose no positive obligations whatsoever. Rights such as these have been acknowledged since time immemorial. They are the core of Magna Charta, the constitutions and the principles of western civilization. Recently some new ?quasi rights? have been proposed including the claim to everything from work, decent food, medical care, education, housing, happiness and other things. If this was only an emphasis of everyone?s right to seek all these things provided no one else?s rights were infringed in the process, it would be unobjectionable. But the promoters of these ?quasi rights? have something else in mind. What is claimed here is not the right to be left alone, free to build, buy or rent whatever shelter one can afford. Now demanded is a right to housing which implies an obligation on the part of others to provide service for someone, who did not take care to provide this service for himself. This is a claim for positive right, which should be enforceable, if at all, only against the government which has signed such a legal document. It is a disguised, and therefore quite insidious, demand for wealth. It has nothing to do with rights at all. In case of real rights, all what is required of outsiders is non-interference, but in this fraudulent case, there is an unwarranted claim for a myriad of material goods and services violating other established negative rights guaranteed by every constitution. If this concept is accepted, none will be able to draw the line until where the housing should be guaranteed, whether for all citizens of a town, a country or a continent or even for the whole earth and whether the goal is to punish the provision of rental housing in order that no further rental housing be built. It is usually not contained in the constitutional legislation of the country. The positive rights such as the right to work or right to housing can only be understood as right applicable in a limited way against the state. In the case of right to work it has been already recognised that subsidised state owned enterprises that would provide employment for all who need a job is a utopia as well as assigning unemployed people into existing enterprises and ordering these enterprises to pay to those people state regulated salaries. Instead all countries have developed systems of benefits for unemployed, which are offered under various regularly means for tested conditions and for a limited time to those who have lost their source of income and in spite of trying hard are not able to get any job. Unfortunately in case of a right to housing the state is often trying to intervene in a wrong way. States, municipalities or other subsidized organizations are building with the help of state subsidies housing, offering housing for deformed (below market) rents for those who find way to enter the privileged club of subsidized tenants while this activity serves on the rental housing market as an indecent competition to private investors. In order to improve the image of this way of wasting public funds, these activities are called social housing and in limited cases the access to these subsidized apartments is offered to families with a certain maximum income at the time of entering the lease. Since most of these leases are for unlimited term, even this slight social aspect is soon lost by the guaranteed security of tenure for an unlimited number of next generations. On the other hand the indecent competition of subsidized housing is increasing the risk of investment into non-subsidized housing construction and the overall result of state investment into subsidized housing construction leads to an overall decrease of rental housing construction and the only rental housing that is newly built is practically only the state subsidized one. This phenomenon is called the crowding out effect. In spite of the fact that subsidized housing is much more costly than the personal housing allowances it takes usually decades before the situation becomes so economically unbearable that even against the wealthy tenant?s lobby this concept is revised and nowadays more and more countries start to use the much cheaper concept of personal rent allowances. In the meantime of course the government finds irresistible temptation to try to solve the problem at the expense of the landlords. Introducing of rent regulation, which usually regulates only rent increases but with the time and uncompensated inflation, leads to ridiculous situation that some rents valid in 2001 might have been frozen in 1914 (like in Ireland or Austria). In other cases the rent is adjusted by the government and kept at much lower than market level, not even following the increase of the cost of maintenance. This rent regulation deprives the tenants of their mightiest weapon being the threat to end the lease and move out. Therefore to achieve at least some effect the tenants have to be overprotected by law and the landlords have to neglect maintenance in order to achieve at least some return on invested capital. The lease cannot be freely terminated by the landlord except in very few limited cases and is sometimes allowed only under the condition that the landlord finds for the tenant an equivalent apartment for similarly regulated rent, which is of course not available on the market. The tenants can inherit the right of paying regulated rent or pass it on other related or even unrelated cohabitants etc. In this way all the may be once social aspects are totally forgotten and only political populism prevails.

Financial analysis

Rent regulation is usually starting either from normal market rents with no or very limited possible adjustment, reflecting the market situation, or starting from some ?expert analysis? of the needed rent for ?allowable? return for the landlord. Here is a never-ending field for unbelievable variety of absurd calculations by people who do not understand the problem at all.

It should be noted right at the beginning that of course for the best functioning of rental housing market with the fastest adjustment of the offer to the need is the full freedom of rent adjustment to the situation on the market. But on the other hand excessive rents that may arise from this process may trigger serious state regulatory intervention if some unscrupulous landlords become publicly criticised for rent increases in socially sensitive cases. Reasonable rent regulation therefore represents less perfect but usually more stable and still acceptable solution.

Let us now look on the usual return on capital invested in rental housing. Historical analysis dating back even to ancient Rome shows that the typical return on investment in this field used to be and is up to now somewhere between 6 and 10 % of the market price of the rented property per year in case of 100% occupancy. This is the level that is typical in the free segments of the market and close to the case of reasonably regulated unsubsidised private sector. This level of return is sufficient for allocation of reasonable amount of free capital in the construction and renovation of rental housing, providing enough new housing to meet the demand. Besides the direct cash flow, there is usually, but not always, certain capital gain in case that the investment has been made in good location. Based on this fact, many countries have adopted methods for assessment of the market value of real-estate property from the rent it generates. In Germany the value is approximately 15 times the yearly rent as well as it was in the Czech Republic.
As a part of the mystification process many new misleading concepts are introduced:
1. Cost rent includes only the monthly payments that cover the running cost of the building and in some cases also the depreciation of the building usually under the assumption of 50 or 100 years lifetime of the building ? The cost of simple reproduction.
2. Fair rent is usually an unfair rent that has been calculated usually with the aim to keep it as low as possible containing usually only the cost rent or even not taking into account the depreciation of the building.
3. Factually standardised rent is a rent that more or less reflects the real expenses in the case of subsidized housing taking into account nearly 40% subsidy for the construction cost. Since this rent has to cover the expenses of the state or other public body, its value is derived from the reproduction value of the rented property being only some 4.5 % per year thanks to the subsidies. In the Czech Republic it is three times higher than the unsubsidised but regulated rent.
4. Social rent is a payment that usually does not have anything in common with rent but is set taking into account only the willingness of the tenant to pay something for housing.
5. Usual local rent may have very different meanings. For example in Germany it is an average local rent charged in freely agreed new leases during the last three years.

Rent Regulation Systems

There are two systems of rent regulation, which are acceptable for both sides. They offer reasonable return on invested capital and sufficient means for proper maintenance and on the other hand can avoid excessive rents that may trigger some problems.
The German system, where the new leases are allowed for freely agreed rents that may be only up to 20% higher than the average local rents for similar dwellings. This system is critically dependent on the reliability of the average local rents, from which all subsidized or socially distorted rents are excluded and the data are taken only from the last three years.
The Swiss system, based on the one that is used in Switzerland. This concept is based on zero profit for the investor working with 100% mortgage financing. If you buy or build a house with 100% mortgage financing you have to pay an interest to the bank depending on the actual interest rate from the invested capital. Moreover you have to guarantee the proper maintenance of the house and payment of all taxes and insurances. Such average running cost of a house has been calculated in many countries and gives very similar results, being approx. 2-3% of the actual reproduction cost of the house. With mortgage interest rate of 5% this gives yearly rent equal to 7-8% of the value of the house. Practically the same value results from the German system. The only objection to this system is that the actual market value of the rented property should be taken into the calculation instead of the once invested capital.
Our observation is that the actual market value of the rented property is in the case of a free market in correlation with the rent that may be charged. This solves all the problems with renovation or modernization rent increases and dependence of rent on location and also solves the problem of similarity of apartments in the German mutually comparative system.
The Swiss system also helps to analyse the structure of the rent. The rent has to cover the cost of simple reproduction of the rented property. This is the part that covers also all the necessary payments including taxes, insurance, management and of course maintenance. This part of the rent is in fact returned to the tenant in these obligatory payments for the property he is using. The remaining part is in fact the real rent. In case of wise investment it is equal to the interest, paid to the mortgage bank from the whole market value of the rented property. Once this mortgage is replaced by the own capital of the investor, this represents the return of the invested capital. Providing thus the gross return on the invested capital of approx. 5%.
We would like to stress at this point that we are not supporting the reasonable rent regulation as best financial solution, but under the present prevailing welfare state political atmosphere we feel that a reasonable rent regulation is an acceptable solution offering a bit greater chance of stability and being necessary for persuading the governments to provide necessary social rent allowances for those in social need so that the social situation of few cannot be misused for the introduction of really severe rent regulation later.

Conclusions

Rental housing is one of the most extensively deformed areas of private activities. The state interventions are based on the concept of the so called "right to decent housing", that some governments admit as part of "human rights". This miss-concept is based on new, so called positive rights like right to medical services, right to healthy nutrition, right to work, right to education for all etc. Which are not rights at all but requests for subsidies. If any government decides to recognise such a "right" it has to provide funds to finance all the obligations it creates. If the government recognises e.g. the right to work (or more precisely right to financial subsidies) it has to provide necessary funds to cover the cost of such obligation. In the case of housing many governments tend to transfer the cost of obligations the government accepted on the landlords and try to justify this violation of the natural rights (negative rights) upon which the free democratic society of the western type is based. Once the government accepts the "right to decent housing", the decent way how to cope with this problem is to provide everyone with housing allowances enabling everyone to buy on the market housing services he needs. There is hardly any government that would try to solve the problem of right to work by running subsidised factories to provide jobs for unemployed. On the other hand in housing it is a common practise to provide very costly brick and mortar subsidies instead of supporting normal housing market with personal subsidies and fair prices for housing services.

For the situation in rental housing it is therefore essential whether in the case that the government has accepted the concept of the so called "right to housing" it has also provided funds for personal rent allowances or not. If not, you must not be surprised that it will always have tendency to transfer the burden of its decision on the landlords.

The standard methods how to do this are: rent control and legal overprotection of tenants. Both these interventions are violating the natural human right of contractual freedom and property rights. The degree to which the government decides to violate these natural human rights gives an idea on how far the government is on its way to communism. Since positive right to commercial premises is not that popular, this renting is usually basically free. Only the request for long term leases is protected in some countries.

A final conclusion is that only freedom of the market can guarantee the long term interests of both property owners and tenants!


The actual situation in the European countries today
(based mainly on the UIPI national reports*).

Austria

Rent is regulated in approx. 10% of dwellings all built before 1945 if they are smaller than 130 square meters. Newly also dwellings in houses containing not more than two dwellings are exempt from regulation.
There are numerous exceptions set by the regulation.
Income from rents has to be invested into repair and modernisation of the house except 20%, which may be kept by the landlord as his revenue.
In case of renovation and modernisation regulated tenants have to participate on the cost of these works.
Typical return on investment in rental housing: probably not more than 5%

Belgium

380 dwellings per 1000 inhabitants
cca 60% owner occupied
cca 40% rental 25% of which belong to subsidised public companies and should serve the poor.
In the 90ties the legislation changed. The new rents can still be freely agreed and the changes concern essentially the length of the lease. The lease term is either short term for not more than 33 months with unlimited 3 months notice time or obligatory 3 times 3 years with approved rent adjustment after each 3 year period and indexation of the rent in the meantime according to the increase of the consumer price index. If no notice is given at the end of the ninth year, the lease can be prolonged for another three years and the notice time is 6 months. Earlier notice is connected with substantial compensation to the tenant for personal use by the owner. There is possibility of transferring the lease to other tenant and subletting under certain circumstances.
Typical return on investment in rental housing is up to 4% (it may be higher for low quality housing).
In case of serious breach of the contract there is no fast and efficient way of evicting the tenant. The situation is even becoming worse by the introduction of conciliation procedures.
Commercial rentals are free but the term is 9 years renewable three times and in the case of earlier eviction for personal use only, there is high financial compensation to the tenant.


Germany

Rents are regulated by the market using the so called rent mirror, which is constructed from the freely agreed new leases. These values must not be exceeded by more than 20% even in the case of the new leases.
Typical return on investment in rental housing: 7%


Greece

447 dwellings per 1000 inhabitants.
80% owner occupied
20% rented - all private sector
Since 1994 new leases without rent regulation (Since 2000 no regulated lease remained after gradual conversion of regulated leases to free ones).
Minimum duration of any house lease for permanent residence is 3 years.
Rents in summer houses and furnished apartments were always free without time limitation on the duration of the contract or the rent.
Typical return on investment in rental housing: 6%
Commercial leases: Any initial agreed rent is valid. If there is not any agreement for future increases, the rent may be set to 6% of the tax value of the rented property per year and then increased by 75% of the consumer price index each year. Any new lease has a legal duration of 12 years and it can be terminated after 12 years with compensation of 24 months rent paid to the tenant, or after 16 years without any compensation. In case of serious breach of the contract the eviction is fast.

Denmark

476 dwellings per 1000 inhabitants
51% owner occupied
45% rented (19% cooperative, 24.6% private, 1.4% state owned)
4% unknown.
Rents are regulated and must not exceed the back-flow of the purchase value and the operational cost of the rented property (probably similar to the Swiss system).
Termination of the lease is possible only in case of breach of the lease contract. The eviction process takes usually 3-12 months.
The notice time for the tenant is 3 months.
Vacant apartments have to be immediately rented out.
Typical return on investment in rental housing: 7%
Commercial leases - rents should not exceed the usual local market rents and leases are also for unlimited time and can be terminated only when the tenant breaches the contract.

Italy

Historical buildings, buildings owned by the municipalities and accommodation for tourist purposes are exempt from rent regulation.
Two types of lease contract corresponding to two different legislations
1. Free rents for leases for 4 years with the right of the tenant to have the lease prolonged for another 4 years.
2. Rents set by the municipalities with lease for 3 years with the right of the tenant to have the lease prolonged for another 2 years. These rents are indexed with 75% of the inflation rate.


Ireland

350 dwellings per 1000 inhabitants. Very high rate of private house construction 4% increase per year (2000)
81% owner occupied
19% rented (11% private,7% publicly owned, 1% cooperative)
Since 1982 new leases without rent regulation (today less than 4000 dwellings still under rent regulation with no transfer rights to rent regulation)
50% of leases for max. 1 year. Notice time 28 days. Execution slow, typically 6-9 months, in case of serious breach of the contract it is much faster.
Rents in the private sector are free.
Typical return on investment in rental housing: 7.5%
Commercial leases are free, usually for 4 years and 9 months, since in case of uninterrupted lease for 5 years the tenant has the right for extension of the lease for 21 years. The rent can be adjusted once in 3-5 years. In case of serious breach of the contract the eviction is fast.


The Netherlands

400 dwellings per 1000 inhabitants
53% owner occupied
47% rented (35.2 housing associations 11.8% private)
Termination of tenancy is complicated and possible only in case of serious breach of the contract.
Rents in the private sector are free
Rents in the subsidised sector of housing associations are regulated creating a bit unfair competition.
Typical return on investment in rental housing: 7%
Commercial leases are free, usually for 5 years with simple possibility to terminate the lease after the lease expires.

Norway

412 dwellings per 1000 inhabitants
78% owner occupied(including cooperative ownership)
22% rented (mainly private)
The rent market is free with some minor exeptions. Dwellings in the old pre-war housing (with 4 or more units) in central Oslo is regulated to a rent level far below the market. This regulation will be removed by the year 2010. In the case of vacancies, there is no regulations on new rents. Leases may not be shorter than 3 years except for cases where the rented dwelling is a part of the letting persons private house. The renter may leave a lease after a shorter period than 3 years. The owner can have a dwelling vacated after the end of the contract unless the contract gives him a right to prolong it.
Rents are fixed by negotiations between owner and renter. In theory market rent is the result. As an average a normal market rent would be 5 ? 7 % of the dwellings market value.
The main reason for evicting tenants is lack of payment. The eviction process is taken care of by a public body called ?Namsmannen?. There are formal rules as to how a tennant is first warned, then asked to move, and at the end evicted by ?namsmannen?.

Finland

475 dwellings per 1000 inhabitants.
70.7% owner occupied
26.40% rented
2.9% unknown.
Rents are free for all freely financed rental dwellings and can be indexed.
State subsidised rental dwellings have other regime of rents
Lease term is usually either for 1 year or for unfixed term
The landlord can have the dwelling vacated after the end of the contract. In case of notice to the tenant the reason for termination the lease must be acceptable.
The notice time is three months for the landlord if the lease was for less than 1 year and six months when it was for one year at least. The notice time for the tenant is one month.
Typical return on investment in rental housing: 8%
Commercial rentals - rents are free and indexable. If the rent is unreasonable it may be corrected by the court.
The usual term is 5-10 years and after the end of the lease the premises can be vacated. The notice time can be agreed in the contract. If not it is 3 months for the lessor and 1 month for the tenant.


Switzerland

489 dwellings per 1000 inhabitants.
31.3% owner occupied
68.7% rented (3.4% cooperative, 62.6% private, 2.7% state owned)
All (old and new) residential as well as commercial rents are regulated in the same way. Only apartments with more than 6 rooms are free. Rents are regulated and must not exceed the back-flow of the purchase value and the operational cost of the rented property. The back-flow is given by the actual mortgage interest rate and the operational cost is between 2 and 3 % of the purchase value of the rented property.
Typical return on investment in rental housing: 8%
In the case of severe violation of the contract the tenant can be evicted. The procedure lasts at least three months. The notice time for commercial leases is 6 month compared to residential leases where it is 3 months. Maximum extension period of the contract is 6 years while for residential contracts it is 4 years.

Cyprus

68,2% owner occupied
13,9% rented
17,9% government subsidized refugee houses, built by the state
Land register is not properly functioning
Rents are free in all houses built after 1999
All other rents are regulated including the commercial leases. Leases are for unlimited time and evicting a tenant is very difficult and time consuming. High compensation has to be paid to the tenant when the eviction is successful.
Rents can be increased once in two years by approx. 14% ( set by the government).
Commercial rentals market is partly free (rentals drawn after 1999) and controlled (all the old rentals).

Sweden

480 dwellings per 1000 inhabitants
57% owner occupied , 43% rented
Rents are regulated by the municipalities so that the return on investment is widely different depending on the location. The lowest return is usually in the large towns and higher in less attractive locations. Many dwellings are owned by the housing associations and offered for similar rents.
Typical return on investment in rental housing: averaged 6%

Slovenia

351 dwellings per 1000 inhabitants
88% owner occupied, 12% rented (0.5% state owned, 3.2% local communities, 0.36% nonprofit, 7.88% ptrivate
80% are old rent regulated rentals with protected tenancy, the rents are approx. 1.1% of the market value per year and there is the right of transfer of the same conditions to relatives who lived with the tenant and obligation to provide equal housing for equal price in the case of certain notices allowed by the law.
New rents are free and provide probably also some 6-7% yield per year of the value of the rented property?
The process of evicting a tenant is very long some three years for the court and another year for the court eviction
Commercial rentals are free with no limitations on the term of lease.
Old rentals where the tenant has invested in the premises, he can continue in the lease under the same conditions until the investment has been paid back.
No fast and effective way of evicting a non-paying tenant is available.

France

New and renovated dwellings may be rented for free rent representing the locally typical value and can be indexed with the cost of constructional work.
Rents are still regulated in old part of Paris. In case of renovation in these houses the landlord may obtain governmental subsidies up to 25% of the cost of renovation.
Typical return on investment in rental housing: 4-5% in the subsidised rental sector

Great Britain

Rent is no more regulated for new leases and the introduction of the new type of leases ?assured shorthold tenancies? have improved the situation so that the private rental sector has recovered from its share of less than 7% to the present exceeding 10%.
In case of renovations landlords have can obtain grants covering up to 50-70% of the cost of renovation.
There is a massive system of housing allowance system very poorly designed and Housing Association housing, providing submarket housing with heavy governmental subsidies.
Typical return on investment in rental housing: 7%


*Some information of this report comes from the book "Housing policies in the European Union", 2002, by Professor Christian Donner, (www.donner.at/christian), a book with very useful information on the subject of rentals and housing.









































































































































































































































































































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POLISH GOVERNMENT HAD TO PAY COMPENSATION FOR RENT CONTROL!

A friendly settlement which includes compensation of 262.500 euros, has been reached between the Polish Government and Mrs Maria Hutten-Czapska, after the European Court of Human Rights' extremely important unanimous judgment in the "pilot case" of Hutten-Czapska v. Poland (appl. no. 35014/97), in which the Court considered that the rent control system in Poland violates the property rights of 100.000 landowners in Poland... The decision affects rent controls on some European countries, not only from the former eastern Europe. Thousands of Czech houseowners have already applied to the ECHR for the same reason! The announcment of the Registrar of the Court follows:

GRAND CHAMBER

CASE OF HUTTEN-CZAPSKA v. POLAND
(Application no. 35014/97)

JUDGMENT (Friendly settlement)

STRASBOURG, 28 April 2008

This judgment is final but may be subject to editorial revision.

In the case of Hutten-Czapska v. Poland,

The European Court of Human Rights, sitting as a Grand Chamber composed of:

Jean-Paul Costa, President,
Luzius Wildhaber,
Christos Rozakis,
Bostjan M. Zupančič,
Giovanni Bonello,
Peer Lorenzen,
Kristaq Traja,

Snejana Botoucharova,
Mindia Ugrekhelidze,
Vladimiro Zagrebelsky,
Khanlar Hajiyev,
Renate Jaeger,
Egbert Myjer,
Sverre Erik Jebens,
David Th?r Bj?rgvinsson,
Ineta Ziemele, judges
Anna Wyrozumska, ad hoc judge,
and Michael O'Boyle, Deputy Registrar,

Having deliberated in private on 31 March 2008,

Delivers the following judgment, which was adopted on that date:

PROCEDURE

1. The case originated in an application (no. 35014/97) against the Republic of Poland lodged with the European Commission of Human Rights (?the Commission?) under former Article 25 of the Convention for the Protection of Human Rights and Fundamental Freedoms (?the Convention?) by a French national, Mrs Maria Hutten-Czapska (?the applicant?), on 6 December 1994.

2. The applicant was represented by Mr B. Sochański, a lawyer practising in Szczecin. The Polish Government (?the Government?) were represented by their Agent, Mr J. Wołąsiewicz, of the Ministry of Foreign Affairs

3. In a judgment of 19 June 2006 (?the principal judgment?), the Court (Grand Chamber) held that there had been a violation of Article 1 of Protocol No. 1 to the Convention. It found that that violation had originated in a systemic problem connected with the malfunctioning of domestic legislation in that: (a) it had imposed, and continued to impose, restrictions on landlords' rights, including defective provisions on the determination of rent; (b) it had not and still did not provide for any procedure or mechanism enabling landlords to recover losses incurred in connection with property maintenance (see the third operative provision of the principal judgment).

In that connection, the Court directed that, in order to put an end to the systemic violation identified in the present case, the respondent State must, through appropriate legal and/or other measures, secure in its domestic legal order a mechanism maintaining a fair balance between the interests of landlords and the general interest of the community, in accordance with the standards of protection of property rights under the Convention (see the fourth operative provision of the principal judgment).

In respect of the award to the applicant for any pecuniary or non-pecuniary damage resulting from the violation found in the present case, the Court held that the question of the application of Article 41 was not ready for decision in so far as the applicant's claim for pecuniary damage was concerned and reserved the said question, inviting the Government and the applicant to submit, within six months from the date of notification of the principal judgment, their written observations on the matter and, in particular, to notify the Court of any agreement that they might reach (see the fifth operative provision of the principal judgment). More specifically, in respect of Article 41 the Court considered that that issue should be resolved not only having regard to any agreement that might be reached between the parties but also in the light of such individual or general measures as might be taken by the respondent Government in execution of the principal judgment. Pending the implementation of the relevant general measures, the Court adjourned its consideration of applications deriving from the same general cause (see Hutten?Czapska v. Poland [GC], no. 35014/97, § 247, ECHR 2006-VIII).

Lastly, the Court awarded the applicant 30,000 euros (EUR) in respect of non-pecuniary damage and EUR 22,500 in respect of costs and expenses up to that stage of the proceedings before the Court and dismissed the remainder of her claim for non-pecuniary damage.

4. The parties, following an extension of the relevant time-limit granted at the Government's request, submitted their observations on 2 April 2007. Further pleadings were filed by the Government on 14 May 2007 and by the applicant on 1 June 2007. In her pleading, the applicant suggested that friendly-settlement negotiations, which the parties had started in March 2007, should be continued with the Registry's assistance.

5. On 21 June 2007 the Government asked the Deputy Registrar for assistance in negotiations between the parties, aimed at reaching a friendly settlement of the case.

6. The representatives of the Registry held meetings with the parties in Warsaw on 7 and 8 February 2008. On 8 February 2008 the parties signed a friendly-settlement agreement, the text of which is set out below in the ?Law? part of the judgment (see paragraph 27 below).

THE FACTS

7. The applicant, who is a French national of Polish origin, was born in 1931 and lives in Poznań.

I. DEVELOPMENTS FOLLOWING THE PRINCIPAL JUDGMENT

8. On 17 May 2006, on an application of 24 August 2005 by the Ombudsman (Rzecznik Praw Obywatelskich ? see Hutten-Czapska cited above, §§ 143-146), the Constitutional Court (Trybunał Konstytucyjny) declared unconstitutional a number of provisions of the Act of 21 June 2001 on the protection of the rights of tenants, housing resources of municipalities and on amendments to the Civil Code (Ustawa o ochronie praw lokator?w, mieszkaniowym zasobie gminy i o zmianie Kodeksu cywilnego ? ?the 2001 Act?), in particular those on rent increases (see also paragraph 12 below).

In implementation of that judgment, Parliament enacted amending legislation of 15 December 2006, which introduced, among other things, new provisions on rent increases (see paragraphs 15-18 below).

9. On 11 September 2006 the Constitutional Court declared unconstitutional further provisions of the 2001 Act which limited municipalities' civil liability for failure to provide social accommodation to a tenant in respect of whom a landlord obtained an enforceable eviction order (see paragraphs 13, 19 and 20 below).

10. Laws on the State's financial assistance for social accommodation and on the system for monitoring the levels of rent within Poland were introduced on 8 December 2006 and 24 August 2007 respectively (see paragraphs 14 and 21 below).

11. On 29 February 2008 the Government submitted a Bill on Supporting Thermo-Modernisation and Renovations (projekt ustawy o wspieraniu termomodernizacji i remont?w) to Parliament (see also paragraphs 22-26 below).

II. RELEVANT DOMESTIC LAW AND PRACTICE

A. Constitutional Court's judgments

1. Judgment of 17 May 2006 (no. K 33/05)

12. The Constitutional Court partly granted the Ombudsman's application and repealed sections 8a (5), 8a (7) 1) of the 2001 Act with effect from 23 May 2006 and sections 8a (6) 1 and 9 (1) of that Act with effect from 31 December 2006, holding that they were incompatible with Article 2 (the rule of law), Article 31 § 3 (principle of proportionality), Article 64 §§ 1 and 2 (principle of protection of property rights and principle of equality before the law) and Article 76 § 1 (duty to protect citizens against dishonest market practices) of the Constitution.

It made the following findings in particular:

?The protection of tenants, the manner of determining rent and charges and the rights of landlords are among the issues which have frequently been examined by the Constitutional Court. On the one hand, this demonstrates the particular importance of these issues for society, on the other this may simply prove the legislature's exceptional and enduring inability to resolve them in a fair, constitutional manner respecting ? ex aequo et bono ? the rights of both parties to the legal relations between landlords and tenants. ...

The Constitutional Court ? with concern ? notes the relevant authorities' complete lack of reaction to the criticism of [the 2001 Act] expressed in this court's judgments and the Ombudsman's appeals. In the light of the information in this court's possession, it appears that at present no legislative work aimed at removing the unconstitutionality of the provisions of the 2001 Act is being done in Parliament and that the Government's work is at an early stage of consultations within ministries. This is the situation nearly one year after the Constitutional Court issued its recommendations for Parliament. This practice ? which in fact is tantamount, on the part of the legislative and executive authorities, to ignoring clear directives to implement amendments necessary from the point of view of citizens' rights and freedoms ? together with the authorities' approach of waiting for the Constitutional Court's next judgment repealing unconstitutional provisions, must be assessed critically.?

Referring to the challenged provisions on rent increases, the court stressed their unforeseeability, in particular the lack of clear criteria for ?justified cases? where landlords could raise rent above the ceiling of 3% of the reconstruction value of the dwelling within one year ? which made judicial control of rent increases illusory and arbitrary for both landlords and tenants. It criticised, as it had done in its recommendations of 29 June 2005 (see Hutten-Czapska, cited above, § 142), the lack of statutory elements of rent and the lack of reference to relevant factors for increases in rent, such as costs of repairs and maintenance and ?decent profit? (godziwy zysk).

2. Judgment of 11 September 2006 (no. P 14/06)

13. The judgment was given in response to a legal question put by the Kościan District Court (Sąd Rejonowy), concerning the constitutionality of section 18(4) of the 2001 Act in so far as it limited the civil liability of a municipality responsible for the provision of social accommodation to a tenant in respect of whom the landlord obtained an enforceable eviction order (see also paragraph 19 below).

Pursuant to section 18(3) of the 2001 Act, as long as the municipality has not supplied social accommodation, the protected tenant pays the same amount of rent that he would have paid if the tenancy had not been terminated. According to section 18 (1) and (2), other tenants in respect of whom the tenancy has terminated and who have not vacated the flat pay compensation to a landlord corresponding to the market-related rent that the landlord could normally receive. If such compensation does not cover losses incurred by a landlord, he may seek supplementary compensation.

Section 18(4) limited the compensation which a landlord could seek from a municipality for its failure to supply social accommodation to a protected tenant to the shortfall between the market-related rent that he could normally receive and the rent that he actually received from the protected tenant, supplementary compensation not being recoverable from the municipality.

The Constitutional Court ruled that the impugned provision was incompatible with Article 77 § 1 (right to compensation for unlawful acts of public authorities) and Article 64 §§ 1 and 3 (principle of protection of property rights and prohibition of disproportionate interference with property rights) of the Constitution.

B. The Act of 8 December 2006

14. The Act of 8 December 2006 on financial assistance for social accommodation, protected accommodation, night shelters and houses for homeless (ustawa o finansowym wsparciu tworzenia lokali socjalnych, mieszkań chronionych, noclegowni i dom?w dla bezdomnych) sets out conditions for obtaining financial assistance from the State for the construction of buildings or dwellings designated for social accommodation (as defined by the 2001 Act) and for the purpose of securing other forms of accommodation for the less well-off.

Such assistance can be obtained by municipalities, unions of municipalities and public benefit organisations (organizacje pożytku publicznego) in connection with the construction, renovation, conversion, alteration of use or purchase of buildings. Depending on the nature of the development, the subsidies available vary from 20% to 40% of the costs of the investment.

The payments are secured by the State Economy Bank (Bank Gospodarstwa Krajowego) from money allocated to the Subsidies Fund (Fundusz Dopłat).

C. The December 2006 Amendment

15. The Act of 15 December 2006 on amendments to the 2001 Act on the protection of the rights of tenants, housing resources of municipalities and on amendments to the Civil Code (?the December 2006 Amendment?) (ustawa o zmianie ustawy o ochronie praw lokator?w, mieszkaniowym zasobie gminy i o zmianie Kodeksu cywilnego) entered into force on 1 January 2007.

1. New statutory definition of expenses involved in maintenance of a rented dwelling

16. The December 2006 Amendment added a new subsection 8a to section 2(1) of the 2001 Act. Section 2(1) 8a reads:

?If this law refers to expenses connected with maintenance of a dwelling, [this expression] should be understood as expenses incumbent on the landlord and calculated proportionally to the usable surface of the dwelling in relation to the total usable surface of all dwellings in the building, including a fee for perpetual use of the land, property tax and the [following] costs:

(a) maintenance and keeping property in a proper technical condition, as well as renovations;

(b) administration of property;

(c) upkeep of shared premises, lifts, collective aerial installations, intercoms and greenery;

(d) property insurance;

(e) other [items], if they are stipulated in a [lease] agreement.?

2. New provisions on rent increases

17. Following the December 2006 Amendment Section 8a (4) of the 2001 Act1 is worded as follows:

?An increase whereby rent or other charges for the use of the dwelling would exceed 3% of the reconstruction value of the dwelling within 1 year, may take place only in justified cases referred to in subsections 4(a) and 4(e). At the tenant's written request, the landlord shall, within 14 days from receipt of the request, give reasons for the increase and its calculation in writing, failing which the increase shall be null and void.?

18. Amended rules for rent increases are set out in the above-mentioned new subsections 4(a)-4(e) which were inserted into section 8a. They read, in so far as relevant, as follows:

?4(a) If the landlord does not receive income from rent or other charges for the use of a dwelling at a level covering the costs of maintenance of the dwelling, as well as securing to him a return on capital investment and profit ... an increase enabling him to reach that level shall be considered justified if it remains within the limits set out in subsection 4(b).

4(b) In an increase of rent or other charges for the use of a dwelling, the landlord may include:

(1) a return on capital investment at the maximum level per year:

(a) 1.5% of the investments made by the landlord for the construction or purchase of a dwelling; or

(b) 10% of the investments made by the landlord for the permanent improvement of the dwelling, increasing its usable value

until the full return [of such investments];

(2) decent profit.

...

4(e) An increase in rent or other charges for the use of dwelling which does not exceed the average general yearly retail price index in the previous calendar year shall be considered justified. The average general yearly retail price index for the previous calendar year shall be published, in the form of a communiqu?, by the President of the Central Statistical Office in the Official Gazette of the Polish Republic 'Monitor Polski'.?

3. New rule governing the civil liability of municipalities for failure to supply social accommodation to a protected tenant

19. Section 18(3) of the 2001 Act still maintains favourable provisions on the amount of rent to be paid during the period between the issue of an eviction order and the vacation of the flat by protected tenants who, on account of their low income, are entitled to social accommodation from a municipality (see paragraph 13 above and, as regards the situation concerning the provision of social accommodation to tenants under the rent-control scheme as applicable until the adoption of the principal judgment, see also Hutten-Czapska, cited above, §§ 79 and 89).

However, in connection with the implementation of the Constitutional Court's judgment of 11 September 2006 (see paragraph 13 above) the December 2006 Amendment added a new provision (subsection (5)) to section 18, which makes the municipality liable, under the rules of tort, for any damage sustained by the landlord on account of its failure to provide the tenant with social accommodation. This provision reads as follows:

?(5) If the municipality has not provided social accommodation to a person who is entitled to it by virtue of a judgment, the landlord shall have a claim for damages against the municipality, on the basis of Article 417 of the Civil Code.?

Consequently, the municipality's failure is statutorily deemed to be an ?unlawful omission? within the meaning of Article 417 of the Civil Code.

D. Article 417 of the Civil Code

20. Article 417 of the Civil Code reads, in so far as relevant, as follows:

?1. The State Treasury, municipality or another legal person wielding public power by virtue of the law shall be liable for damage caused by an unlawful act or omission in the exercise of that power.?

E. The August 2007 Amendment

21. The Act of 24 August 2007 on amendments to the 1997 Land Administration Act and certain other statutes (?the August 2007 Amendment?) (ustawa o zmianie ustawy o gospodarce nieruchomościami oraz o zmianie niekt?rych innych ustaw) introduced an information system for monitoring the levels of rent within Poland. That system is referred to as a ?rent mirror? (lustro czynszowe). It gives information on the average rent levels in a given region, thus creating an additional tool for civil courts adjudicating on disputes arising from rent increases by landlords (see Hutten-Czapska, cited above, § 138).

Under section 186 a of the 1997 Land Administration Act, a new provision introduced by the August 2007 Amendment, a manager administering property including flats for rent is obliged to supply information to the relevant local government concerning the level of rent for rented flats in relation to the building's location, its age and technical condition, the usable surface of the flat and its characteristics, resulting from tenancy agreements concluded in respect of dwellings in buildings administered by him.

Pursuant to section 6 of the August 2007 Amendment, the municipality is required to publish in the regional official gazette (wojew?dzki dziennik urzędowy) an inventory of data concerning levels of rent for privately-owned residential dwellings situated within its administrative borders.

F. The Government's Bill

22. The Government's Bill on Supporting Thermo-Modernisation and Renovations (?the Bill?) was submitted by the former Cabinet to Parliament in its original version in September 2007. Following the dissolution of Parliament and early parliamentary elections in October 2007 the legislative process was discontinued.

The present Government intend to give priority to the Bill. It was re-examined by the Cabinet, adopted on 19 February 2008 and transmitted to the Government Centre for Legislation (Rządowe Centrum Legislacji).

On 29 February 2008 the Bill was submitted to Parliament.

23. The Bill is part of the Government's housing programme, aimed at improving the existing housing resources. In particular, it concerns tenement houses ? both State and privately-owned ? that, as stated in an explanatory report on the Bill, have been neglected and fallen into disrepair as a result of the operation of the rent-control scheme, which made it impossible for landlords to receive rent that would secure investment in proper maintenance and renovations. The explanatory report states that within the next 8 years it will become necessary to demolish 40,000 tenement houses with 200,000 flats belonging to private individuals, municipalities or housing communes.

24. Under sections 3-7 of the Bill, an investor who has carried out renovation or thermo-modernisation work will be entitled to the so-called ?renovation refund? (premia remontowa) or ?thermo-modernisation refund? (premia termomodernizacyjna). A renovation refund means in practice a partial refund of a loan taken out for the purposes of renovating a building, including the replacement of windows, renovations of balconies, fitting of the necessary installations or equipment or alteration of the building resulting in its improvement. Under section 9, a renovation refund will constitute 20% of a loan spent by an investor but not more than 15% of the entire renovation project. Thermo-modernisation refunds are subject to ceilings of 20% and 16% respectively.

The refund payments are to be secured by the State Economy Bank from money allocated to the Thermo-Modernisation and Renovations Fund (Fundusz Termomodernizacji i Remont?w).

25. Recently, before the friendly-settlement negotiations had begun, the Government decided to propose their own amendment to the Bill. The amendment will introduce a system of compensatory refunds (premie kompensacyjne) available to owners whose property was subject to the rent-control scheme between 12 November 1994 and 25 April 20052 (see also Hutten-Czapska, cited above, §§ 71-72, 136-141 and 194).

Given that the final stage of the preparation of the Bill by the Government has been reached and in order to accelerate the process of passing the Bill through Parliament, the Cabinet has decided that the amendment will be proposed once the parliamentary proceedings have started.

26. The Government produced the text setting out the amendments to be proposed to Parliament. Section 1(13) of the amended Bill reads:

? A dwelling subject to the rent-control scheme is a dwelling within the meaning of [the 2001 Act] in respect of which the lease originated in an administrative decision on allocation to a dwelling or had another legal basis dating back to the time before State management of housing matters or the special lease scheme were introduced in the relevant town, and in respect of which rent was:

(a) controlled;

(b) statutorily limited to 3% of the reconstruction value of the dwelling within 1 year;

(c) statutorily limited in its ... increase to 10% within 1 year

during any period between 12 November 1994 and 25 April 2005.?

Section 9a reads:

?1. An investor ? a physical person who on 25 April 2005 was an owner or heir of an owner of a building in which there was at least one dwelling subject to the rent-control scheme ? shall be entitled to a refund hereinafter referred to as a 'compensatory refund'.

2. A compensatory refund in relation to one building shall be granted only once.

3. A compensatory refund shall be set aside for paying off a loan granted for carrying out:

(1) a renovation project; or

(2) the renovation of a one-family house

if [such a project] concerns the building referred to in subsection 1.

4. Except for cases defined in subsection 3(2), a compensatory refund shall be granted together with a renovation refund.?

Section 9b reads, in so far as relevant, as follows:

?1. ... a compensatory refund shall be equal to the product of the indicator of the costs of the investment and a sum amounting to 2.1% of the conversion index for each square metre of the usable surface of the dwelling subject to the rent-control scheme and for each year in which the limitations referred to in section 2(13) applied in the period from 12 November 1994 to 25 April 2005 or, if the building was not acquired through succession, from the date of acquisition to 25 April 2005.

...

3. The formula for the calculation of a compensatory refund is set out in the annex to this law.?

Under section 16, the State Economy Bank will transfer refunds to the lending bank if the project has been carried out within the time-limit set in the loan agreement.

Section 16(3) reads:

? The State Economy Bank shall transfer a compensatory refund [to the lending bank] after the amount of the loan spent [has reached the level of] the renovation refund granted.?

Section 17 provides that the State Economy Bank is to keep an electronic database register of buildings in respect of which refunds have been granted.

THE LAW

I. THE FRIENDLY-SETTLEMENT AGREEMENT

27. On 8 February 2008 the parties reached a friendly settlement (see paragraph 6 above). Their agreement, signed by the parties and witnessed by the representatives of the Court's Registry, reads as follows:

FRIENDLY SETTLEMENT

IN THE CASE OF

Hutten-Czapska v. Poland

Application no. 35014/97

The present document sets out the terms of the friendly settlement concluded between

the Government of the Republic of Poland ('the Government'), on the one hand,

and Mrs Maria Hutten-Czapska ('the applicant'), on the other,

collectively referred to as 'the parties', in accordance with Article 38 § 1(b) of the European Convention on Human Rights ('the Convention') and Rule 62 § 1 of the Rules of Court of the European Court of Human Rights ('the Court');

The Government being represented by their Agent, Mr Jakub Wołąsiewicz, Ambassador, of the Ministry of Foreign Affairs and Mr Piotr Styczeń, the Deputy Minister for Infrastructure, the applicant being represented by Mr Bartłomiej Sochański, an advocate practising in Szczecin.


See the rest of Decision of the Human Rights Court against Poland, concerning compensation for rent control