07 Jul The real estate market determines rental values
The real estate market determines rental values
by George Coucounis
“The real estate market was left by the state to adjust the rental values”
THE conditions prevailing in the real estate market adjust the rental values of the properties accordingly and for those subject to the rent control there is the protection of the Court. The determination of the fair rent in statutory tenancies according to the reservation of article 8(4)(a) of the Rent Control Law is done by making a search to find the average rents in the proximity area and its market rent. If the rent of a property is lower than 90% of the average, it can be increased to this percentage, unless the tenant is a refugee in which case the percentage cannot exceed 80%. For the determination of the fair rent, the preparation of a report by an expert valuer, either private or appointed by the Court, 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 rent and the average rent of the proximity area must be calculated, as well as take into account all the circumstances (except personal ones), including age, character, the size, location, condition of the property and, in the case of listed buildings, whether works have been carried out by the landlord and at which cost, as well as the services provided to the premises. The legal framework and the procedure followed to determine the fair rent of a property is explained in a judgment issued by the President of the Rent Control Court on 30.6.2022 in a landlord’s application requesting the determination of the rent of his shop. The Court emphasized that while in paragraph (a) of article 8 there is an expressed 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” and the determination of the fair rent by virtue of this average.
The Court stated that it is obvious that the percentage of the first section of article 8(4)(a) has remained zero since 21.4.2013 in an attempt to limit the negative consequences of the economic recession of 2013 (and thereafter) that the Republic of Cyprus has experienced. The case, however, of the reservation of article 8(4)(a) is different since it refers to the “average rents of the proximity area” and the determination of the fair rent by virtue of this average. The provision for the determination of the rent, based on the average rents of the proximity area, may be amended or abolished only by a legislative act. The Court noted that while Cyprus was experiencing the economic recession of the year 2013 and thereafter, various proposed bills were submitted to the Parliament for the abolition of the reservation of the second section of article 8(4)(a). However, none of these proposed laws secured the required majority and thus the provisions of paragraph 2 of article 8(4)(a) remained unchanged to this day.
The Court concluded that consequently the real estate market is now left by the state to adjust its rental values. The Rent Control Court, in the cases of applications for the determination of the fair rent, freely applies the provisions of the reservation of the second section of article 8(4)(a) (searching for the average rents of the proximity area, as well as the market rent of the same area etc), in order to draw a conclusion regarding the fair rent. In this search, the Court is assisted by the valuer of the Land Registry of the district where the property situates, and the parties, if they disagree with the report of the valuer, have the right to appoint their own valuer and submit his own report.
The Court in the particular case did not accept the tenant’s suggestion that the increase in the rent of statutory tenancies has been wholly 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 report of the Land Registry valuer and decided that 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.