Rent control lashes its tail
Are controlled rents bound to end? A moratorium of the statute controlling the increases in Prague will expire in 2012. But it may not mean the end of rent control.
Hard to die, ready to strike again. This seems to be the fate of the rent control in the Czech Republic for the incoming decade.
For a lawyer, "rent control" encompasses several types of lease relationships which are unified by what was in Italy called "binding (rent) regime": the law controls the maximum amount landlords may charge (and tenants may pay). This amount is usually much lower than market prices and is not sufficient to cover maintenance costs. About 760.000 Czech houses are estimated to be rent-controlled.
Comparisons between the Italian "Fair Rent Statute" and the Czech law on rent control should be run with prudence. Rent control in the Czech Republic means more (and other) than protecting the old and the poor ones and big families which cannot afford housing. It is a set of statutory rules which can be easily abused in two areas. First, they usually apply to open-end leases. Secondly, they entitle tenants' relatives (and even some flatmates) to inherit the lease. The result is that Old Town apartments are now occupied by the young descendants of those poor and retired who died there decades ago. In other cases, the occupants are acquaintances who took care of the tenant before he or she died.
Add to this picture the difficulties of evicting defaulting lessees in lawful ways, the absence of fast-track legal proceedings for lease cases, courts frowning upon foreign real estate owners' claims, bold tenants asking thousands of euros to surrender the property, and you can hardly wonder that some real estate owners brought their claims before the European Court of Human Rights in Strasbourg.
While problematic rent control legislation is found in all Pact of Warsaw ex-members, the Czech case is rooted both in socialist law and in the unsettled "transition period" which begun in the 90s. Ever since 1990 old tenants have being enjoying statutory protection against rent increases, while market prices have been allowed for new tenants. The resulting patchwork is one where the tenant on the 3rd floor pays two times less than the tenant on the 2nd floor. (Or vice versa.)
In 2000 the Czech Constitutional Court in Brno found rent control regulation to be encroaching upon the Constitution in that it had created a "forced restriction" of property rights. Thus the regulation was quashed. Rent control seemed about to end. Yet it survived, thanks to the hesitation of hangman-the judges, makeshift legislators in the matter. Faced with the task of determining the amount of applicable rent in lease cases, the courts held back and kept the increases under control, expecting new legislation to be soon promulgated. Legislation came as late as 2006 (Act No 107/2006).
Pursuant to this Act, rent control was allowed for a "transition period" which should have ended in 2010. In 2009 the Parliament has granted a two-year extension in Prague, most regional capitals, and in all Central Bohemia's cities of 10.000 inhabitants or more.
As of today, the transition to a free market regime has remained incomplete. Political reasons abound. Rent-controlled tenants are many and constitute an important market of votes, especially during an economic crisis. Foreign landlords, on the contrary, do not vote. There is also a belief that rent control should survive to keep a socialist era promise to provide housing for the old people. For all these reasons, rent control will probably live on.
And landlords might face a sudden lash of the tail. If special rent legislation will not be passed, the legal vacuum could freeze all rents. This risk derives from the current wording of § 696 1 comma, which reads that any "change of the amount of the rent" must be agreed by "the parties", unless a different provision of law applies. Thus lacking the tenants' consent, lessors would lose the right to increase the rent within the range permitted by the Act now in force. While some tenants could accept increases, the most tenacious dwellers will certainly hold the line.