Law to tackle old-time rents: Justice long overdue

22-01-2017 09:01 AM

Youssef Sidhom


EDITORIAL

 

 

 

 

 

 

 

Problems on hold

 

 

The new bill to regulate the relationship between landlords and tenants of ‘old buildings’—all buildings built before the 1960s, and those built after the 1960s but which are governed by the 1960s rental law—is expected to rock the Egyptian economic and social scene. We must own, however, that the time has come to put an end to the great injustice landlords of old buildings have had to sustain for more than half-a-century, when rental values were frozen and rental contracts immunised against termination or cancellation. ‘Old’ rents, the values of which have remained unchanged since the early 1960s, are fixed indefinitely.  

The decision to freeze rental values and immortalise rental contracts was not based on any economic computation or realistic vision of the future of real estate wealth in Egypt, or even to the mutual benefit of landlords and tenants. On the contrary, the decision came among a bunch of 1960s ‘revolutionary [socialist] decisions’ that were biased against ‘exploitative capitalists and asset-holders’, and in favour of ‘oppressed, exploited classes’. In case of rentals, the landlords were seen as belonging to the former sector, and the tenants to the latter. No one back then anticipated the enormity of the consequences of the ‘revolutionary decision’. Neither the decision makers nor the tenants elated at the ‘favourable’ rents realised that tampering with the market and violating the natural course of supply and demand would generate new parallel techniques to rectify the unnatural course of events. Landlords, for their part, resorted to demanding khelew, key money, from prospective tenants. When key money was later banned, the market resorted to selling housing units rather than renting them, a practice that was then totally new to Egypt. At this point the ‘revolutionary decisions’ stood helpless, since they could not impose specific selling prices. Landlords were finally redeemed and felt they had recaptured their lost rights, but those who sought homes found they needed to come up with unattainable lump sums of money to have a roof above their head. An acute housing crunch set in.

By the time the community woke up to the magnitude of the calamity of fixed rents, it was too late. The ever-growing population gave rise to increased demand, and the shortage of prime locations and land meant that supply was inadequate and increasingly costly. Prices of housing and non-housing units kept rocketing, surpassing all reasonable values. A fatal blow came when building owners, individuals and companies, resorted to economise on building costs in order to better compete on the market and at the same time maximise profits. The landlord of old, who used to give meticulous care to the design, construction, finishing and maintenance of his building, disappeared from the housing scene altogether, to be replaced by a contractor / entrepreneur whose sole interest was to complete a [shoddy but bright-looking] building, sell off its units at high profit as quickly as possible, and move on to another profitable building project.  

Those who had one day been elated at the ‘revolutionary decisions’, which pampered the tenant and oppressed the landlord, fell prey to a frantic market that supplied defective real estate units for exorbitant prices. The market had cruelly corrected its course. But the landlords of old buildings remained tragically oppressed. They had two paths to choose. They could submit to the harsh reality but would leave their buildings without maintenance or restoration since these could never be covered by the meagre rents, especially given that the rental sums steadily lost value till they became a mere pittance. Or they could pester their tenants so intolerably till they succumb to vacating their units in exchange for some compensation from the landlord, after which the units would be put up for sale not rental. The result in both cases was a severe decline in the already harshly unjust tenant-landlord relationship. Landlords were reduced to ‘suspended ownership’ whereas tenants, under the blessing of the law, practically usurped the ownership rights.

The gruesome situation remained unchanged for decades on end. Different regimes, governments and parliaments came and went, but none could stand up to the unjust rentals. Decision makers feared the social unrest that might ensue if the ‘poor’ are shouldered with burdens; all they did was to pass a law some 25 years ago that redefined the rental values of non-housing units.

Now we stand before a historic moment that promises to finally rectify one of the biggest ‘revolutionary’ mistakes. A bill to regulate the relationship between landlords and tenants of old buildings will be soon put before the House of Representatives. The bill stipulates transitional implementation, with gradual increases in rentals, and specific time frames for the expiry of rental contracts. I believe that, when passed, this law could finally bring long overdue justice. But it will also come with violent social and economic tremors, a point I intend to tackle in some future editorial.

Just for the record, I am no owner of any building or housing unit; on the contrary, I am a tenant who has long indulged in paying unreasonably low rent.

 

Watani International

22 January 2017

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