Comparative Tenancy Law and Black Rental Contracts in Europe

Comparative Tenancy Law and Black Rental Contracts in Europe Christoph U. Schmid, ZERP, Bremen

TENLAW - Tenancy Law and Housing Policy in Multi-level Europe Concept of the Project • Cooperative Project under EU FP 7 • Consortium organised into 10 teams • University of Bremen, Germany • University of Pisa, Italy • Technical University Delft, the Netherlands • University of Tartu, Estonia • University Rovira i Virgili, Spain • University of Lund, Sweden • University of Silesia, Poland • International School for Social and Business Studies Celje, Slovenia • University of Southampton, United Kingdom • Metropolitan Research Institute, Hungary • Consortium will cover 31 European countries • EU 27+4 (Scotland, Switzerland, Croatia, Serbia) • Further voluntary participants: Norway, Japan, Wisconsin

Implementation TENLAW - Tenancy Law and Housing Policy in Multi-level Europe

Objectives TENLAW - Tenancy Law and Housing Policy in Multi-level Europe

Objectives (1) TENLAW - Tenancy Law and Housing Policy in Multi-level Europe • Objective 1: Analysing national tenancy law in context • Development and current situation of national tenancy law • Tenancy law’s embeddedness in housing policy and housing markets • Tenancy law and procedure “in action” • Single fields of Tenancy law • conclusion of tenancy contracts; • duration and termination of contracts; • rent fixing and rent increases; • obligations of the parties

Objectives (2) TENLAW - Tenancy Law and Housing Policy in Multi-level Europe • Objective 2: Analysing the effects of EU law and policies on national tenancy law • social policy against poverty and social exclusion • consumer law and policy • competition and state aid law • tax law • energy saving rules • private international law including international procedural law • anti-discrimination legislation • constitutional law affecting the EU and European Convention on Human Rights • harmonisation and unification of general contract law

Objectives (3) TENLAW - Tenancy Law and Housing Policy in Multi-level Europe • Objective 3: Comparing national tenancy systems in similar groups of welfare states and at European (i.e. consortium) level • compare important features of tenancy regulation, including security of tenure, rent control, and guarantees of habitability • compare the different roles of tenancy law in national housing policies • compare tenancy laws as integral parts of national housing policies as regards their connection to different welfare state systems • basic parameter of evaluation of national regulation • the hypothesis of a socio-economic balance, to be respected by national regulation

Objectives (4) TENLAW - Tenancy Law and Housing Policy in Multi-level Europe Objective 4: What future role for the EU in tenancy law? • Open Method of Coordination (OMC) – best practises (e.g. common principles of “good tenancy regulation”), mutual learning, peer review etc – first step: evaluate failures of different national housing systems • Extending the social dialogue to the field of Tenancy Law • Minimum harmonisation under European consumer law • Full harmonisation under Art. 114 TFEU – not an option for residential tenancies A balanced European contribution to tenancy law would enhance the legitimacy of the EU in the eyes of its citizens.

TENLAW - Tenancy Law and Housing Policy in Multi-level Europe Preliminary Results – General (1)

Preliminary Results – General (2) TENLAW - Tenancy Law and Housing Policy in Multi-level Europe • Most failures are less, at best indirectly, related to private tenancy law, e.g. overcrowding, housing poverty etc. • Failures clearly related to private law are particularly relevant in this project, in particular • Excessively high rents • Discrimination in access to housing • Adverse economic and social phenomena directly related to regulation (e.g. landlord prefers to leave dwelling vacant because of strict rent regulation) • Unjust intertemporalsplittings among different tenancy laws • Problems related to estate agents • Black market phenomena

Preliminary Results – Black Markets (1) TENLAW - Tenancy Law and Housing Policy in Multi-level Europe • “black market contracts” • Own definition: unofficial, informal contracts, which violate legal regulations and therefore remain in an extra-legal, unprotected sphere, typically to the detriment of the tenant • Generalities: • Black market contracts increase the private sector dramatically in many states • Black market contracts are generally associated with a lack of legal protection of the tenant and low quality of housing, as in most cases no legally binding obligations exist for the landlord

Preliminary Results – Black Markets (2) TENLAW - Tenancy Law and Housing Policy in Multi-level Europe • Types of violated norms: (1) Violation of tax law provisions or registration requirements by the landlord-owner, who does not conclude a written contract as he wants to keep the lease secret, generally with the purpose of tax evasion • Such violations generally irrelevant for the binding force of the contract under private law • Therefore no visible disadvantages in several countries such as DE, as legal default norms apply to the contract which are balanced and/or favourable to the tenant

Preliminary Results – Black Markets (3) TENLAW - Tenancy Law and Housing Policy in Multi-level Europe • Problems: • Difficulties of proof in other countries such as Spain: tenant must prove the conclusion of a full lease contract, as opposed to a short term license = risk which may dissuade a tenant from taking legal action • Solutions: • Italy: a low default rent set by the law applies at the request of the tenant in case the landlord omits the registration (drastic sanction – but is it effective?) • Austria: a (rebuttable) presumption applies in favour of a tenant sitting in an apartment and paying rent without a formal contract that a fully effective, ordinary lease contract was concluded

Preliminary Results – Black Markets (4) TENLAW - Tenancy Law and Housing Policy in Multi-level Europe (2) Violation of public law provisions on habitability, in the case of low quality, slum-like dwellings (i.e. the dwelling does not qualify as an inhabitable house or apartment and could not, therefore, be rented lawfully) • Problem: tenant invoking any rights may lead to his expulsion from the house by public authorities • Solutions: difficult; proposal: public authorities must provide social (or any other kind of) housing to affected tenants, and landlord could be obliged to reimburse to the authorities the costs for a certain period;

Preliminary Results – Black Markets (5) TENLAW - Tenancy Law and Housing Policy in Multi-level Europe 3) Violation of prohibitions of transferability of contracts or subletting; • 1st Case: Austria: • strong intertemporal splits between different rent regimes • old contracts with statutorily set low rents can be transferred; among relatives even at the same conditions • old contracts are transferred against illegal one-off payments • obvious solutions: • one-off payments must be restituted (already effective) • intertemporal splits should be completely abolished, if necessary with adequate transitional periods

Preliminary Results – Black Markets (6) TENLAW - Tenancy Law and Housing Policy in Multi-level Europe 2nd Case: Netherlands: social apartments with cheap rents are illegally sublet • Legal consequences: subletting is illegal according to a Supreme Court decision of 2010 • Possible solution to counteract the practice: Give the sub-tenant the right to enter into main lease contract at same conditions after lawful termination of contract with main tenant; • but works only if sub-tenant herself fulfills conditions of access to social housing; otherwise it is fair to evict the subtenant • counterargument: this solution may undermine the waiting list system governing access to social housing

Preliminary Results – Black Markets (7) TENLAW - Tenancy Law and Housing Policy in Multi-level Europe • 3rd case: Sweden: egalitarian and highly regulated rental system: • Apartments are rent controlled and allocated according to waiting lists by a public agency; in cities, in particular in Stockholm, such list are very long • Position of tenant is strong: no right of termination by the landlord, even if she needs the apartment for herself; right to barter the apartment against another • Abuse: apartments (with long waiting lists) are sublet or lease contracts sold illegally at high prices; r • report from the Swedish Property Federation from 2006 indicated that the trade with leases is worth 1.2 billion a year in Stockholm • social consequences: illegal transfers and subletting attenuates housing market shortage e.g. in Stockholm but privileges well-off people who can afford high illegal payments

Preliminary Results – Black Markets (8) TENLAW - Tenancy Law and Housing Policy in Multi-level Europe • 3rd case: Sweden (continued): • Illegal subletting: insecure position of tenant; high price; • Solution: legitimate ground of termination of master lease – then the landlord may rent out the dwelling to a different tenant • Possible solution: Give the sub-tenant the right to enter into main lease contract at same conditions after lawful termination of contract with main tenant(foreseen only in case of collusion between landlord and main tenant to the detriment of sub-tenant, which is difficult to prove) • Possibly counterproductive as this solution may act as an incentive to the sub-tenant to pay even more for the illegal sub-tenancy

Preliminary Results – Black Markets (9) TENLAW - Tenancy Law and Housing Policy in Multi-level Europe • 3rd case: Sweden (continued): • Trade with leases • Possible solutions: criminal law sanctions: • existing but of little effect; only repeat “black landlords” selling leases have been fined so far • purchase price may be claimed back (e.g. unjust enrichment) • of little effect as payments are done in black without receipt and are therefore difficult to prove

Comparative Tenancy Law and Black Rental Contracts in Europe