In the late 1940’s after World War II, to avoid tenants from being thrown out of their homes and exacerbating the economic and social distress of the time, the Lebanese government issued an exceptional law stating that all rental contracts would be extended until a new law is issued in that regard; and, until 1992, all those new laws only extended the old one.
This meant owners could only repossess their properties under two circumstances: for family needs or demolition, while paying a compensation fee of 25 to 50 percent of the value of the property, the exact amount determined either between the two parties or by the courts. In 1992, two laws were issued distinguishing between contracts made before 1992 and the ones made after: Law 160/62 extended the former rental law and applies to contracts made before 1992. The second law (159/62) applies to contracts made after 1992, and stipulates that rental agreements should be signed for at least three years, unless otherwise agreed upon. The 160/62 law was also extended many times, most recently this past February.
When the Lebanese lira began to devaluate in late 1980’s, old rental rates was not allowed to rise in line with inflation and thus the money collected by owners was negligible. Even though the 160/62 law in 1992 included an increase in rents, they were still well below market value and owners were not allowed to implement any further increases.
Georges Rabahiye, president of the Owners’ Association, which has been active since 1988, said some rents total only $120 a year. Consequently, owners are demanding to cancel the old contracts so rents can align with the true market value, while also giving tenants a three-year window to vacate. Although owners have been promised a new law for a number of years, it has not yet been issued.
“Every one or two years they draft a law and fool the owners,” said Rabahiye. “We can no longer accept tenants with this low rent.”
On the other hand, Marie Nassif Debs, the president of the Tenant’s Association, said that most of the old-rate tenants belong to the lower-income bracket and older age groups, and thus they are concerned about the impact canceling the contracts may have. The increasing rents, especially in Beirut and its suburbs, and the absence of a housing plan to accommodate low-income tenants will create a housing problem for many families, said Debs.
“There is a substantial number of tenants who, if they are [forced to vacate], will not be able to rent new apartments,” she said. “We are not against freeing the contracts but it should be done, taking into consideration the social and economic situation of the tenants.”
Under the old law, it is not easy for an owner to repossess his property. Nader Obeid, partner at the law firm Alem and Associates, explains that if the two parties don’t agree and they go to court, these cases could take years to resolve.
“We have a judicial system which is not known for its high speed,” he said, adding that, “These cases are not considered as priority and they could take a year, two or three, or could end quickly depending on the speed of the courts…it is unpredictable.”
The new law
The Parliamentary Administration and Justice Commission has come a long way in drafting the new law, but sources from the commission said that there are still two major points being discussed. The first is the time frame within which the old contracts should be canceled — arguments thus far generally place this between four and seven years. The second point is compensation for tenants upon vacating. The commission is still deciding whether to implement a fixed percentage on the value of the property or if the compensation should vary depending on the time in which the tenant vacates.
The commission is also planning to increase rents gradually, so that at the end of the seven years, they will reflect market rates.
Rabahiye said that owners should completely refuse to pay any compensation. He argued that owners should be the ones compensated since they suffered huge losses due to decades of low rents.
“Compensation usually goes to the damaged. Therefore it should be given to the owner and not the tenant and it should be retroactive,” he said.
None of the parties know what the new law will actually include; they simply lobby the commission hoping their demands will be heard.
“The commission has met with both parties, taken their demands into consideration and now is trying to reach a common ground,” said a source from the Admissions and Justice Commission, which is responsible for drafting the new law. “The municipality law might delay the rental law for a while…but I still think it should be done by the end of 2010.” If the law is not issued, the old law will again be extended.
The lease to own ‘solution’
In 2006, a ‘lease to own’ law was introduced, to be implemented by the Public Corporation for Housing (PCH). It included giving incentives to developers to build low-income housing, which tenants can either buy, or rent with the possibility of later purchasing. The PCH found that, under the law, buyers would pay some $80 to $120 per month for 40 years without a down payment. The implementation decree of this law has yet to be issued, however, and therefore it cannot be applied.
Debs from the Tenants’ Association expressed hope that this scheme would be part of the solution for old tenants, allowing them to buy affordable houses. She said that the compensation given by the owners would serve as a first payment to the PCH, which would thereafter be paid in small installments. Debs doubted, however, whether the implementation decree would ever be delivered.
Abdallah Haidar, president of the PCH, explained that the corporation first introduced the project for new university graduates and was not meant for long-standing tenants. He added that the older tenants would not meet the loan’s age requirements. “Even if we change the law and gave loans to this age bracket, what assurance could be given to us to ensure that the loans will be paid?” asked Haidar. The loans cannot be given without life insurance, which will be costly for the elderly.
One solution often heard is for the loan to be signed in the name of the tenant’s children, but, “The law says that a citizen can only benefit from the loan once in their lifetime, so if children take the loan they won’t be able to buy a house for themselves later on,” said Haidar.
He added that although the PCH is already accepting some 6,600 loan applications each year, it is not organizationally or financially ready to manage the new scheme.
Waiting for a solution
While tenants worry about canceling the old contracts in the absence of a housing plan, owners are eager to reclaim their properties; between the two stands the Adminstration and Justice Commission, trying to find a solution. All parties Executive spoke to said the government must ensure the tenants ability to find adequate housing.
However, with the PCH unable to handle the burden, the property market witnessing skyrocketing prices and no housing plan in the pipeline, the some 140,000 tenants who would be affected by the new rental law will surely not be relishing the day their contracts are finally canceled.