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Striking a balance

Everyone is still in the dark concerning new rent laws

by Jeremy Arbid

“This law is a step aimed at achieving justice, and after 30 years without a law this step has become necessary and inevitable,” said MP Robert Ghanem, chair of the Parliament’s Administration and Justice Committee, according to the minutes of April’s rent law meeting. The committee had met to amend the law after the Constitutional Council ruled three of its articles invalid. Yet after decades of deliberation and several years drafting and amending the law, Lebanon seems no closer to balancing the tenant–landlord equation — the amended law requires a vote by Parliament and the passing of the budget to make it effective. The long march towards Ghanem’s so called justice is now on hold indefinitely.

[pullquote]The long march towards Ghanem’s so called justice is now on hold indefinitely[/pullquote]

After stumbling through years of debate, Parliament, in April 2014, ratified a new rent law. Many legislators opposed the bill, arguing its outcome was unmeasurable — to this day there is no government data on the number of tenants and units that might be affected — with those in support citing the overdue need to rectify the rent market. Despite passing, it remains a contentious law receiving only mixed support from legislators across the political spectrum.

The Legal Agenda, a nongovernmental organization addressing Lebanon’s legal issues, reported that then-President Michel Sleiman, with 10 members of Parliament, challenged the law, arguing that it did not protect tenants’ constitutionally granted rights to housing. A review later by the Constitutional Council in August 2014 ruled three articles of the law invalid — one article concerning the formation of a committee meant to arbitrate disputes over the value of apartments and the correlated rent, and two articles relating to how the committee would mediate disputes, highlighting a lack of procedure for appealing the committee’s decisions. The law’s scheduled implementation for December 2014 was shelved — its validity in question — and instead was sent back to the committee’s drawing board for amendment.

It now awaits a vote in Parliament’s general assembly — an unpredictable prospect given the stalemate over the presidential void. “It all depends on the political parties,” says MP Nadim Gemayel, a member of the Administration and Justice Committee. “Some are saying we’re not going to legislate before having a president,” he says, leaving everyone in limbo, waiting for a clear indication as to where renters stand and how landlords will react.

MP Ghassan Moukheiber had told Executive that he was expecting hundreds of lawsuits when the law’s implementation was scheduled for December 2014; were renters to refuse to pay increased rents, reasoning the law was not applicable, landlords would be filing suits in droves. Those lawsuits have not materialized, says Gemayel, mainly because the continued uncertainty of the law and its implementation timeframe have left tenants and landlords wondering how the proposed amendments will apply.

[pullquote]“The owner will stay and be protected, the law will be applied, but we will give more advantages to the tenant”[/pullquote]

Gemayel says there were two approaches within the committee to fix the rent law’s shortcomings. The first, he says, was only to correct the law according to the Constitutional Council’s ruling on the three articles before sending it up to the general assembly for a vote. Instead, the committee opted to expand the law’s amendment to include a wider set of articles, says Gemayel. “Since the law came back to us [the committee decided] to amend these articles in order to give more advantages to the tenant,” he says, adding that “the owner will stay and be protected, the law will be applied, but we will give more advantages to the tenant.”

Referring to April’s meeting, Gemayel says the committee proposed amending multiple articles to “place the tenant in a better position, while not increasing the liability of the owner.” Some of the committee’s proposed amendments include extending the period in which the new law goes into effect — 12 years for those whose household incomes are limited and nine years for everyone else; a 15 percent increase over the first four years in the difference between current and new rent, and 20 percent in the last two years; setting the current rent at 4 percent of the sale value of the rented home; limiting who can assume the rent contract if the primary tenant dies; and creating incentives allowing lease-to-own agreements through the stimulus package.

A rent-to-own agreement would require a separate law, Gemayel says, indicating that such a bill has not yet surfaced from the subcommittee. He adds that a rent-to-own law is very important “for those who cannot take a loan or pay the [downpayment] in the loan, so this will make it easier for them to rent with the option to buy.” How it all might work is still unclear. Rony Lahoud, director of the Public Corporation for Housing (PCH), who attended the April committee meeting, suggests the PCH might be the implementer of a rent-to-own law, though he says the agency is not currently involved in the rental market.

The number of tenants renting under the old law remains unclear. Ministry of Finance figures, published previously by Executive in May 2012, indicate around 140,000 properties were rented before 1992 throughout Lebanon, meaning they would fall under the old rent. Some dispute these numbers. Joseph Zoghaib of the Association of Landlords in Lebanon told Executive in 2012 that, using taxation records and copies of rent contracts, the association estimated that old contracts numbered 81,000, while new contracts stood somewhere between 40,000 and 50,000. Since the law was first proposed in 2012, no government body has been tasked with collecting these statistics.

Gemayel bluntly acknowledges the government’s dearth of quantitative data available to plan the law. “We don’t have any documentation — any official documents — the Ministry of Finance doesn’t have numbers, the Public Corporation for Housing only has new numbers, so we had to work very blindly,” he says. The number of those falling under old rent contracts is vital for predicting the impact of the new law, particularly since it calls for establishing a fund at the Ministry of Finance to pay increases in full for those tenants that cannot afford the price increase.

The proposed amendments to the law stipulate that for those tenants whose household income does not exceed three times the minimum wage (a household not earning more than LBP 2,025,000 [$1,343]), the government would pay the entire increase over a nine year period. For households whose income does not exceed five times the minimum wage (LBP 3,375,000 [$2,239]), the government will cover 80 percent of the increase in the same period. This fund, according to minutes from the Administration and Justice Committee April meeting, would not exceed $1.5 billion over the nine year increase period.

“We’ve created the fund on paper,” says Gemayel but, practically speaking, it does not exist. In December, Moukheiber told Executive that such a fund remains theoretical because it would require funding mechanisms, as it will be a new expense for the government, meaning a new budget law must be passed. It is under Parliament’s purview to approve the government’s budget, though it has failed to do so since 2006. In mid May, the Council of Ministers began debating the 2015 draft budget, but, in an email exchange with Executive, director general of the Ministry of Finance Alain Bifani confirmed that the draft budget does not consider funding for the rent law.

[pullquote]The amended law is plagued with deficiencies[/pullquote]

The amended law is plagued with deficiencies. There is no accurate government data on the number of rent contracts that fall under the old law, indicating lawmakers have no idea how many total households will need funding assistance, whether full assistance or 80 percent coverage. Furthermore, this lack of data raises questions as to whether the proposed $1.5 billion funding amount is sufficient and, in the event that Parliament passes a budget, where that money might be sourced.

Committee chair Ghanem, in outlining the intention of the law’s amendments, stated that, “In order to not make the error of giving preference to one side over the other (i.e. between owners and tenants), we endeavored to create a real formula called balance, which ensures for the first side — the tenant — a minimum of justice, represented by not allowing his forced displacement from his house, thus losing the roof that protects him. On the other hand, in terms of the owners, [we seek to] ensure they obtain the minimum of constitutional rights to their property after justice was frozen for 30 years in which no law fair to owners was issued, knowing that many owners were sometimes paid a rent fee per month equivalent to what the tenant paid for cable or a similar service.”

While Ghanem’s words and the committee’s intentions may be pure, the legislative process to reform rent contracts reflects an opposite attitude to that of Lebanon’s lawmakers. Over three years have passed since the bill was first introduced and, with the law back in the general assembly, it will now languish further because of the presidential void. Yet some of the components needed to implement the law — including the fund to help low income tenants pay rent — require a new budget. In addition, the proposed rent-to-own option would require unique legislation. The balance that rent law reform might strike is not likely to help those most in need in the immediate future — Lebanon’s renters and owners will have to wait quite a while longer to know how they stand to be affected.

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Jeremy Arbid

Jeremy is Executive's former economics and policy editor.

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