Say you’re one of those unlucky landlords whose tenants have an “old rent” contract, meaning they inked their deal before existing laws were passed in 1992. Annual rent can be as low as $100, or if you were slightly luckier, around $250 — the cost of a decent bottle of champagne. So while such low rents can keep your tenants sipping bubbly, paying for nice trips abroad or having the disposable income to buy their kids a BMW, you are left scraping the bottom of the barrel. So, as a landlord, what do you do if one day you see your tenant’s 18-year old son drive by you in a convertible with a bottle of Moet on the way to the airport, and you've had enough? 

You can: 

1. Prove (or frame) the tenant has reneged on the contract by removing windows, doors or making major renovations without your expressed approval. 

2. Get your video camera out and fix it to their door to prove that no one has been in the house for a whole year. You may need to buy some extra film.

3. When your tenant comes around to pay his measly fee, don't give them a receipt and claim they have not paid rent for 6 consecutive months. 

4. Keep coming around to the house and telling the tenant there are cracks in the outside walls and you hear the building groaning, hoping they will up and leave.

5. If you have the financial wherewithal or a real estate developer that will ‘loan you the money’ to buy your property, you may find yourself buying your apartment again by forking out 25 to 50 percent of the total value of the property (not the land), generally settled out of court. Of course, a little sweetener to the ‘registered experts’ can make that financial medicine go down a little easier. 

6. If your tenant is in the business of anything other than ‘residential activity’ you can claim the red lighting is proof of business activity and claim the residential contract has been breached. 

Now, if you are that tenant indulging in the bubbly and luxury cars, and want to stay put, consider the following:

1. Remember “the tenant is the owner” and you are in the right. So whatever that whiney landowner says is of no consequence as long as you follow your original contract to the ‘T’ for tenant. 

2. If he takes out a legal case against you, stall. Tell the judge you have no money for a lawyer so the courts can take another half-year to appoint one. 

3. If your landlord is trying to buy you out and appoints an ‘expert’ to appraise your apartment all of a sudden, somehow, no one is ever home during his working hours. Beware however, if you are caught unaware opening the door adorned in a towel (or a more risqué form of dress) it is a crime not to let the expert in, even if he does look like a peeping Tom. 

4. After you have succeeded in stalling for three to five years you can then go to the First Court of Appeals whereby you will pull at the judge’s heartstrings (and perhaps his ‘public’ purse) with stories of your kids first footsteps in the corner of your lounge and where your dying mother expressed her final wishes that you stay in the neighborhood to water her favorite plant that has grown up the side of the walls. 

5. Never park your new Hummer in front of the house, even if it’s late at night and you’ve hit the bubbly particularly hard. Compensation for getting you out will vary according to your financial standing. If you are ‘poor’ you can get the higher amount of 50 percent of the value of your rental. The old Renault 12 will do well at the courthouse, especially pushed the final 100 meters by your wheezing grandfather. 

6. If all fails don't panic, the snails pace of the Lebanese judiciary kept one case going for 47 years.

Landlords get the keys back

The 1992 Rent Act put the landlord back in the driver’s seat of many of those luxury SUVs seen around town. For starters, any rental contract that expired between January 1, 1987 and December 31, 1991 is subject to a series of multiples, while anything after that date, the tenant is no longer the “owner”. Contracts usually last for three years, after which the landlord has free reign to up your rent or turf you out. So what do you do if your part of this class of renters and like your five-meter ceilings? 

1. You are basically out of luck. But if you know a notary, the judge and a few bad boys you may be able to stay for a year or two. 

2. If your three-year contract is up, you will have to go to court. See above stalling methods for reference but keep in mind that you will need to butter up the right people and if you lose the case, you might end up paying for that slimy landlord’s lawyer. In the meantime, do not pay rent and save up for that penthouse on the Corniche, the eventuality of a basement abode, or maybe a tent in the park.

3. Make sure that you agree on things that cannot be delivered by your landlord: cue contractual obligation for helipad written in small letters your landlord couldn't see with his bifocals. If you can prove that the landlord did not deliver on the contract, you can stay, rent free.

Underhanded tenant turfing

If your tenant is proving difficult, the legal route is not always the quickest road to liberate your property of that noisy ragtag occupant. 

You might consider:

1. That there are many plugs, many wires and many pipes that no one really keeps tabs on. They can come undone, burst or just disappear at anytime. Just saying. 

2. If your unruly inhabitant has any acute fears, say arachnophobia, then a trip to the pet store for a few rather hairy tarantulas will do well crawling over the balcony. Rabid canines have also been known to raise a few hairs and eyelids, especially if they can bark into the night or enjoy romantic moments with the tenant’s ankles. 

3. By this time you will have noticed the affinity the resident of your own property has with his auto. Small notes written with newspaper clippings attached to destroyed windshields have been known to prove useful, as does spray-painting the car a lurid color. Just be sure to stock up on the turpentine to clean away the evidence from your fingernails. 

No need for contracts

More often than not a gentlemen’s agreement is the best way to do a deal. Such is the case with rents too. If no contract between the tenant and the owner exists, it is the person living in the house who has the upper hand. So if you are looking to sell off that old part of your family heritage and think you pulled a fast one by not inking a contract or paying municipality fees: think again. 

1. In order to tear down any building, permits from the municipality are required. But if someone is living in your house and paying the bills, the receipts are proof of tenancy and the fact that you don't have a contractual right to boot out anyone since, simply there is no contract. Tenants without contracts should note that buddying up to the electricity guy with the green slips can mean the difference between a bed and the street. 

2. If your tenant has not been paying rent and knows they are on the better side of the law, the best course of action for a landlord, when there is no ink on paper, is simply to come around during working hours when no one is around and change the locks on the door. When the renter comes out of the building confused and looking for a crowbar you can remind them that you hold the key to their furniture, not to mention to the flat screen TV as well.

Things of course are rarely this vindictive or unruly. Most contracts are clear and the tenant/landlord relationship can be managed with a little cunning and a lot of reason when it comes to upping the rent every few years. Even if a new rental law comes into play, the basic legal procedures will hardly change. Thus, it may be preferable to leave the antics to these pages and proceed to the next page to find out what is being cooked up for the country’s rental market.

The notorious ‘old rent’ law that has pitted landlords against tenants for more than half a century may, after two decades of legislative delays, be seeing its last days. If the draft of the new rent law passes in Parliament this month, landlords and real estate developers will be lighting up the sky with fireworks. The prospect of reclaiming properties in the coming years — meaning land to be bought and sold — entails billions of dollars in potential earnings amid a renewed construction frenzy in land-scarce Beirut. But for tenants, a less certain future awaits, hinging on a planned government fund to financially assist economically disadvantaged tenants pay gradually higher and higher rents, and the actualization of public housing projects to re-house the dispossessed.

The lingering law

The ‘old rent’ law is one of the more bizarre laws still in existence. Enacted after World War II to prevent socio-economic deprivation and protect tenants from greedy landlords, the law resulted in the saying, “the tenant is an owner”, as it gave many rights to the renter. Under the law, all rental contracts would be extended — against the will of the landlord — until a new one was enacted, meaning rents were fixed at the originally agreed upon rate despite inflation and changes in market dynamics. 

If that was not bad enough for the landlord, getting the tenant out is nearly impossible without significant financial compensation, which ranges from 25 to 50 percent of the value of the property (not the land) and decided upon by a judge based on the financial situation of the tenant in relation to the landlord. 

Furthermore, there are only two ways to ask a tenant to leave if no contractual mistakes have been made: if the purpose is to destroy the building, or if the landlord (or his family) wants to live in the apartment for which they have to prove a need to do so. “You can’t lay a trap to kick out the tenant. The law provides a very powerful status and protection for tenants. The only way is by default [on contractual obligations] or to pay them to move out,” said Nader Obeid, a partner at law firm Alem and Associates.

Rent law number 160 materialized after the Civil War in 1992. Crucially it liberalized the rent market allowing for new contracts, with the landlord able to raise rent after three years, yet it made minimal difference to landlords with tenants paying old rents. These rents were adjusted in line with the depreciation of the Lebanese lira in the early 1990s and a government-mandated minimum wage increase, although not to market rates. For instance, according to research by The Monthly, a residential rent agreement from 1970 estimated at LL1,000 per year would come out to LL390,000 ($260) at today’s prices.

Since 1996, Rent Act 160 has been extended 12 times, with the last extension, law number 171 dated August 29, 2011, having expired at the end of March this year. If the new draft law does not pass, a 13th extension will have to be enacted.

Problematic numbers

While the old rent issue could have been a marginal one if the number of tenants was relatively low, according to the advocacy group named the Committee for the Rights of Tenants (CRT), some 170,000 of Beirut’s 210,000 tenants pay old rent rates. But just as no one is exactly sure how many people there are in Lebanon (the last national census was in 1932), the number of properties on old rents — and the number of people living in them — is not exact either. 

“The differences in the estimates of how many people are on old rents is a weapon in the fight between the pro and against camps for restructuring the law,” said Obeid.

According to Ministry of Finance statistics published by Executive in 2010, there are 139,719 properties rented before 1992 throughout Lebanon, with 58,341 in Beirut. In February, online publication NOW Lebanon challenged these statistics, stating that the Finance Ministry did not have a breakdown between old and new rents, while the Central Administration of Statistics (CAS) also said they had never carried out any research, and information released in 2004 only distinguished between residential renters and owners. [However, CAS’s statistics in general are out-of-date and unreliable, notably claiming there are only 3.5 million people in Lebanon when other estimates put the figure at well over 4 million, if not closer to 5 million.

According to Joseph Zoghaib, head of the Association of Landlords in Lebanon, based on taxation records and copies of rent laws submitted by municipalities to the Finance Ministry, there are 81,000 tenants on old contracts and an estimated 40,000 to 50,000 on new contracts. As to the number of landlords affected, Zoghaib estimates it at anywhere between 15,000 to 20,000. Whatever the statistics are as to the number of tenants on old rent, clearly tens of thousands of Lebanese will be affected if the new law passes; at the same time thousands of landlords have been financially out of pocket due to receiving such low rents. [The Committee for the Rights of Tenants could not be reached for comment.] 

No money for maintenance

Zoghaib likens the old rent law to a cancer as it has deprived landlords of return on initial investment in constructing buildings and meant there have been insufficient funds for proper maintenance of properties. 

“Rent control is a cancer on Lebanon’s economy, the standard of living, and should be aggressively treated,” he said. “Most landlords have lost hope that the issue will ever be resolved.”

Zoghaib has plenty of accounts about the trials and tribulations of being a landlord with tenants on old rent, with some forced to become doormen in the buildings they own to get access to the National Social Security Fund. According to Zoghaib; one landlord is so fed up he is considering a class action suit against the Lebanese government in the United States to pressure Beirut to overturn the law or face having the state’s assets frozen in the US.

Anger runs deep among the association’s members over what Zoghaib calls an “unjust law”, while in TV talk-shows addressing the issue over the past year heated words have been spoken between those ‘pro-landlord’ and those ‘pro-tenant’. 

“Landlords have been suffering for 70 years. Before, when we talked of our plight, we were laughed at, but the second generation are freedom fighters,” said Zoghaib. “The silent majority think they are not affected by the old rent issue, but they are. For every $1 the renter saves, the Lebanese public is paying thousands of times more when it comes to higher rent and higher real estate prices, and it has caused huge revenue losses to municipalities and the government.”

Indeed, it would make for an excellent research paper to estimate the financial losses incurred by old rents on the Lebanese economy and how this factored into current real estate prices. The existence of old and new rent contracts has certainly wreaked havoc on trying to effectively analyze the real estate market, while it has contributed to Lebanon having an average price-to-rent ratio (how  long monthly rent would have to be paid to cover the selling price of the property) of 22 years, compared to 11 to 16 years in peer countries. Lebanon also has much lower gross rental yields than elsewhere, at 4.65 percent, whereas it is more than 6 percent in Egypt, Morocco and the United Arab Emirates, according to the global residential property investor portal Global Property Guide in 2011.

“There is a gap between rent and real estate prices. It is between 3.4 percent to 4.5 percent gross rental yield versus the price, while it should be 6 percent, 8 percent or even 10 percent,” said Ayman Sanyoura, general manager of ProServices, a property services and management company in Beirut.

The shortage of properties available for rent on post-1992 contracts has also driven up prices, while the existence of the old and new rent contracts has often caused confusion between tenants and landlords as to their rights. “People are still unconsciously living under the old law,” said Obeid.

Furthermore, the lack of funds for maintenance has led to the loss of heritage buildings throughout the country, with buildings in such a dilapidated state that it is cheaper to tear them down — once the tenants have been compensated to move — than renovate.

“We are fighting for the law to be changed to be more fair as far as owners are concerned. It is not possible that a 200 meter square apartment is rented for $200 a year,” said Mona Halak, an architect and member of the Association for Protecting Natural Sites and Old Buildings in Lebanon (APSAD). “For heritage buildings, the owner should have the right to charge more. When we ask an owner of a heritage building ‘why are you tearing it down?’, he says ‘I get $300 a year, so why keep it?’”

The draft law

What galvanized the government into action to address the old rent issue was the collapse of a building in the Fassouh district of Beirut in January that left 27 dead and 12 injured. While there were tenants paying new rents, the majority of the occupants had been on old rent contracts, which opponents of the old law cite as a reason for the building’s tragic collapse due to lack of funds for maintenance. “It is sad to say it took 27 dead people to shock the government to draft this new law,” said Zoghaib.

The new law was drafted by the Parliament’s Administration and Justice Committee, chaired by West Bekaa Member of Parliament Robert Ghanem. A copy of the draft law in the form submitted to the committee was obtained by Executive, despite Ghanem’s office attempting to withhold it from the media. In its current form, the draft law seeks to find a solution by having tenants on old rent pay gradually higher rents over a six year period. Through government-appointed experts that report to a judicial committee, properties will be evaluated and an amount agreed upon by both the landlord and tenant. Then each year for the first four years the tenant will pay a 15 percent increase in rent, then 20 percent per year for the fifth and sixth years. After this time, the property can be rented at free market prices, but the tenant has the right, if they notify the landlord three months before the period ends, to stay on for a further three years, although at market rates agreed upon between both parties.

If a landlord wants to reclaim the property for family usage during the six-year extension period, then he has to pay compensation to the tenant equivalent to four years rent after four years of rental increases. To tear down a building, the same principle will be applied but on the value of the total six years of increased rent. In either of the above situations, if a property is considered ‘luxurious’, compensation will be reduced by half. 

This proposed solution means that the compensation landlords pay out to tenants would be significantly less than the 25 to 50 percent of the value of a property under the old law, which is clearly to the advantage of landlords keen to reclaim their properties. The big question if this law passes is whether tenants will be able to pay the higher rent.

According to Zoghaib, out of the 81,000 tenants he claims pay old rent, 13,000 are economically disadvantaged (again the Committee for the Rights of Tenants were not available for comment). To alleviate the pressure, a government fund is to be established for tenants with a household income that does not exceed three times the minimum wage of LL675,000 ($450) to cover the difference in rent for nine years. By that time, the plan would be for the Public Corporation of Housing to have built apartment blocks that evicted tenants could live in under a ‘lease-to-own’ agreement (which cabinet approved last month) with no age stipulation, meaning elderly tenants could be part of the scheme. However, while the draft law is still being hammered out at committee sessions, there have been no announcements as to how the housing scheme will be financed, what land will be available for construction or where, and how willing private banks are to be a part of the scheme. What is more, Lebanon has been without an official budget since 2005.

While government sources suggest the bill will pass in May, the socio-economic repercussions could force politicians to oppose it. “Nobody wants to lose the next elections [in 2013] for passing this law,” said Sanyoura. Indeed, it is such a contentious issue that Ghanem said at a committee meeting in early April that he had received an anonymous letter threatening to kill him, his wife and his children if the bill passes. 

Billions to be made?

If the bill remains relatively intact after numerous rounds of amendments and reformulations, and then passes into law, it will have a profound impact on the real estate market. 

“Definitely there are both positive and negative repercussions from the eventual introduction of a large [amount] of stock to the market,” said Karim Makarem, director of Ramco, a real estate advisory firm. “If landlords are looking to sell or to rent, a substantial amount comes online, not to mention that the former tenants who vacate will need to be housed. So there are many new possibilities as well for developers.” One  possible knock-on effect would be more supply than demand, which would lower real estate prices. For that reason, Sanyoura suggested it is “a good time to consider implementing this law as we’re not in a boom market.”

With buildings being vacated and renovated, and others being torn down for new projects, Zoghaib opines that $50 billion could be pumped into the economy in the coming years. A back of the envelope calculation of 30,000 buildings being re-developed at an average of $500,000, would generate $15 billion and potentially billions more in associated services. 

A further boom could occur if another stuck-in-a-time warp law is overturned: the pre-1992 law concerning commercial rents, which is similar to the residential law in fixing rents, but to remove a tenant requires the landlord to compensate for the “loss of footfall” to the premises. “We’ll have a party when the [new rent] law passes and the next day move onto proposing a commercial rents bill,” said Zoghaib.