Application no. 11179/06 by Oskar MORAWETZ
Application no. 11163/06 Vladislav HLAVÁČEK and Václav HLAVÁČEK
Application no. 1458/07 by Art 38, a.s.
against the Czech Republic
STATEMENT OF FACTS
THE FACTS
A. The circumstances of the cases
Application no. 11179/06 introduced on 16 March 2006
The applicant, Mr Oskar Morawetz was born in 1917 and lives, according to the applicant, in Ontario (Canada). He is represented before the Court by Mr M. Kölbl, a lawyer practising in Prague.
The facts of the case, as submitted by the applicant, may be summarised as follows.
On an unspecified date in 1998, as it appears from an extract from the Prague Land Register issued on 29 February 2000, the applicant inherited a tenement house built on a plot of land in Prague-Holešovice. The house consists of fifteen dwellings which are subject to the rent‑control scheme. The rents which the tenants were paying monthly for the lease of the respective flats in the applicant’s house between 1 January 2002 and 31 December 2005 were described as follows[1]:
App. No.
Surface area in m²
Controlled rent per month in CZE
Regular market rent per month in CZE
1
33.75
645.00
6,413.00
2
38.33
742.00
7,283.00
3
84.42
1,683.00
16,040.00
4
104.19
2,060.00
19,796.00
5
118.10
2,348.00
22,439.00
6
105.82
2,064.00
20,106.00
7
118.15
2,349.00
22,449.00
8
107.20
2,094.00
20,368.00
9
118.10
2,338.00
22,439.00
10
104.19
2,060.00
19,796.00
11
122.15
2,404.00
23,209.00
12
107.69
1,883.00
20,461.00
13
118.15
2,349.00
22,449.00
14
89.29
1,573.00
16,965.00
15
91.77
1,637.00
17,436.00
Application no. 11163/06 introduced on 16 March 2006
The applicants, Mr Vladislav Hlaváček and Mr Václav Hlaváček, are Czech citizens, born in 1928 and 1926 respectively, and live in Prague. They are represented before the Court by Mr M. Kölbl, a lawyer practising in Prague.
The applicants are the co-owners of two tenement houses in Prague-Nusle which they acquired, according to an extract from the Prague Land Register issued on 6 February 2006, by restitution under the Extra-Judicial Rehabilitation Act in 1992.
The first house consists of five dwellings which are subject to the rent‑control scheme. The rents which the tenants were paying monthly for the lease of the respective flats between 1 January 2002 and 31 December 2005 were described as follows[2]:
App. No.
Surface area in m²
Controlled rent per month in CZE
Regular market rent per month in CZE
1
75.00
2,974.00
14,250.00
2
69.00
2,574.00
13,110.00
3
57.00
2,061.00
10,830.00
4
50.00
1,844.00
9,500.00
5
55.00
2,033.00
10,450.00
The second block of flats consists of seven dwellings which are subject to the rent‑control scheme. The rents which the tenants were paying monthly for the lease of the respective flats between 1 January 2002 and 31 December 2005 were described as follows:
App. No.
Surface area in m²
Controlled rent per month in CZE
Regular market rent per month in CZE
1
56.00
1,890.00
10,659.00
2
105.00
3,878.00
19,874.00
3
48.00
8,000.00
9,120.00
4
87.00
3,229.00
16,549.00
5
53.00
1,950.00
9,994.00
6
57.00
2,140.00
10,868.00
7
56.00
1,838.00
10,583.00
Application no. 1458/07 introduced on 4 January 2007
The applicant company, “Art 38, a.s.”, is a joint stock company with its registered seat in Karlovy Vary. It is represented before the Court by Mrs J. Šindelářová, a lawyer practising in Plzeň.
As it appears from an extract from the Plzeň Land Register issued on 4 January 2007, on 26 September 2001 the Plzeň-město District Court (okresní soud), in public auction proceedings, confirmed the applicant company’s auction bid by which it acquired a tenement house and a plot of land on which the house had been built. The decision became final on 30 October 2001.
The house consists of six dwellings which are subject to the rent‑control scheme. The rents which the tenants were paying monthly for the lease of the respective flats in the applicant company’s house were described as follows:
App. No.
Category
Surface area in m²
Rent per month in CZE
Services per month in CZE
1.
II.
43.22
798.00
200.00
2.
unknown
unknown
unknown
unknown
3.
II.
40.40
746.00
200.00
4.
II.
92.50
1,776.00
600.00
5.+6.
II.
119.90
2,213.00
2,000.00
B. Historical background and development of the rent-control scheme
The roots of the legislation providing for a rent-control scheme in the Czech Republic can be traced back to laws enacted by the former Czechoslovakia in 1920, 1922 and 1928 respectively. They were aimed at the protection of tenants and included certain restrictions on rent increases.
Following the communist takeover in February 1948, a radical legal reform of private law, including in the field of rent control, was introduced by the Government in order to restrict, and ultimately eliminate, individual property rights. Hence, the Civil Code of 1950 introduced “personal property” as a new legal concept which was henceforth to be distinguished from the traditional concept of “private property”.
The process of dismantlement of private property culminated in 1964 in the adoption of the Civil Code, which remains in force to date with certain amendments. In its initial judgment of 21 June 2000 declaring the Czech rent-control scheme unconstitutional and in breach of Protocol No. 1, the Constitutional Court held that the Civil Code had interfered with the concept of property rights by introducing, inter alia, the phrase “personal use of flats, other premises and plots of land”, which formed the legal basis for secondary legislation providing for stringent rent controls.
Under the rent-control scheme, rents were set administratively under the secondary legislation and the landlord-tenant relationship originated in an administrative decision rather than a lease contract.
Moreover, in order to eliminate “private property”, the legislation of the 1950s and 1960s imposed major restrictions on rental income and restricted landlords’ rights to dispose of financial resources acquired in this way as well as their right to decide on how to re-invest in their property. Consequently, many landlords, in particular those who owned blocks of flats, decided to donate their property to the State.
Following the political and economic changes in 1989, many former landlords or their legal successors recovered possession of their houses under the restitution legislation. Due to insufficient maintenance by the State, a large number of blocks of flats had deteriorated and required reconstruction.
The secondary legislation on rents remained in force until 1 July 1993, when it was superseded by Decree no. 176/1993 of the Ministry of Finance providing, inter alia, for restrictive rent ceilings. The decree divided flats into four categories depending on their quality and fixed a maximum basic monthly rent per square metre. A fixed amount of the rent per square metre was set according to the size of the town and the category of the flat. The rents were regularly increased by an amount reflecting the annual rate of inflation, on the basis of ordinances issued annually by the Ministry of Finance.
Moreover, as the lease-contract regulations provided for by the Civil Code were not amended, lease contracts could not be terminated or renegotiated in order to increase rents beyond the rent ceilings without the consent of the contracting parties.
In June 2000 the Constitutional Court repealed the decree, finding it to be unconstitutional and in breach of the Czech Charter of Fundamental Rights and Freedoms (Listina základních práv a svobod) (“the Charter”), and Article 1 of Protocol No. 1, as it froze rents at a level that made it impossible for landlords to cover their maintenance costs and to derive a profit from their property. It gave Parliament until 31 December 2001 to enact a new rent‑control law. In 2002 the Ministry of Finance and Government issued three regulations designed to fill the vacuum legis created by the Constitutional Court’s judgment. All the regulations were successively repealed by the Constitutional Court.
On 31 March 2006 Act no. 107/2006 on unilateral rent increases and amendments to the Civil Code (zákon o jednostranném zvyšování nájemného z bytu a o změně občanského zákoníku) entered into force. It provided for new rent ceilings and amended the relevant provisions of the Civil Code governing lease contracts. However, it did not remedy interferences with landlords’ property rights which had occurred prior to its entry into force. The question of the constitutionality of the Act is currently reviewed by the Constitutional Court.
On 30 June 2006 Notice no. 333/2006 of the Ministry of Regional Development entered into force, indicating, inter alia, average purchase prices of real estates per square metre fixed by the statistics of the Ministry of Finance, target monthly rents per square metre, maximum monthly rent increases and guidelines for setting the maximum increase in rent for a particular flat. According to the applicant, the notice still fails to guarantee the rights of landlords.
C. Relevant domestic law
I. The Constitution
Under Article 89 § 1 of the Constitution, decisions of the Constitutional Court are enforceable as soon as they are delivered in the manner provided for by statute, unless the Constitutional Court decides otherwise with regard to enforcement.
II. The Charter of Fundamental Rights and Freedoms
Article 2 § 2 of the Charter stipulates that State authority may be asserted only in cases and within the limits provided for by law and only in the manner prescribed by law.
Under Article 3 § 1 everyone is guaranteed the enjoyment of his or her fundamental rights and freedoms without regard to gender, race, colour of skin, language, faith and religion, political or other convictions, national or social origin, membership of a national or ethnic minority, property, birth, or other status.
Article 4 § 1 provides that duties may be imposed upon persons only on the basis of and within the limits of the law, and must respect the fundamental rights and freedoms of the individual. Under the second paragraph, limitations may be placed upon fundamental rights and freedoms only by law and under the conditions prescribed in the Charter. Under the third paragraph, any statutory limitation on fundamental rights and freedoms applies in the same way to all cases which meet the specified conditions. The fourth paragraph states that in implementing the provisions concerning limitations on fundamental rights and freedoms, the essence and significance of those rights and freedoms must be preserved. Such limitations are not to be applied for purposes other than those for which they were laid down.
Under Article 11 § 1 everyone has a right to own property. The property rights of each owner shall have the same subject matter and enjoy the same protection. Under the fourth paragraph, expropriation of property or any interference with property is permissible only in the public interest, on the basis of a statute, and against compensation.
III. Civil Code (Act no. 40/1964, as in force until 30 March 2006)
1. Replacement of the right of personal use with the right to lease
Under Article 871 § 2, introduced by the amendment to the Civil Code (Act no. 509/1991) which entered into force on 1 January 1992, the right to personal use of a dwelling was henceforth considered as a tenancy. A legal relationship based on mutual consent between contracting parties was thereby instituted under contract law, replacing consent to an administrative decision by virtue of which a national authority granted the use of a flat to an individual. The term “personal use of property” ceased to exist with this amendment. Some of the restrictions imposed on landlords by the Civil Code of 1960 concerning, in particular, succession to the lease of a flat, rent ceilings, landlords’ obligations in respect of property maintenance and termination of leases, remained in force.
2. Succession to the right to lease a flat
The Civil Code granted the right to succeed to a tenancy to the relatives of tenants and to persons living with them in flats rented by them.
Article 706 provided as follows:
“Upon a tenant’s death, where a flat is not rented jointly by a married couple, the right to lease the property shall pass over to the deceased’s children, grandchildren, parents, siblings, son-in-law or daughter-in-law, if they can prove that they were living with him or her in a shared household on the day of his or her death and do not have their own flat. The same right shall be enjoyed by persons who were looking after the shared household and had been living with the tenant in a shared household for at least three years and do not have their own flat.”
Article 707 § 1 provided:
“The surviving spouse shall become the sole tenant of a common flat upon the other spouse’s death.”
Article 708 provided:
“The provision of Article 706 § 1 and Article 707 § 1 also applies in case that a tenant permanently left a shared household.”
3. Controlled rents
Article 686 § 1 stipulated, inter alia, that the written occupational lease should provide details of the flat, its facilities, the scope of its utilisation and the method of calculating the rent and service charges related to use of the flat, or the amounts thereof.
Under Article 671 § 1 a tenant was obliged to pay the rent set down in the occupational lease, or the rent usually payable on conclusion of the lease, regard being had to the value of the leased property and the mode of its use.
Article 696 § 1 provided, inter alia, that the method of calculating the rent, the service charges related to the use of the flat, the method of paying the rent and service charges, and the conditions under which a landlord was entitled to unilaterally increase the rent and service charges and amend other terms of the occupational lease, were governed by a special Act.
Article 877 read:
“1. Prices, payments and other pecuniary transactions governed by this Act, and falling within the scope of application of the generally binding Act on prices, shall be considered as prices within the meaning of this Act.
2. Where the term ‘generally binding legal act’ is used within this Act, it shall be taken to mean Act no. 526/1990 on prices.”
4. Duties of landlords in respect of property maintenance
Under Article 687, a landlord was obliged to hand over a flat to a tenant in a fit state for normal use and to secure to the tenant the full and uninterrupted enjoyment of the rights in connection with the use of the flat. Where an occupational lease did not provide otherwise, small repairs to the flat in connection with its use and the costs associated with ordinary maintenance were met by the tenant. The terms “small repairs” and “ordinary maintenance” were defined in a special law (Government Decree no. 258/1995).
Under Article 695 a landlord was entitled to make structural alterations to a flat with the approval of the tenant.
5. Termination of a lease in respect of tenants paying controlled rent
Under Article 493 § 1 no obligation could be modified without the mutual consent of the parties, unless the law stipulated otherwise.
Under Article 685 § 1 a tenancy was created on conclusion of an occupational lease by which a landlord handed over a flat to a tenant’s use for a definite or indefinite period of time. The tenancy of the flat was protected. The landlord could terminate it only on the grounds provided for by law.
Article 686 § 2 stated that, if an occupational lease did not indicate its duration, it was presumed to be concluded for an indefinite period of time.
Under Article 710 the tenancy could cease on the basis of a written agreement between the landlord and the tenant, or on the basis of a written notice of termination of the occupational lease on the part of the tenant or the landlord. If the occupational lease was concluded for a definite period of time, the tenancy ceased on expiry of the set period. The written notice had to give the date on which the lease was to be terminated; the period of notice had to be at least three months.
Article 711 § 1 specified the grounds justifying the serving of notice on a tenant and made such notice subject to prior approval by a court. The occupational lease could be terminated if
(a) the landlord needed the flat for him- or herself, his or her spouse, his or her children, grandchildren, son- or daughter-in-law, parents or siblings;
(b) the tenant ceased to work for the landlord and the latter needed the flat for his replacement;
(c) the tenant, or persons sharing the flat with him, acted contra bonos mores, despite a prior written warning;
(d) the tenant substantially contravened his duties arising out of the occupational lease, in particular by a failure for more than three months to pay rent or charges for use of the flat;
(e) the use of the flat or house was precluded in the public interest or owing to reconstruction;
(f) the flat was connected to premises designed for commercial use and the landlord or tenant of such premises intended to use it;
(g) the tenant had two or more flats, except where the use of them was justified on exceptional grounds;
(h) the tenant did not use the flat, or used it only occasionally, without any serious justification; or
(i) the tenant of a specially-assigned flat was not a disabled person.
Under Article 712, a person whose lease contract was terminated under Article 711 § 1(a),(b),(e),(f) or (i) was entitled to be provided with substitute housing in the form of a flat or other accommodation.
6. Exchange of flats
Under Article 715 tenants could, with landlords’ assent, agree in writing to exchange their respective flats. Should either landlord disagree with the exchange, the tenant could appeal to a court; a ruling by the court in the tenant’s favour replaced the consent of the landlord to the exchange.
IV. Act no. 265/1991 on the powers of the State authorities in relation to prices
Section 2(2) provides, inter alia, that the Ministry of Finance issues legal acts to regulate and negotiate prices, to define disproportionate economic profit and unjust enrichment in connection with violations of price regulations, and to control prices.
V. Decree no. 176/1993 Ministry of Finance on Rents of flats and reimbursement for charges provided with the use of flats (repealed on 31 December 2001)
The decree established rent ceilings, provided guidelines on how to calculate them and laid down rules regulating certain aspects of the conduct of landlords and tenants.
Not all flats were covered by the decree. Under section 2, flats owned by housing cooperatives, leased by foreign legal persons or built after 30 June 1993, or those where an occupational lease had been concluded with a new tenant, fell outside its scope of application (except in cases involving the legal transfer of tenancy, the exchange of flats and substitute housing).
Under section 4, flats were classified into four categories according to their quality. The prices, set administratively per square metre of usable surface area for each category, were listed in the annex to the decree as follows:first category dwelling: 6 CZK (EUR 0.21) per square metresecond category dwelling: 4.50 CZK (EUR 0.16) per square metrethird category dwelling: 3.50 CZK (EUR 1.13) per square metrefourth category dwelling: 2.50 CZK (EUR 0.9) per square metre
Under section 5, the rent ceiling for a flat was calculated by multiplying the number of square metres of usable surface area by the price per square metre set out in the annex.
Section 5a provided for annual rent-ceiling increases in line with the average monthly index of price growth in the construction industry, as assessed by the Ministry of Finance.
Under section 9, municipalities were empowered to increase or decrease rents up 20%, reflecting an “advantageous or disadvantageous” location of dwellings. According to the applicant, between 1998 and 2002 the rents were increased only by amounts reflecting the annual rate of inflation. Since 2002 the real value of controlled rents has decreased due to the inflation, being now deeply under the reconstruction costs of the housing resources.
VI. Ordinance no. 01/2002 of the Ministry of Finance on the list of goods with controlled prices (entered into force on 1 January 2002 and repealed on 1 January 2003)
The ordinance introduced, inter alia, a maximum level of monthly rent and service charges to be paid by tenants occupying flats which had been subject to the controlled rent scheme on 31 December 2001.
VII. Ordinance no. 06/2002 of the Ministry of Finance on maximum rents for flats, maximum service charges and rules for controlled rents (entered into force on 15 November 2002 and repealed on 18 December 2002)
The ordinance fixed a new maximum level of monthly rent and maintenance costs in respect of flats which had been subject to the controlled rent scheme under Ordinance no. 01/2002 on 14 November 2002.
VIII. Government Decree no. 567/2002 on price moratorium over rents (entered into force on 20 December 2002 and repealed on 21 March 2003)
The Government hereby ordered that rents which, on 17 December 2002, were fixed and unchangeable under binding regulations, and rents paid in respect of flats whose extension, finishing or reconstruction was approved after 30 June 1993 using public funds, could not be increased for a period of three months after the entry into force of this decree.
IX. Act no. 107/2006 on unilateral rent increases and amendments to the Civil Code (entered into force on 31 March 2006)
The first part of the Act provides for rent increases by landlords. It entitles landlords to increase rents annually without the consent of tenants within the limits laid down by the rent ceilings indicated in the amendment to the Act. This part of the law will cease to apply as of 31 December 2010.
Section 4 empowers the Ministry of Regional Development to set forth annually the basic prices per square metre of usable area of flats reflecting the average rates of the statistically assessed purchase price of real property. The Ministry is further entitled to classify urban areas according to the assessment of the value of property and the number of inhabitants. On the basis of the assembled data and of a coefficient reflecting the quality of a dwelling, the Ministry sets forth target monthly rents per square metre and, accordingly, ceilings for monthly rent increases.
The second part of the Act amends the relevant provisions of the Civil Code governing tenancies. The amendments concern, on the one hand, the possibility of unilaterally increasing the rent for flats where the rent used to be fixed and unchangeable under binding regulations and, on the other hand, the lease of flats where the rent is not regulated and the rent therefore depends on an agreement between the landlord and the tenant.
In practice, unilateral rent increases can be imposed by landlords between 31 March 2006 and 31 December 2010. If the landlord decides to raise the rent, he or she must inform the tenant in writing and give reasons for such an increase. He or she can raise the rent once a year, starting on 1 January 2007, but the increase cannot exceed the maximum amount laid down by the law. The tenant is obliged to pay the higher rent from the day given in the notice of increase, but no sooner than the first day of the calendar month three months after notification of the increase.
X. Notice no. 333/2006 of the Ministry of Regional Development (entered into force on 30 June 2006)
The notice indicated, inter alia, basic prices of flats per square metre, target monthly rents per square metre, maximum monthly rent increases and guidelines for setting the maximum increase in rent for a particular flat.
D. The Constitutional Court’s case-law concerning the constitutionality of the rent-control legislation
Judgment no. Pl. ÚS 3/2000 of 21 June 2000 (published in the Official Gazette under the number 231/2000)
Ruling on a constitutional appeal lodged by fourteen Senators, the Constitutional Court found Ministry of Finance Decree no. 176/1993 to be contrary to Article 1 of Protocol No. 1 and Article 11 § 1 of the Charter. It held, inter alia:
“The major challenges faced and the substantive restrictions on property rights adopted from 1950 to 1980 made it necessary to put an end to discrimination against certain classes of owners so as to restore their right to the peaceful enjoyment of their possession within the meaning of Article 1 of Protocol No.1 and Article 11 § 1 of the [Charter]. The essence of the discrimination lies in the fact that, in contrast with other owners, some of the substantive aspects of their property rights are denied to the aforementioned owners and, further, ....in the fact that in many cases, where their only income is derived from rent, those owners are being obliged to subsidise what in the Constitutional Court’s view is a major social problem, ... that is, a burden which cannot be shouldered by a certain section of society but requires a reasonable and balanced solution by the State and society as a whole. ...
In other words...as a result of existing legislation, certain groups in our society are bearing costs which...should be covered by the State. The rent-ceiling scheme, if it is to be compatible with the Constitution, must not keep rents at a level which eliminates any possibility of an economic return on all the established and necessary costs. [Otherwise]... it would imply the denial of all the principles of ownership.
The decree was repealed on December 2001 in order to provide the legislature with time to legislate on the subject anew.
Judgment no. Pl. ÚS 8/02 of 20 November 2002 (published in the Official Gazette on 18 December 2002 under the number 528/2002)
The Constitutional Court, ruling on two constitutional appeals from the Ombudsman and a group of Senators, repealed Ministry of Finance Ordinance no. 06/2002, finding that the Ministry had not been empowered to regulate rents of dwellings by means of that form of secondary legislation and, moreover, that the ordinances violated Article 1 of Protocol No. 1, Article 2 § 2 of the Charter and Articles 1, 2 § 3 and 15 of the Constitution read in conjunction with Articles 1, 4 §§ 3 and 4 and 11 § 1 of the Charter, as the rent ceilings which they introduced froze the rent-control scheme in force before 1 January 2002.
As regards the procedure used for the adoption of the ordinances, the Constitutional Court noted that the Ministry, in issuing the ordinances, had relied on Act no. 265/1991 on the powers of the authorities of the Czech Republic in relation to prices and Act no. 526/1990 on prices. Whilst these legal acts empowered certain State authorities to adopt measures regulating the prices of goods defined therein, they did not entitle them to regulate the conduct of those subject to the legislation in any other manner.
The court found that the Ministry had acted beyond and contrary to these laws when imposing its regulations across the board on landlords and tenants within the meaning of the Civil Code and in regulating certain aspects of their conduct in a manner which was reserved only for statutory regulations in accordance with the Charter, and which infringed the principle of contractual autonomy of private parties.
Moreover, the court ruled that the impugned ordinances lacked proportionality and discriminated against a certain class of owners. In its reasoning it stated, inter alia, that a rent-control scheme could generally be said to be in conformity with constitutional law if it reflected market prices based on the location of dwellings and if it struck a fair balance between the public interest and the fundamental rights of individuals.
Relying on differences between Czech law and the European standards, the Constitutional Court further held that, although the legal concept of personal use of dwellings had been replaced by the concept of a lease within the meaning of the Civil Code, effective reform of the lease-control scheme to reflect the free-market economy had not yet been introduced. With regard to the rent-control scheme, it observed that it was based on so-called command prices which were fixed administratively, whereas in other European countries controlled rents were related to market prices.
According to the Constitutional Court, the ordinances of the Ministry of Finance, which reflected only the trend in costs and inflation, had ignored the trend in prices on the market and had not taken advantage of the allocation and information effect of market prices.
Judgment no. Pl. ÚS 2/03 of 19 March 2003 (published in the Official Gazette on 20 March 2003 under the number 84/2003)
Ruling on a constitutional appeal by twenty-five Senators, the Constitutional Court repealed Government Decree no. 567/2002, finding in particular:
“... in general, it can be said that the object [of the regulation] is to ‘freeze’ rents for a definite period of time. The regulation does not apply to all rents but only to those which were subject to rent ceilings on 17 December 2002, that is, rents within the meaning of Section 1 of Ordinance no. 06/2002, repealed on 18 December 2002 by Constitutional Court judgment no. 528/2002, and to those paid for dwellings with regulated rent ... On the basis of these findings, it can be observed that this moratorium represents continuity with Ordinance no. 06/2002 and that the objectives of both regulations are basically identical. ...
It should be presumed that unilateral rent increases ceased to be permissible after the repeal of Ordinance no. 06/2002 ... and that rent increases would only have been possible on the basis of mutual consent by both parties. This is, however, rather a theoretical possibility, owing not only to the limited time available to negotiate such a lease contract but also – and most importantly – to the obvious economic disadvantage of such an arrangement for tenants. It follows that the impugned regulation effectively freezes in time the rent-control scheme which was declared unconstitutional by Constitutional Court judgment no. 528/2002 on the ground of the rent ceilings it imposed and the method of their calculation.”
Having regard to the identical objectives and subject matter of the moratorium and of the legislation providing for the rent-control scheme, which had been repealed by the Constitutional Court in the past on grounds of unconstitutionality, and given that the Government had regulated rents again by means of secondary legislation lacking an adequate statutory basis notwithstanding the fact that the Constitutional Court had found this legislative technique to be illegal, the latter ruled that Government Decree no. 567/2002 was in breach of the Constitution, the Charter and Article 1 of Protocol No. 1 taken in conjunction with Article 14 of the Convention.
E. The Constitutional Court’s judgments in individual cases
Judgment no. IV. ÚS 524/03 of 23 September 2004
The Constitutional Court found that Czech rent law was based on a high level of protection for tenants, prompted in particular by social considerations, as housing served a basic human need. However, it was unacceptable simply to transfer a social burden from one group of persons (tenants) to another one (landlords). In the current housing market, landlords did not have any legal means of obtaining a rent-controlled flat as substitute housing for a tenant whose tenancy was being terminated.
Moreover, the fact that there was no rent-control law leading to rent deregulation must not work to the detriment of landlords. The distortion of the market in consequence of the long-term failure to solve the problem of rent-controlled flats must not be perpetuated by the national courts’ case-law. It was not permissible to create inequality between tenants of rent-controlled flats and those renting flats not subject to rent control, or between landlords who owned flats with controlled rents and those who owned flats not subject to controls.
Judgment no IV. ÚS 611/05 of 8 February 2006
As no statute providing for controlled rents had been adopted after Constitutional Court judgment no. 84/2003 and the ordinary courts had failed to provide landlords with any remedy in respect of controlled rents, the Constitutional Court, with reference to the case-law of the Court (Kruslin v. France, judgment of 24 April 1990, Series A no. 176‑A) and to the principle of non-interference with property rights other than on a statutory basis, reiterated its intention to apply the principles enshrined in its previous judgments in individual cases until the existing vacuum legis was filled. It held:
“... it is incumbent upon the courts to fill the vacuum legis by their case-law... while taking into consideration the Constitutional Court’s case-law...”
The court further found:
“The interpretation [by the ordinary courts] of the Constitutional Court’s case-law ... in such a way as to deny the protection of property rights of landlords cannot be accepted. The objective of this case-law was not to freeze and set in stone the unconstitutional interference with property rights, but to eliminate unconstitutional restrictions on landlords’ property rights. The distortion of the market caused by the long-lasting lack of a solution to the problem of dwellings subject to the rent-control scheme cannot be perpetuated by the courts’ practice. Pending action by the legislature it is incumbent upon the ordinary courts to safeguard the rights ... of individuals. ... The courts cannot refuse to protect individuals’ fundamental rights by referring to the vacuum legis. On the contrary, they are obliged to provide such protection. They are requested to do so in a way that will protect the very substance and objective of ownership within the meaning of Article 4 § 4 of the Charter.”
The Constitutional Court then quashed the judgments of the Pardubice District Court of 7 October 2004 and Hradec Králové Regional Court of 16 June 2005 dismissing an action by one J.K. seeking an order for his tenant to pay outstanding rent.
Judgments nos. Pl. ÚS 20/05 of 28 February 2006 (published in the Official Gazette under the number 252/2006); I. ÚS 717/05 of 21 March 2006; IV. ÚS 111/06 of 16 May 2006; II. ÚS 93/05 of 8 June 2006; I. ÚS 47/05 of 13 July 2006
In these judgments, the Constitutional Court reiterated the principles articulated in its previous judgment. Finding that these principles had not been respected by the national courts, it quashed their decisions adopted in individual proceedings initiated by landlords who had requested the courts to (i) order a tenant to pay a rent common in the given locality (místně obvyklé nájemné), (ii) declare null and void an occupational lease based on a certain rent and order the tenant to pay a newly fixed rent, (iii) order a tenant to pay the difference between a controlled rent and a rent common in the given locality, (iv) order a tenant to pay a market rent.
Judgment no. I. ÚS 489/05 of 6 April 2006
The Constitutional Court stated that when deciding on increase in rent, the general courts are empowered to act pro futuro. The court further held that if the landlord’s reasonable claims are not fully satisfied, he will have no choice but to sue the State for damages in civil proceedings.
F. The Supreme Court’s judgments in individual cases
Judgments nos. 26 Cdo 867/2004 of 31 August 2005; 26 Cdo 80/2005 of 15 September 2005; 26 Cdo 1674/2005 of 19 October 2005; Cdo 819/2005 of 22 September 2005; 26 Cdo 1912/2005 of 26 October 2005 and 26 Cdo 983/2005 of 27 January 2006
In these judgments the Supreme Court held that the Civil Code (and any other statute) did not allow a court to intervene with the contractual tenancy and to modify one of its components inclusive the rent, and that this entitlement was confined to the legislative and executive powers which courts could not intervene in or substitute for.
Judgments nos. 26 Cdo 32/2006 of 7 July 2006; 26 Cdo 1013/2005 of 30 August 2006; 26 Cdo 1213/2006 of 20 September 2006; 26 Cdo 2106/2006 of 24 October 2006
In these judgments, the Supreme Court applied the binding opinion of the Constitutional Court expressed its judgment no. Pl. 20/2005 and held that if there is no agreement on an amendment to the occupational lease and there is no special law allowing the unilateral increase in rent as provided for in Article 696 § 1 of the Civil Code, general courts were empowered to intervene in the rent relationship and to increase (fix) the rent.
Judgments nos. 26 Cdo 594/2005 of 16 August 2006; 26 Cdo 1924/2006 of 10 October 2006
In these judgments the Supreme Court held, with reference to the aforesaid judgments of the Constitutional Court, that the rent could be increase only pro futuro.
G. The case-law of the ordinary courts
Landlords sought remedies before the ordinary courts by instigating civil proceedings against tenants through the actions mentioned above, but also through actions for damages, actions seeking amendments to lease agreements increasing rents or actions seeking termination of leases. Moreover, certain landlords directed their actions against the State, represented by the Ministry of Finance, claiming damages under the State Liability Act.
However, these actions had failed.
In a judgment of 23 January 2007 (no. 23 Co 289/2006-171) the Hradec Králové Regional Court discontinued the proceedings on a landlord’s action against tenants seeking to increase their rents in order to submit the question of constitutionality of the first part of Act no. 107/2006 to the Constitutional Court. The case was registered under no. Pl. ÚS 7/2007.
COMPLAINTS
The applicants complained that, at least since the judgment of the Constitutional Court published in the Official Gazette under the number 231/2000, there had been an unlawful situation in the rent-control sphere. As a consequence, landlords of tenement houses had to pay off the maintenance of the houses and flats, because controlled rents did not correspond to reconstruction value of the dwellings (náklady prosté reprodukce). In fact, landlords involuntarily paid off social allowances normally assumed by the State. They noted that there was a systemic problem caused by the malfunctioning of the Czech legislature and the failure of the Czech executive authorities and the Parliament to deal with the matter.
Under Article 1 of Protocol No. 1 alone and together with Article 14 of the Convention, and with reference to Constitutional Court judgment no. 84/2003, the applicants argued that the rent-control scheme was not based on the financial situation and earnings of tenants and was, therefore, highly damaging to society, having a negative impact on a significant part of the population.
Under Article 1 of Protocol No. 1 taken together with Article 13 of the Convention, the applicants maintained that the domestic court system constituted a wholly inefficient instrument for defending landlords’ constitutional rights and rights guaranteed by the Convention. In fact, the courts systematically refused to offer protection to landlords. They added that even if the domestic courts and the Constitutional Court were able to deal with the large number of individual cases, lengthy judicial proceedings would render that remedy ineffective. Moreover, the Czech judicial system did not provide for a collective constitutional appeal.
QUESTIONS TO THE PARTIES
I. As to the “pilot-judgment” procedure and the existence of a “systemic situation”:
1. Do the facts of the present applications disclose the existence of a “systemic situation” where the deficiencies in the national law and practice complained of may give rise to numerous similar applications?
In this respect, the Court notes that 59 applications concerning the rent-control scheme have been introduced before it so far, involving some 4,800 applicants.
Are the present cases suitable for the “pilot-judgment” procedure?
In their replies to the two above questions, the parties are invited to submit their comments also in the light of the Court’s case-law, in particular the judgments in the cases of Broniowski v. Poland [GC], 31443/96, §§ 189 et seq., ECHR 2004-V, and Hutten-Czapska v. Poland [GC] no. 35014/97, ECHR 2006-... §§ 231 et seq.).
II. As to the admissibility of the applications
2. What domestic remedies – if any – within the meaning of Article 35 § 1 of the Convention should the applicants have exhausted in order to comply with the requirements of that provision?
Have the applicants exhausted such remedies?
Is the situation of which the applicants complain a “continuing” one for the purposes of Article 35 § 1 of the Convention?
III. As to the alleged violation of Article 1 of Protocol No. 1
3. Has there been an interference with the applicants’ peaceful enjoyment of their possessions within the meaning of Article 1 of Protocol No. 1 on account of the operation of the laws imposing rent control and restricting other rights of landlords in respect of leases?
4. If so, was that interference necessary to control the use of property in accordance with the general interest? If so, was the interference lawful within the meaning of Article 1 of Protocol No. 1?
5. Were the measures designed to control increases in rent and termination of leases, as applicable in the present cases in the “public interest” within the meaning of Article 1 of Protocol No. 1? If so, what was the specific public interest warranting the measures applied by the Czech authorities?
6. Have the Czech authorities maintained a fair balance between the demands of the general interest and the requirements of the applicants’ right to “the peaceful enjoyment” of their possessions under Article 1 of Protocol No. 1 (Hutten-Czapska v. Poland, §§ 167-168)?
In particular, the parties are requested to refer to the following:
(a) the operation of the relevant laws between 18 March 1992 and 30 March 2006;
(b) the operation of Act no. 107/2006 between 31 March 2006 and the present day.
7. The Government are requested to specify, with regard to the present case, the ratio between the annual incomes of the tenants and the rents which they are requested to pay.
IV. As to the alleged violation of Article 13 of the Convention
8. Did the applicants have at their disposal an effective domestic remedy as required by Article 13 of the Convention in respect of their complaints raised under Article 1 of Protocol No. 1?
V. As to the alleged violation of Article 14 of the Convention
9. Have the applicants suffered discrimination in the enjoyment of their property rights, contrary to Article 14 of the Convention read in conjunction with Article 1 of Protocol No. 1, in comparison with landlords owning houses or/and flats to which the rent-control legislation does not apply?
[1] A comparison is made with the regular market rent.
[2] A comparison is made with the regular market rent.
Full & Egal Universal Law Academy