Rent disputes to tie up courts

The government's efforts to balance the rights of landlords and tenants could create a crisis in the judicial system as the responsibility to decide fair rents is placed on the courts.

"We are expecting thousands of claims for rent determination," Zdeněk Havelka, CEO of Czech Property Investments Group (CPI), told The Prague Post Nov. 19. "The actual act, as well as the amendment to the Civil Code, states that when there is no agreement between an owner and a renter about the new [deregulated] rent, the final decision lies with the court."

CPI's grim forecast for courtroom showdowns is expected in regional markets, where regulated rents will end Jan. 1, 2011, for most of the country. Prague and several large central Bohemian cities will have until 2013 to bring rents to market rates. CPI owns more than 13,000 apartments in 10 other cities beside Prague. In Prague, only six of CPI's apartments are rented at market rates; the remaining 929 apartments are regulated at 90 Kč ($5) per square meter.

CPI spokeswoman Michaela Winterová admitted the numbers seemed odd and said that was specific to Prague. Nevertheless, regulated apartments comprise the bulk of CPI's portfolio. Of 4,400 apartments in Třinec, a city in the Moravian-Silesian region, 3,000 are regulated. In places like these, where regulated rents range from 25 to 46 Kč per square meter, Jan. 1 will bring an upheaval as tenants and their landlords must renegotiate rents.

The deregulatory process has been implemented over the past four years and, for the regions, will be finalized Jan. 1, when all apartments are subject to market rates.

Part of the problem is a lag on the government's part. The Regional Development Ministry wants to create comprehensive maps that would lay out market rents by region, and it announced it would hold a tender early next year to begin the project, well after regulation ends in most of the country.

Once the map exists, "we would only [welcome] it," said Winterová. CPI depends on its own current market rates and outside real estate agencies to determine rates, as well as existing maps that are public on the Institute for Regional Information's website.

Real estate companies, tenants and landlord associations are all in favor of the extra help, but all agree the state should have stepped in to create a mechanism for setting rates years ago, prior to deregulation. Absent that, the courts must settle disagreements.

"We believe a law determining local rents should have been adopted years ago," said Milan Taraba, chairman of the Czech Union of Tenants (SON). "A similar law exists in Germany that significantly reduces lawsuits and conflicts in relations between tenants and landlords, while maintaining appropriate contractual freedom."

The Czech Republic has struggled to deregulate rents and bring apartments to market rates. For the past 20 years, tenants have been able to hold on to much cheaper regulated rents through laws that allow renters to pass on the right to lower rents to kin or even roommates. Renters were not even required to notify landlords of these additional roommates or tenants.

Landlords were left with little recourse to profit from their properties and were blocked from inhabiting the property themselves, said Tomislav Šimeček, chairman of the Civic Association of Homeowners (OSMD). The restrictions were to the degree that about 5,000 Czech homeowners filed a lawsuit in 2005 with the European Court of Human Rights in Strasbourg alleging the regulation was in violation of their human rights.

OSMD is for the most part happy with the Civil Code act to end deregulation, but they're similarly concerned about how renegotiations will play out after the new year. Beyond the added strain on the court system, Šimeček believes the solution could mean tenants will be able to extend the lower rent through inevitable delays.

"In this case, tenants could postpone it by taking it to court so they can continue to pay regulated rent. Altogether, 400,000 households are expected to be affected. It could really cause a complete collapse of the judicial system," he said.

His association believes a better compromise would be the option to terminate the lease if neither party can agree on a rent. Should the landlord decide to terminate the lease, the tenant will still have two years to find a new dwelling. In this way, both parties have the incentive to avoid the courts and agree on a common price, Šimeček said.

"A landlord doesn't want to get rid of a tenant if they're paying normal rent, and a tenant is usually not willing to sleep under the bridge, so it's only a question of making an agreement. That way, justice will not be completely destroyed by thousands or tens of thousands of court cases," he added.

The tenants' association, on the other hand, finds more wrong with the act than the problem of the courts, Taraba said. One of the biggest issues he pointed to was the failure of deregulation to consider any investments tenants may have made into their apartments.

"When you compare the Civil Code with similar regulations in Austria or Germany, you see that the proposed solution imposes a threat to the right of tenants that are often on the edge of human rights," he said. "For example, seeking approval to take into your home your relatives and the uncertainty of the courts' decisions."

The government itself has publicly pointed to the court system as a way for tenants to defend themselves against the threat of predatory landlords after deregulation.

"Tenants should not be intimidated by any aggressive bargaining by owners. If they feel that an injustice is happening to them, or that owners are exerting undue pressure, the law gives tenants a way to defend themselves, including litigation," Regional Development Minister Kamil Jankovský said in a press release Nov. 18.

The ministry release also suggested that tenants who can't cover market rents apply for housing allowances, provided by the Labor and Social Affairs Office.

Despite efforts to notify their own renters, CPI's Havelka said the lack of information, and even misinformation from other sources, has caused real concern.

"I'm convinced this process had to have started earlier," he said. "There's a great deal of confusion on the issue, because ... society had no idea about the extent of the problem and its consequences. People generally didn't know the differences between regulated and market rents [or] the agreed conditions of the regulated rents. The media had no deeper knowledge about the issue and repeated only a few phrases, and renters' associations benefited from the misinformation and spread it further."

Claire Compton can be reached at
ccompton@praguepost.com