The legal institute of ‘emphyteusis’, once very popular throughout the continent, has nowadays fallen into disuse in many jurisdictions throughout the world. The same cannot be said for Malta where emphyteusis - although its popularity has certainly diminished over the years - is still a common feature of the local property market.
Emphyteusis is a contract whereby one of the contracting parties grants to the other, in perpetuity or for a time, a tenement for a stated yearly rent or ground-rent which the latter binds himself to pay to the former, either in money or in kind, as an acknowledgement of the tenure.[1]
The rights and obligations of the parties
A title of emphyteusis is the strongest title which a person who is the not the owner of a property can have on that same property. In fact, the emphyteuta is allowed rights which normally one would associate with absolute ownership e.g. the emphyteuta may alter the surface of the property, provided he does not thereby cause any deterioration thereof. Obviously, the parties to a deed of emphyteusis can always agree otherwise in order to safeguard their rights. Naturally, being a ‘quasi-owner’ the emphyteuta is bound to carry out any obligation imposed by law on the owners of buildings or lands.
The emphyteuta is also entitled to any profit which the property may yield, and thus he may rent the property out to third parties and enjoy the rent accordingly. More significantly, he is also allowed to dispose of the property which he holds under emphyteusis, and this without requiring the consent of the bare owner, or even notwithstanding his opposition. In order to strike a balance between the rights and obligations of the parties, the old emphyteuta is not freed from his obligations (e.g. to pay rent and to keep the property in order) unless the new emphyteuta is acknowledged by the owner.
It is quite a common practice for owners to require the payment of a laudemium in the case that the property is alienated by the emphyteuta to a third party. In this manner, the bare owner can continue to derive an advantage from the property he owns. In order for such right to be exercised, provision for the same needs to have been made in the emphyteutical grant, and the emphyteusis needs to be for a period exceeding twenty years. Under Maltese law, laudemium is capped at a maximum of the equivalent of one year’s groundrent, something that cannot be derogated from, not even if there is the consent of both parties to the transaction.
Redemption of groundrent
The law expressly states that where a grant in emphyteusis is made in perpetuity, the emphyteuta is allowed to redeem the groundrent, thus becoming the full owner of the property in question. The law also lays down the method and other practicalities through which such redemption can be brought about. In those cases where the contract of emphyteusis was entered into before the 15th August 1981, and that contract regulated the method in which redemption may be brought about, then that contract is afforded priority over the method laid down in the law.
Redemption of the ground-rent is made by the payment of a sum equivalent to the amount of the ground-rent capitalised at the rate of five per cent. This means that the annual groundrent is multiplied by twenty – the figure obtained is the amount that needs to be paid by the emphyteuta to the bare owner in order for the redemption to be effected.
There are certain instances whereby the law regulates the timings as to when redemption can be brought about. This happens where the contract of emphyteusis provides that the ground-rent may be revised at a specified time or on the happening of a specified condition. In such case, the redemption may be opted for by the emphyteuta within the first year of the date of any such revision, or the happening of such condition and the sum payable for the redemption of the ground-rent will be equivalent to the amount of ground-rent so revised, capitalised at the average rate of interests payable by a commercial bank on deposits of a fixed nature at the time of the redemption.
Obviously, it is not uncommon for a property to have more than one bare owner, and the law allows the emphyteuta the flexibility to redeem from one or more of them separately. Moreover, where the property is held in sub-emphyteusis in perpetuity, the sub-emphyteuta is entitled to redeem the original ground-rent and the increase in ground-rent.
The legislator went to such an extent in protecting the right of the emphyteuta to redeem the emphyteusis that it has prescribed that any clause in any agreement whereby the emphyteuta is deprived of the right of redeeming the ground-rent conferred by the law, is to be considered as if it has not been included in such agreement.
In general, the redemption of a groundrent can be done in two ways:
1. Through a public deed whereby the bare owner and the emphyteuta meet before a notary public and sign the relative deed of redemption;
2. Through a schedule of redemption filed in Court.
When filing a schedule of redemption, the emphyteuta must pay the official court fees (which cannot be recuperated from the bare owner) as well as the sum due for the redemption calculated as per the above description. He must also attach a plan in order to clearly identify the property whose groundrent is being redeemed.
Conclusion
Although the process of acquiring or disposing of property subject to emphyteusis is fairly straightforward it is however advised that you appoint legal representatives who will be able to guide you throughout the process, given the challenges that certain situations might give rise to. The same applies to the procurement of advice in relation to redemption procedures.
[1] Article 1494 – Civil Code, CAP. 16 of the Laws of Malta.
