In Monaco, the rent-controlled sector includes most flats located in "old" buildings built or completed before September 1st, 1947 and subject since the post-war period to regulations intended to protect tenants' rights: law no. 1235 of December 28th, 2000, amended by law no.1291 of December 21st, 2004.
This text has a social vocation, intended to enable Monegasques as well as “Children of the Country” to find accommodation in the Principality. In particular, it requires the owners concerned to declare their property vacant and to offer it for rent. The tenant’s choice is organised in favour of these protected persons in the order of priority set by the law. The amount of rent as well as the conditions for renewing the lease and the exercise of the owner's right of repossession are also regulated by the law. Tenants benefit from much lower prices than if they were renting housing in the non-regulated sector.
Despite the restrictions imposed by this law on the exercise of the right of ownership, owners do not receive any compensation in return (with the exception of owners of property purchased before 2004, with a maximum of 300 sqm cumulative surface area and in a good state of repair, who may be entitled to a compensatory allowance paid by the Monegasque State in accordance of Law no. 1.507 of July 5th, 2021, providing that they allocate their property to renting, as well as all of their other property subject to the law).
However, Article 24 of the Monegasque Constitution states that "property is inviolable. No one may be deprived of his or her property except in the legally established public interest and in return for fair compensation, established and paid under the conditions laid down by law".
According to an IMSEE study published in 2013, it appears that 2,500 old flats are part of this sector but, by its nature, this housing stock is decreasing over time and through property developments.
This is why, in order to restrain the programmed disappearance of this rent-controlled sector and to enable "protected persons" to keep living in Monaco, Law no. 1235 was once again amended by Law no. 1.508 of August 2nd, 2021 relating to the safeguarding and reconstruction of premises for residential use subject to the provisions of Law no. 1.235 of December 28th, 2000, relating to the rental conditions of certain premises for residential use built or completed before September 1st, 1947, as amended.
This law redefines the persons protected under Law no. 1.235, and gives the possibility to the tenant to partially assign a dwelling, subject to this same law, to the exercise of a commercial activity and creates two systems of rehousing of the evicted tenant, one at the expense of the State in the presence of integral demolition works, the other at the expense of the owner in the presence of works other than those of integral demolition.
Its objectives were also to ensure the transformation and renewal of the rent-controlled sector to enable the people concerned to live in more comfortable buildings, as well as to free the landlord from the constraints inherent in Law No. 1.235, by making the State play the social role; the challenge of this law being to reconcile social and economic interests.
However, the provisions which constituted the very essence of this law and made it possible to achieve the objectives specified above were annulled on July 12th, 2022 by decision of the Supreme Court of Monaco, at the request of Monegasque property owners and the Monaco Property Owners Association.
What did the law provide for?
Article 8, which would have been the new Article 39-1 of Law no. 1.235, determined authorisations to demolish and rebuild one or more residential premises subject to the provisions of Law no. 1.235, without prejudice to compliance with the legislative and regulatory requirements relating to town urban planning, construction and public highway.
Thus, the construction project had to provide for the construction of dwellings to replace those subject to the the law that would have been destroyed, either in the same building or in several buildings.
A specific floor had to be allocated to the replacement dwellings in the reconstructed building. And, if the interior surface area of the dwellings on this specific floor was less than the interior surface area of the dwellings subject to Law No. 1235 that would have been destroyed, the construction project had to provide for the allocation of a second specific floor. The specific floors were exclusively made of substitute premises. The law itself precisely determined the location of the special floors within the building. The first special floor had to be located on the middle floor of the building. In addition, a car parking space and a cellar had to be attached to each alternative dwelling.
Article 8 then required the transfer to the State, upon completion of the work, of the substitute dwellings as well as the ancillary premises and outbuildings that were to be attached to each substitute dwellings. The terms and price of the transfer of all these premises and their outbuildings were determined by the joint agreement of the owner and the Minister of State, the law specifying, however, that the price was calculated on the basis of the cost of construction, the elements of which would have been determined by ministerial order.
Furthermore, this Article 8 allowed that, at the request of the owner and with the agreement of the State, the construction project did not provide for the construction of substitute dwellings within the reconstructed building. In this case, the owner had to proceed, at the State's discretion:
- or, in compensation, to the donation of existing premises, built and completed after September 1st, 1947, not governed by Law no. 1235, and having equivalent surface areas and qualities to the replacement premises that would have had to be built within the floor or floors subject to the aforementioned specific allocation (criteria and methods of assessing equivalence set by ministerial order),
- or to the allocation, within a building subject to another application for authorisation to demolish and build filed at the same time, of one or two specific floors.
The compensation granted in return for the replacement or compensation premises transferred to the State was of two kinds:
- granting by right by the State, in return for the specific allocation or dation, of an increase in the buildable volume, the extent of which varies according to whether or not the construction of a single floor is sufficient to allow the restitution of all the interior surfaces of the premises depending of the rent-controlled sector that will be destroyed;
- payment by the State, following negotiation with the owner, of a price for the transfer of the compensation premises, as well as the replacement premises and their accessories and dependencies (car parking spaces and cellars), calculated on the basis of the cost of the construction.
Finally, Article 8 provided that its provisions were not applicable to applications for demolition and building permission for which the increase in the buildable volume could not be granted because of technical or legal impossibility. In particular, its provisions did not apply, on the one hand, to "remarkable" buildings within the meaning of the urban town planning regulations and to those located in the reserved area.
Some of the provisions of Law no. 1.508 were intended to make developers, in addition to their real estate operations, to build as much space in the rent-controlled sector as was destroyed and sold to the State at the price of the construction. This law was based on a financially equitable principle since, in return, the developers would have benefited from additional areas granted by derogation, located on higher floors and therefore better valued. But this was without taking into account the infringement of the right of ownership...
The Supreme Court's decision
The Supreme Court annulled Article 1 and Article 8 of Law no. 1.508 (conditioning the granting of demolition and reconstruction permits when residential dwellings in the rent-controlled sector are subject to complete demolition) on the grounds of excessive infringement of the right to property. It also partially repealed Articles 3 and 10, related to Article 8.
Before explaining its reasons, it should be specified that the three other parts of the law are not called into question (redefinition of protected persons, possibility for the tenant to partially allocate residential premises, subject to Law no. 1.235, to the carry out a commercial activity, systems for the rehousing of the evicted tenant, one at the expense of the State, the other at the expense of the landlord, depending on whether or not the building is demolished in its entirety) and are therefore applicable.
The judges considered that the legislator's choice to extend the benefit of the rent-controlled sector to the “Children of the Country” was not contrary to the Constitution, as the rent-controlled sector found its legitimacy because of the constitutional requirements resulting from the particular geographical features of the Principality's territory and the priority granted by the Constitution to Monegasques.
The Supreme Court accepted that the legislator was pursuing public interest objectives in seeking to prevent the gradual disappearance of the premises governed by the Law of 28 December 2000 as a result of property developments, as described above, allowing Monegasques and Enfants du Pays to live in Monaco as long as necessary.
The Court also recognised that the granting of an increase in buildable volume allows the owner to benefit from an additional surface area identical to that transferred, which will not be subject to the provisions of Law no. 1.235. The market value and the rental value are thus higher than those of the destroyed premises and of the transferred premises which are subject to the regime provided for by the law of December 28th, 2000, especially as they are necessarily higher floors.
It should therefore be considered that this transfer represented reasonable compensation for the owner.
But it was in examining the financial consequences of the planned mechanism that it found Article 8 to be an excessive infringement of property rights, for five reasons:
- the owners must transfer to the State the ancillary premises and outbuildings (car parking space and cellar) attached to each substitute residential premises. Even if this transfer is made in return for payment, the law does not provide for compensation in terms of volume for these premises and outbuildings, which calls into question the availability of part of these assets for the owner(s) of the building;
- by making the demolition and reconstruction of buildings that include residential premises governed by Law no. 1.325 conditional on compliance with its provisions, this entails, in the case of condominiums, the restriction of the exercise of the right of ownership not only of the owners of residential premises governed by the said Law, but also of the owners of residential premises that are not governed by this Law;
- there is no guarantee that the location of the specific floors and the increase of the building volume will not have a negative impact on the situation and the market value of the flats of the owners of residential premises not covered by Law no.1.235;
- the right to demolish and rebuild one's property is conditional, for the owner(s) concerned, on the obligation to enter into co-ownership with the State for an indefinite period of time, which, according to the judges, is an excessive infringement of the right of ownership;
- the Court held that the State and the National Council could achieve the objectives they intended to pursue in the field of housing by other means that were more respectful of the free exercise of the right to property, protected by the Monegasque Constitution.
When making its decisions, the Supreme Court ensures that the infringements of property rights are proportionate and do not require excessive sacrifices on the part of the owners in relation to the general interest sought. In its decision of July 12th, 2022, the Supreme Court did not consider that Law no. 1.508 of August 2nd, 2021 respected the balance between the general interest and the respect of the constitutional freedoms of individuals, in this case that of the owners.
As a result of this decision, a new law is expected to be stated in the National Council to further preserve housing in the rent-controlled sector.
Because the rental market in the rent-controlled sector is specific and highly regulated, Valeri Agency offers its experience and knowledge at your service to help you in your search for a property known as "under law", or to help you manage it if you own it.