Lease-holders now on shaky ground

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UPDATED: As many as 350,000 Norwegians suddenly face much higher property costs, after a ruling this week by the European Court of Human Rights in Strasbourg. It resulted in a resounding victory for Norwegian landowners, who now can change the terms of long-term land-lease contracts when they come up for renewal. Norwegian officials seem poised to appeal, but their chances of prevailing are slim.

The decision is a legal slap in the face to Norwegian lawmakers, the Justice Ministry and even Norway’s Supreme Court. All, with the exception of the conservative Progress Party (Fremskrittspartiet, Frp) at the time, had favoured the lease-holders over the landowners through a law approved by the Norwegian Parliament in 1996, amended in 2004 and upheld by the Norwegian Supreme Court in 2007. Now Frp’s view has essentially been upheld by the European court.

Justice Minister Grete Faremo tried to downplay the effects of the European court ruling, saying it doesn’t mean the right to get long-term lease contracts extended is illegal in itself. Only the right to extend contracts under the same terms was ruled illegal. That means the government not only may appeal, but also will evaluate new “mechanisms” for contract extension that could serve the interests of both landowners and their tenants.

Law linked leases to inflation
The Norwegian law demanded that landowners offer the same terms upon extension of long-term land lease contracts, even when the contracts finally expired, often after as long as 80 to 100 years. That meant that landowners could only raise annual lease rates by the ongoing rate of inflation, just as they had during regular intervals during the course of the contract.

The idea was to protect the thousands of owners of Norwegian homes and holiday homes (hytter) that were built or bought on leased land. As contracts signed over the last century came due, fears rose that they’d suddenly face increases in the lease rate so high that they’d be forced to move. The marketability of the permanent structures they’d built on the leased land could also fall dramatically.

Landowners, however, felt the restrictions inherent in the amended law from 2004 were unfair. Since property values have risen much higher than the overall inflation rate in Norway, the amended law prevented landowners from realizing current market value for their property. Six owners of leased plots of land around the country sued the state. After losing their case in the Norwegian court system, they appealed to the European Court of Human Rights, which now has handed them a victory.

‘Breached property rights’
The court, consisting of a panel of seven judges from all over Europe including one judge from Norway, found that the Norwegian law preventing landowners from changing the terms of long-term contracts and raising rents “breached their property rights.” In the case entitled Lindheim and Others vs Norway, the court unanimously held that the Norwegian law from 2004 “placed a disproportionate financial burden” on landowners. The Norwegian authorities, according to the court, “had not struck a fair balance between the various interests involved.”

Berit Mogan Lindheim and her fellow plaintiffs, all of whom had leased plots of land “at various points in time” for permanent or holiday homes for periods between 40 and 99 years, were jubilant, as are other owners leasing out what are called festet lots in Norway. Those with homes and hytter on festet (leased) land are anything but, and now fear their annual lease rates will rise dramatically.

Many, however, have been enjoying lease rates far below current market values, in some cases just a few thousand kroner (equivalent to a few hundred US dollars) a year. Some admit they’ve had a good deal for a long time, while others don’t think landowners will gouge their leaseholders. Many are neighbours, and it’s in all their interests to remain on good terms.

The European court ruling can be appealed, but only to the court’s own “Grand Chamber” during the next three months, where the chances for any major changes are considered small. A panel of five judges must also first consider whether the case “deserves further examination.” If they do, their ultimate ruling will be deemed final immediately and the Norwegian law effectively struck down.

Views and News from Norway/Nina Berglund

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