The Karibu Foundation v. Norway (European Court of Human Rights)

Information Note on the Court’s case-law
November 2022

The Karibu Foundation v. Norway – 2317/20

Judgment 10.11.2022 [Section V]

Article 1 of Protocol No. 1
Article 1 para. 2 of Protocol No. 1
Control of the use of property

Inability of applicant organisation to increase ground lease rent for residents of apartments on its property to the desired level due to statutory “rent ceiling”: no violation

Facts – The applicant, an organisation operating as a foundation conducting international development work, inherited leased property in Oslo on which there was a large residential dwelling complex.

In response to the Court’s judgment in Lindheim and Others v. Norway, the Norwegian Parliament adopted amendments to the Ground Lease Act 1996 (as amended in 2004), which entered into force on 1 July 2015, giving lessors the right to require an adjustment of the annual rent.

The applicant sought to raise the ground lease rent for the residents of the apartments in the complex. The lessees opposed the claim. They referred to the “rent ceiling” in the fourth sentence of the fourth paragraph of section 15 of the above Act, by which rent could not be increased beyond a maximum of NOK 9,000 per decare of land, indexed since 2002 – an amount that their ground rents at the time had already surpassed – and argued that the case differed from that of Lindheim and Others.

Following an application by the applicant for an appraisal decision, the Oslo City Court, and later the High Court, decided in favour of the lessees. Its appeal to the Supreme Court was also dismissed.

Law – Article 1 of Protocol No. 1: The measures complained of constituted a lawful interference with the applicant’s property rights and had to be examined from the angle of the “control rule” in the second paragraph of Article 1 of Protocol No. 1. The issue thus addressed by the Court was the proportionality of the Supreme Court’s decision preventing the applicant organisation from increasing the rent. Two aspects were of general relevance to the proportionality analysis.

Firstly, the concrete assessment the Court had made in Lindheim and Others was not directly applicable, in so far as the present case concerned the application of legislation that had been introduced subsequently to that judgment. Furthermore, it was evident that the legislature had sought to implement fully the Court’s findings in Lindheim and Others and had thoroughly reviewed the Convention requirements in connection with the finalisation of the legislation. Moreover, the Convention requirements thereafter had undergone an extensive judicial review, not only in general but in the light of the applicant organisation’s specific circumstances, by three levels of domestic court.

Secondly, the common complexity of ground lease arrangements as well as the considerations of the domestic authorities to the effect that “normal market mechanisms” did not apply when such arrangements had been entered into, so the legislature had to focus on other policy choices, and that long-term perspectives also had to be borne in mind when enacting relevant legislation. The legislation applied to the applicant organisation’s case had been designed to provide for general regulation of the numerous contracts that existed with variations in the leased properties and the parties to the contracts, including how and when they had become parties to the contracts. In view of the very large number of ground lease contracts in Norway (approximately 170,000 relating to residential or holiday homes) the Court understood the need emphasised in the national legislative process for clear and foreseeable solutions and to avoid costly and time-consuming litigation on a massive scale before the national courts.

The above aspects allowed the Court to focus on the national parliamentary and judicial reviews of the Convention issues.

Before the Court, a key submission by the applicant organisation had been the alleged wealth of the lessees. In the circumstances of the case, however, it was not problematic that the individual situation of the parties, including the activities of the applicant organisation, had not played a more prominent role in the balancing of interests as carried out by the Supreme Court. The case had not been pleaded as relating to persons in any particular financial or social need, either on the lessor’s or the lessees’ side, and the Supreme Court had examined the conflicting interests of the parties to the lease contracts in a sufficiently individualised manner by way of its examination of what it had termed “the financial facts” of the case.

The Court observed that in the assessment of proportionality, the rent/plot value ratio had to be factored in as one of many elements and that the choice of the “raw plot value” as the relevant value for ground lease contracts had been a deliberate choice by the legislature in order to impose certain limitations on the upwards adjustment of ground rent according to the value of the undeveloped plot. What had been at issue in the instant case before the Supreme Court was a substantial building complex integrated in the environment where it had not been the lessees that had decided on the exploitation of the plots. Therefore, the principles of domestic law for finding the plot value relevant to ground rent adjustments had not contributed to or resulted in an unfair balance between the parties in the case before the Supreme Court.

Turning to the applicant organisation’s submission to the effect that the rent/plot value ratio had been particularly low, the decision in issue meant that the applicant organisation could continue to receive approximately 0.6% of the property value annually, as that value had been set by the domestic authorities in line with the relevant valuation principles in domestic law. The property considered by the Supreme Court in the present case had been one of high value – approximately EUR 11.3 million at the time- with a yearly rent of approximately EUR 68,100, and the factual circumstances relating to the various ground lease contracts at issue in Lindheim and Others had in any event been different. The Supreme Court had also emphasised that the lessor organisation would for its part benefitted from its ownership by enjoying what was an essentially risk-free, passive investment and that the issue of rent adjustment could be brought up again every thirty years. Therefore, the rent/plot value ratio as such did not form a decisive argument in favour of finding that there had been a violation of Article 1 of Protocol No. 1.

Viewing the case overall, the applicant organisation’s opportunities to financially exploit its property rights over the plot in question had been, the foregoing considerations notwithstanding, limited, given the restrictions that the legislation, specifically the “rent ceiling” provided for therein, imposed on its ability to increase the ground rent. However, emphasising the importance of the principles of subsidiarity and shared responsibility, the Court stated that the legislation that had entailed the restriction on the applicant organisation’s possibility to increase the ground rent concerned economic and social policy and had been a product of a particularly thorough legislative process which had aimed to find an appropriate balance between the interests of the parties to ground lease agreements; interests which had both been well represented in the legislative process.

Moreover, in the circumstances of the instant case, the Court attached considerable weight to the fact that the legislation applied in the applicant organisation’s case had been enacted after an exacting and pertinent review specifically of the requirements flowing from Article 1 of Protocol No. 1; that there had been a further review by the domestic courts at three levels in its case; and that the domestic legislation had given room for individual exceptions by way of the “safety valve” in the ninth paragraph of section 15 of the Ground Lease Act. The judicial review had included that carried out by the Supreme Court, which had meticulously examined all the relevant aspects of the case pertaining to Article 1 of Protocol No. 1. In that context, the Supreme Court had concluded that the general rule in the fourth paragraph of the above section fell to apply in the case and Convention considerations accordingly did not require application of the “safety valve” in the ninth paragraph.

Furthermore, the Supreme Court had been faced with competing financial interests between the parties to the case before it, as well as the more general public interest in the case. The general interest in attending to the social policy concerns that had been emphasised by the legislature had been coupled with the interest in enacting legislation that would provide for general regulation and take account of the need to limit the risk of disputes. The Court, having reviewed the proceedings in which the applicant organisation was involved, considered that the domestic courts had carefully examined the facts, had applied the relevant human rights standards consistently with the Convention and its case-law, and had adequately balanced the applicant’s personal interests against the more general public interest in the case. A sufficiently fair balance between the competing interests had been struck and accordingly the domestic authorities had not overstepped the margin of appreciation afforded to them when applying the “rent ceiling” to the applicant organisation’s case, thereby preventing it from increasing the ground rent as it had proposed.

Conclusion: no violation (unanimously).

(See also Lindheim and Others v. Norway, 13221/08 and 2139/10, 12 June 2012, Legal Summary)

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