1. Black Market Phenomena in Tenancy Relations in Europe
Christoph U. Schmid, ZERP, Bremen

2. Preliminary Results – General (1)
TENLAW - Tenancy Law and Housing Policy in Multi-level Europe
Preliminary Results – General (1)

3. Preliminary Results – Black Markets (1)
TENLAW - Tenancy Law and Housing Policy in Multi-level Europe
Preliminary Results – Black Markets (1)
“black market contracts”
Own definition: unofficial, informal contracts, which are related to the violation of certain legal provisions and therefore remain in an extra-legal, unprotected sphere, typically to the detriment of the tenant
Generalities:
Black market contracts increase the private sector dramatically in many states
Black market contracts are generally associated with a lack of legal protection of the tenant and low quality of housing, as in most cases no legally binding obligations exist for the landlord under a black market situation

4. Preliminary Results – Black Markets (2)
TENLAW - Tenancy Law and Housing Policy in Multi-level Europe
Preliminary Results – Black Markets (2)
Types of violated norms:
Migration law provisions: tenant is a an immigrant with no right to stay in the host country lawfully and therefore fears being discovered by the authorities
- no “remedy” possible under private tenancy law, only under migration law; contract may be perfectly valid but its enforcement would involve statal authorities and lead to the discovery and possible expulsion of the tenant according to migration law

5. Preliminary Results – Black Markets (2)
TENLAW - Tenancy Law and Housing Policy in Multi-level Europe
Preliminary Results – Black Markets (2)
(2) Violation of tax law provisions or registration requirements by the landlord-owner, who does not conclude a written contract as he wants to keep the lease secret, generally with the purpose of tax evasion
Such violations generally irrelevant for the binding force of the contract under private law
Therefore no visible disadvantages in several countries such as DE, as legal default norms apply to the contract which are balanced and/or favourable to the tenant

6. Preliminary Results – Black Markets (3)
TENLAW - Tenancy Law and Housing Policy in Multi-level Europe
Preliminary Results – Black Markets (3)
Problems:
Difficulties of proof in other countries such as Spain: tenant must prove the conclusion of a full lease contract, as opposed to a short term license = risk which may dissuade a tenant from taking legal action
Solutions:
Italy: a low default rent set by the law applies at the request of the tenant in case the landlord omits the registration (drastic sanction – but is it effective?)
Austria: a (rebuttable) presumption applies in favour of a tenant sitting in an apartment and paying rent without a formal contract that a fully effective, ordinary lease contract was concluded

7. Preliminary Results – Black Markets (4)
TENLAW - Tenancy Law and Housing Policy in Multi-level Europe
Preliminary Results – Black Markets (4)
(3) Violation of public law provisions on habitability, in the case of low quality, slum-like dwellings (i.e. the dwelling does not qualify as an inhabitable house or apartment and could not, therefore, be rented lawfully)
Problem: tenant invoking any rights may lead to his expulsion from the house by public authorities
Solutions: difficult; proposal: public authorities must provide social (or any other kind of) housing to affected tenants, and landlord could be obliged to reimburse to the authorities the costs for a certain period;

8. Preliminary Results – Black Markets (5)
TENLAW - Tenancy Law and Housing Policy in Multi-level Europe
Preliminary Results – Black Markets (5)
4) Violation of prohibitions of transferability of contracts or subletting;
1st Case: Austria:
strong intertemporal splits between different rent regimes
old contracts with statutorily set low rents can be transferred; among relatives even at the same conditions
old contracts are transferred against illegal one-off payments
solutions:
one-off payments must be restituted (already effective)
intertemporal splits should be completely abolished, if necessary with adequate transitional periods
transferability of contracts, even among relatives, to be abolished or strongly limited (e.g. to 1 year after death)

9. Preliminary Results – Black Markets (6)
TENLAW - Tenancy Law and Housing Policy in Multi-level Europe
Preliminary Results – Black Markets (6)
2nd Case: Netherlands: social apartments with cheap rents are illegally sublet
Legal consequences: subletting is illegal according to a Supreme Court decision of 2010
Possible solution to counteract the practice: Give the sub-tenant the right to enter into main lease contract at same conditions after lawful termination of contract with main tenant;
but works only if sub-tenant herself fulfills conditions of access to social housing; otherwise it is fair to evict the subtenant
counterargument: this solution may undermine the waiting list system governing access to social housing

10. Preliminary Results – Black Markets (7)
TENLAW - Tenancy Law and Housing Policy in Multi-level Europe
Preliminary Results – Black Markets (7)
3rd case: Sweden: egalitarian and highly regulated rental system:
Apartments are rent controlled and allocated according to waiting lists by a public agency; in cities, in particular in Stockholm, such list are very long
Position of tenant is strong: no right of termination by the landlord, even if she needs the apartment for herself; right to barter the apartment against another
Abuse: apartments (with long waiting lists) are sublet or lease contracts sold illegally at high prices; r
report from the Swedish Property Federation from 2006 indicated that the trade with leases is worth 1.2 billion a year in Stockholm
social consequences: illegal transfers and subletting attenuates housing market shortage e.g. in Stockholm but privileges well-off people who can afford high illegal payments

11. Preliminary Results – Black Markets (8)
TENLAW - Tenancy Law and Housing Policy in Multi-level Europe
Preliminary Results – Black Markets (8)
3rd case: Sweden (continued):
Illegal subletting: insecure position of tenant; high price;
Solution: legitimate ground of termination of master lease – then the landlord may rent out the dwelling to a different tenant
Possible solution: Give the sub-tenant the right to enter into main lease contract at same conditions after lawful termination of contract with main tenant (foreseen only in case of collusion between landlord and main tenant to the detriment of sub-tenant, which is difficult to prove)
Possibly counterproductive as this solution may act as an incentive to the sub-tenant to pay even more for the illegal sub-tenancy

12. Preliminary Results – Black Markets (9)
TENLAW - Tenancy Law and Housing Policy in Multi-level Europe
Preliminary Results – Black Markets (9)
3rd case: Sweden (continued):
Trade with leases
Possible solutions: criminal law sanctions:
existing but of little effect; only repeat “black landlords” selling leases have been fined so far
purchase price may be claimed back (e.g. unjust enrichment)
of little effect as payments are done in black without receipt and are therefore difficult to prove

13. Preliminary Results – Black Markets (9)
TENLAW - Tenancy Law and Housing Policy in Multi-level Europe
Preliminary Results – Black Markets (9)
(5) Informal management of conflicts in an underregulated market?
vigilante eviction (e.g. shutting down public utilities in an apartment) when the landlord is unable to lawfully evict a non-paying or antisocial tenants within a reasonable timeframe;
abuse of tenant protection, where the tenant refuses to pay while also refusing to leave a unit for a prolonged period, with the help of legislation ensuring eviction moratorium or protection of the tenant’s personal belongings inside the unit.

14. Preliminary Results – Black Markets (9)
TENLAW - Tenancy Law and Housing Policy in Multi-level Europe
Preliminary Results – Black Markets (9)
But: not black market contract phenomena but rather possible consequences thereof; also, these phenomena may arise also in legally perfectly valid and fully disclosed (i.e. not hidden) contractual relationships
Therefore, I would advise against treating them as black market phenomena but rather under a different heading such as abusive behaviour