Action needed on 'upward only rent reviews'
Published 23/11/2011 | 05:00
Serious concern has arisen as a result of Government indecision on legislation relating to upward only rent reviews.
Recently some retailers indicated concerns that the Government may be about to shelve plans to introduce legislation which would allow distressed tenants to secure a rent reduction on pre-2010 leases.
This has sparked a number of property consultants to call on the Government to put up or shut up.
A spokesman for Minister Shatter says that an announcement will be made soon.
Savills Ireland say the Government needs to end the current uncertainty and clarify one way or the other as to its plans on potential changes.
Joan Henry, director of research at Savills says that commercial property transactions have dropped sharply because of the uncertainty -- down from €270m of turnover in 2010 to only €10m this year.
Marie Hunt, director at CBRE says the industry pointed out last February that the amendment would likely prove unconstitutional.
"Nine long months later, it appears that the Government has realised that this is indeed the case. A year has effectively been lost and opportunities missed while we have awaited clarification from Government on this issue.
"Having been promised draft legislation on numerous occasions over the course of 2011, we are now being told that there is a possibility that the legislation may not go ahead."
Ms Henry says: "We are seeing clear evidence of demand from investors for prime opportunities in the Irish market, however a lack of supply coupled with uncertainty over the rent review legislation are acting as a drag on actual activity. We expect that clarity on the issue would enable NAMA, receivers and banks to bring properties to the market, bringing a much needed increase in supply and therefore allowing more normal market activity to resume again".
Solicitor Michael C Powell would welcome the legislation as it would afford commercial tenants greater scope to renegotiate their leases.
He believes that the most contentious aspect of the legislation would relate to the circumstances where the landlord is dissatisfied with the rent determined by the court and then terminates the lease.
"Conversely, if the tenant finds that the court-determined rent is unacceptable, they will also be entitled to terminate the lease with the landlord within the specified time frame."
He points out that the legislation would require tenants to satisfy three requirements before being able to qualify for a rent review. "They will have to demonstrate that the current rent exceeds the market rate, that a lower rent would improve the likelihood of the business continuing to trade and that the business is no longer financially viable under the current rent."