Business Irish

Saturday 25 February 2017

Retailers to be big winners in new upward-only rent change

commercial property

Roisin Burke

Justice Minister Alan Shatter
bringing forward legislation
Justice Minister Alan Shatter bringing forward legislation

NEW legislation on upward-only rent reviews will allow tenants to apply to court to overrule such clauses, leaving landlords facing sharp drops in their rental income, the Irish Independent has learned.

The standalone piece of legislation is due to be published in October/late November and could unleash a nightmare scenario for institutional investors, but beleaguered shop owners and others locked into boomtime leases are to get several concessions.

Under the draft bill, struggling retail and office tenants could seek a rent cut or possibly even walk away from upwards-only leases. Landlords would be forced by law to engage with tenants and, if negotiation fails, tenants could take a case to court. The Circuit Court could overrule an upward-only rent clause and also rule on any rent arrears attached to it.

At the moment, only a landlord can trigger a review of an upward only rental clause. This new bill proposes that any "qualifying tenant" -- meaning any tenant that can prove that their rent "is a cause of distress to their business" -- can seek a one-off rent cut.

This option would be open to all qualifying tenants, even if they have had a rent review in the recent past. The landlord would be obliged by law to respond to this request within a set time limit.

If a rent drop can't be agreed between landlord and tenant, the issue has to go to mediation.

If the mediation process fails, the tenant can apply to go before the Circuit Court and get a ruling from a judge that would be legally enforceable. The Circuit Court can also rule on any rent arrears at that point.

The bill also provides for the termination of a lease.

"If a tenant can prove their lease is actually prohibiting them from running a viable business they will be able to walk away from it," a source close to the process says. There will also be provision for a landlord to terminate a lease.

If a lease is terminated, compensation to a tenant or to a landlord for any renovation to the premises could apply.

A lease would be judged on a standalone basis. "For example, if you have 12 shops across Ireland and 10 of them are doing quite well, but say two of them are crucifying you because of off-the-wall rent, you should be able to get a review on the basis of those two individual stores and not on the basis of your overall balance sheet," the insider said.

The timeframe proposed from the initial tenant request for a rent review to the final option of going to court is within one year.

The bill is expected to have a "sunset clause", meaning the legislation would have a built-in expiry date.

In five years' time it would then be subject to a ministerial review and could be either renewed or pulled.

Labour TD Ciaran Lynch, who drafted his party's election manifesto proposal on upward-only rent reviews, said the matter urgently needed tackling.

"It's critical for the recovery of the Irish economy that market rents are introduced in the commercial rental sector and that normalisation in that market is put in place and it's my expectation that this legislation will achieve this," he said.

The Government aims to drive the bill into legislation as soon as possible.

"Alan Shatter wants this done and dusted before the end of the year," a source said.

Irish Independent

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