After the banks it's time we bailed out our small businesses
Published 03/07/2014 | 02:30
The Supreme Court has decided that Bewley's Cafe is liable to pay rent set at the height of the boom and property bubble on its premises in Grafton Street, Dublin, despite the decline in commercial rents during the recession. The lease can be adjusted on an upwards only basis – in other words, paying a rent of €1.46m instead of €728,000. The case concerned a specific clause in the lease, in a specific context and does not involve general application.
This decision has significant implications for commercial tenants around the country, but will be particularly harshly felt in the small and medium enterprise (SME) sector, barely on its feet after six or seven gruelling years where mere survival was an achievement.
Business lobby groups have made it clear that the court's decision will undermine a potential return to stability in the economy and lead to the loss of vulnerable jobs in Irish retail. Apart from legal complexities, it can be seen as a case where the economic realities of Ireland in 2014 and common sense did not prevail.
The case brought by Bewley's had given hope to many businesses locked into similar rents. It gave hope that they would be able to have a fair and reasonable rent and that their business would again thrive.
Now this expectation seems further away than ever. Indeed the Bewley's decision is being seen as great news for both landlords and NAMA! – which should set alarm bells ringing in government. These people lobbied against giving tenants a means of disentangling themselves from rent rates with no relation to reality.
In a normal situation, businesses can renegotiate with landlords. But the system means firms have no option but to pay exorbitant rates. We need to get back to reality – properties are worth less, there is less economic activity and rent has to be cognisant of this.
It must be said that the Government has taken action on upward-only rent reviews in some areas – the Residential Tenancies Act has addressed the problem of upward-only rent review clauses for dwellings while the Land and Conveyancing Law Reform Act dealt with upward-only rent reviews in commercial leases which have been entered into after 2010. It is a simple anomaly that upward-only rent review clauses still exist for pre-2010 commercial leases.
I am all for ensuing that consenting adults should be bound by what they sign up to, but so too should bondholders and banks. We saw that, during the unprecedented economic turmoil, bondholders were not subjected to losses which they ought to have endured and likewise reckless banks were not allowed to collapse. The exceptional nature of the prevailing circumstances was used to take unprecedented actions – the realm of irrational blanket bank guarantees, the State takeover of banks and seemingly bottomless bank recapitalisations ensued.
The banks, they told us, were too big to fail and bondholders too important to singe. In contrast, the SME sector in Ireland is, we have come now to see, not important enough to this Government. This is despite the fact that the SME sector is vital to the Irish economy. But don't take my word for it. The Minister for Small Business, John Perry (speaking in April) said, "67pc of all new job-creation in Ireland comes from businesses in the first five years of existence". In fact, SMEs make up more than 99pc of firms in the enterprise economy and account for some 70pc of jobs.
Government cannot create jobs, contrary to what the press releases say. It can set the conditions to create jobs by legislating in a fair and reasonable market. Its current inaction on tackling upward-only rents means there is no fair market. If upward-only rents were abolished, fair market conditions would be set and some 40,000 jobs in retail created over the next few years.
Last September, I published the Upward-Only Rent (Clauses and Reviews) Bill 2013. The Bill has passed all stages in the Seanad and now moves to the Dail. If passed, this Bill would end upward-only rent reviews in defined circumstances.
The Government says it cannot accept the Bill due to constitutional obstacles, on advice from the Attorney General. If such obstacles were so strong, why did Fine Gael and Labour in their manifestoes and joint Programme for Government promise to abolish upward-only rent reviews? It is simply not ethical to sit behind the advice of one lawyer while shops close daily.
I believe my Bill will stand up to any legal challenge. However, if the Government is so worried about the constitutionality, the Dail could simply accept my Bill and let the Supreme Court test it. That would be a real statement by the Government that it was doing something concr-ete to help struggling businesses.
We are not bound and gagged by the Supreme Court decision in the Bewley's case. If anything, it reinforces the need for legislators to act to protect our SME sector from being exploited by avaricious and largely corporate landlords.