LAST September I published a Bill to tackle the problem of upward only rents in the commercial property sector. This legislation was debated and passed at Second Stage in the Seanad and this week it will be debated at Committee Stage. The unprecedented fall in property values serves as its backdrop; and the preservation of jobs and the survival of small businesses at its heart.
The reality for many small businesses is that they are trapped in leases with rent demands which are reflective of over-inflated property prices from the economic boom. The situation is exacerbated by the fact that consumer spending and economic activity have been at an all-time low. With no way out, many businesses feel they have no option but to close down – and regrettably all too many have.
Upward only rent review clauses in pre-2010 leases are artificially propping up the rents achievable by landlords of commercial premises.
According to a report authored by economist Colm McCarthy, new lettings for commercial properties in Dublin have been commanding rents of between €30 and €35 per square foot. In spite of this, many tenants, as a result of upward only rent clauses, are stuck with leases that demand rents of €60 or more.
Upward only rent clauses have ensured that the rents payable for many properties bear absolutely no relation to the current value of those properties. The reality is that if the Government had acted to kill off the remaining upward only rent review clauses, commercial property rents would have fallen as quickly as they had in the residential sector.
My Bill will address the most significant factor which has single-handedly led to the collapse of many small businesses and the loss of thousands of jobs. The continued failure of the Government to tackle this problem head-on will result in more closures and more job losses. Those businesses that struggle to survive whilst paying exorbitant rents have little prospect of being able to expand and flourish.
If we are serious about getting this economy back on its feet, we must not only look at how we can create new jobs and how we can foster the establishment of new businesses, but crucially we must also look at how we can safeguard those jobs and businesses which we already have. And central to this is the need to look at ways in which those existing businesses can be encouraged to grow and expand.
Some steps have already been taken to tackle the problem of upward only rent. The Residential Tenancies Act 2004 has addressed the problem of upward only rent review clauses in the context of dwellings, and the Land and Conveyancing Law Reform Act 2009 dealt with upward only rent reviews in commercial leases on a prospective basis. However, the problems posed by upward only rent review clauses which are contained in commercial leases entered into before February 28, 2010 remain problematic and it is the hardship and problems posed by those pre-28 February 2010 commercial leases that my Bill seeks to address.
In the past, the Government has cited constitutional obstacles to the enactment of legislation of this kind. However, I do not agree with this view, nor indeed did the State's leading constitutional lawyer – Dr Gerard Hogan SC (now a judge of the High Court).
Under the Constitution, property rights are protected both in Article 40.3.2 and in Article 43. It is widely understood that rights expressed in the Constitution are not absolute; those rights require to be balanced against other competing rights and interests and in several instances the Constitution provides that such rights may be delimited by legislation "with a view to reconciling their exercise with the exigencies of the common good".
And that is precisely what my Bill seeks to achieve.
It is undeniable that the exigencies of the common good lie in favour of legislation that carefully balances the rights of small business as against the rights of banks and institutional investors so as to ease the burden on small businesses. This is a balancing exercise with the very survival of small businesses at its heart. The banks and institutional investors on the other side of the equation are not faced with the prospect of closure or collapse if this Bill becomes law.
This Bill will serve as a lifeline to small businesses that are struggling to cope with excessive rents that bear no reality to rents now sought on the open market. This Bill will give them the leeway to agree a level of rent which is reflective of the current rental values along their street – a value reflective of the economic realities of 2014, not a value which is stuck in 2006.
Since lawyers rarely agree on any issue, we can't await their consensus on this. We need to push ahead with the Bill. In the Seanad this coming Wednesday, I will be asking Members of the House, and indeed the minister, to let me have their views on how they think my Bill can be improved and strengthened – I'm open to suggestions from all sides of the House, Government included.
In their manifestos published in the run-up to the last General Election, both Fine Gael and Labour pledged to resolve the problem of upward only rents in the commercial sector. This commitment also features in the Programme for Government. There is a clear democratic mandate for the enactment of this legislation. It now behoves the government parties to deliver upon that commitment and pledge their support for my Bill in the Seanad on Wednesday.
Feargal Quinn is a member of Seanad Eireann
Sunday Indo Business