ARTICLES
Proposed changes re rent review clauses
The Government has recently taken steps to introduce legislation banning the practice of upward only rent review clauses. When adopted, these proposals will apply to new leases but they will not affect existing leases.
The provisions form part of the Land and Conveyancing Law Reform Bill 2006, which has been in draft format for many years and was enacted by the Houses of the Oireachtas before their summer recess. The proposed wording of the relevant section of the Bill is as follows;
"A provision in a lease...which provides for the review of the rent payable under the lease shall be construed as providing that the rent payable following such review may be fixed at an amount which is less than, greater than or the same as the amount of rent payable immediately prior to the date on which the rent falls to be reviewed"
What impact will this reform have?
If enacted, this law may have a profound effect on the property market. Institutions and pension funds own a significant amount of commercial property throughout Ireland. However this legislation will concern all investors, as rents represent a guaranteed income for their portfolios.
In addition, banks have become accustomed to the security afforded by continuous upward only rent review clauses. These proposed changes may force a review of funding arrangements for some investors.
Tenants under existing leases with upward only rent review may find that their leases are more difficult to assign, as the law will only affect new leases.
The status of an Agreement for Lease where the lease itself has not been executed is unclear. There is some scope for the ‘tenant’ to argue that as the lease has not been delivered that the new provisions will apply to the undelivered lease.
Equally landlords can argue that the Agreement for Lease is a contract for tenancy agreed prior to the legislation and therefore would not be subject to these amendments. The interpretation of this provision will require to be clarified in the Courts in due course.
We would strongly urge anyone who thinks that they may be affected by these proposals to contact a member of our Commercial Property team at 01-240 1200.