Government bans upward only rent reviews

[Brendan Burgess]

According to the [broken link removed]

This is real knee-jerk stuff.

It does nothing to sort out the problems of people who currently have these leases.

I am not saying that I am opposed to it or that I support it. But it needs more discussion.

In principle, I am against this sort of market interference - especially between commercial concerns.

There are other issues to be dealt with such as the length of the leases and the rights acquired after 5 years.

There was no urgency on this. Presumably if I was a tenant taking out a lease now, I would be able to negotiate out the upward only rent review clause anyway.

Brendan

 

[Howitzer]

You might as well legislate against purple monkey dishwasher clauses in rental agreements. Ultimately these leases have no basis in law other than being the contents of a contract, to which to can add anything - such as a purple monkey dishwasher.

And even at that they have been [broken link removed] by the Master of the High Court, Edmond Holohan

The case that prompted the comments, involving the Apollo Galery at 51 Dawson St, Dublin, contains a clause referring the “rent previously payable” as the base line, but this may not refer only to the rent payable immediately prior to review, Mr Holohan said.

He said that as a general principle, the bargain between lessor and lessee is one of long-term mutuality, and rent review clauses must be viewed in that light. There is no presumption in favour of constructing a clause so as to make it upwards only. A court will not be easily persuaded to accept an interpretation which will give the lessor a windfall in a time of recession. And the courts will surely never rubber-stamp any interpretation which clearly has the effect of unjustly enriching either party.

 

[canicemcavoy]

In principle, I am against this sort of market interference - especially between commercial concerns.

What is NAMA and the bank bailout except "market interference"? Market interference seems to be bad only when it's helping out the small guy ("socialism for the rich").

 

[mercman]

Well as long as the Government know that they have inflicted a further 25% reduction in the values of Commercial Property which are subject to new leases. Lunacy and madness at its best.

 

[Howitzer]

Well as long as the Government know that they have inflicted a further 25% reduction in the values of Commercial Property which are subject to new leases. Lunacy and madness at its best.

On what basis?

A friend of mine is in the process of walking away from a very long standing lease which has a number of years to run solely because the landlord refuses to negotiate the rent downwards quoting the upward only rental agreement. My friend then plans on reopening in a, currently empty, retail unit elsewhere at a substantial discount to the previous rent.

The landlord could drop the rent if he so wanted. The only thing keeping the rent at it's current level is the artificial contruct within the contract which prevents an arbitror from reaching a lower level.

Instead the friend is utilising the available capacity within the commercial market to achieve the same end.

I fail to see how this legislation "inflicts" a 25% reduction in the values of Commercial Property - the market seems to be doing this all by itself to me.

No one in their right mind signing a lease today would agree to the inclusion of an upward only rental clause so the legislation is pretty worthless anyway given it has no facility for existing agreements.

 

[mercman]

Well we'll see as to what happens to Property Values. But in any event it will effect many more than what is thought. What do you think makes up Pension Fuinds -- a large portion of Commercial Property. In most instances, Landlords have done the rightful thing and induced temporary lease reductions. In the cases where they have refused to move on the rent then they will either have to pay the price or enter a costly exercise of incurring legal expense. Leases are contracts not just scant bits of paper that cannot be treated with little or no respect.

 

[canicemcavoy]

Well as long as the Government know that they have inflicted a further 25% reduction in the values of Commercial Property which are subject to new leases. Lunacy and madness at its best.

I would suggest it's worse lunacy to be forcing firms to close because they cannot afford the ludicrous rates that landlords still living in the Celtic Tiger cling to.

 

[mercman]

I would suggest it's worse lunacy to be forcing firms to close because they cannot afford the ludicrous rates that landlords still living in the Celtic Tiger cling to.

Not really sure what planet you are on. Nobody forced any tenants to rent properties at ridiculous rents. Nobody forced them to sign PGs but they did.. Now we all will be in the circumstance soon of the UK muliples taking centre stage in the retailing sector and large multi nationals in the Industrial sector.

 

[canicemcavoy]

Not really sure what planet you are on. Nobody forced any tenants to rent properties at ridiculous rents. Nobody forced them to sign PGs but they did.. Now we all will be in the circumstance soon of the UK muliples taking centre stage in the retailing sector and large multi nationals in the Industrial sector.

Conditions have changed. Both those in the public and private sector are earning far less than before, and 1/2 a million are out of work. Would you prefer that property owners hold onto Celtic Tiger level of rents, putting their tenants out of business, rather than allowing rents to drop and getting the country back on its feet again?

I thought we had all got over the notion that the nation's progress and wellbeing could be measured solely by property prices, but I guess not.

 

[Brendan Burgess]

A friend of mine is in the process of walking away from a very long standing lease which has a number of years to run solely because the landlord refuses to negotiate the rent downwards

...The only thing keeping the rent at it's current level is the artificial contruct within the contract which prevents an arbitror from reaching a lower level.

Howitzer

As you explain this, it makes little sense to me. If he has an existing lease, he will still be liable for the rent. He can't just "walk away". If the lease allows him to walk away, then the upward only clause is irrelevant.

 

[mercman]

That is the point I was trying to make. One simply cannot just up and walk. To walk away is an illusion that some tenants are living under. This has had a worse effect in the market than the actual recession itself. There still remains a caliber of people/tenants they think they can freely up and walk away from their commitments. Sure I agree there are genuine horror stories but sometimes make believe stories are used to free persons from their obligations.

 

[Howitzer]

Howitzer

As you explain this, it makes little sense to me. If he has an existing lease, he will still be liable for the rent. He can't just "walk away". If the lease allows him to walk away, then the upward only clause is irrelevant.

I'm afraid I'm going to have to get into a game "he said / she said". I don't know all the details so don't nail me to the wall on this but ..

The business is currently running at a loss. The biggest single cost is rent. He's going to fold the company. As the company will no longer be trading and the lease is in the companies name it is worthless (?). He then sets up a new company and the new company leases the new premises.

Edit: A few more details came to me.

There's no break clause but there is a rent review due this year. The landlord came back with a figure of +40%. The assumption was that this was just a bargaining position but there's been no budging. The friend, + relative of friend who has another unit, have both told the landlord they are leaving in the new year.

The landlord has locked out other tenants in dispute, though in those cases rent had not been paid. The friend is not behind on rent.

So what do you do? Go to the bank looking for a loan so you can pay increased rent payments in the current market? You'd be laughed out of it. So .....

 

[Chris]

Well as long as the Government know that they have inflicted a further 25% reduction in the values of Commercial Property which are subject to new leases. Lunacy and madness at its best.

So what you are effectively saying is that government protected/enforced upward only contracts are keeping commercial real estate prices at a 33% artificially inflated price. If this is true then it will be the best thing that could happen.

 

[mercman]

In the same manner as people run these businesses from these units, these units are a business for others. To simply mess around with legal contract terms is a very dangerous thing to do. Supply and demand pushed the prices upwards before. It happened in Ireland and every other modern economy. I can see no real valid reason for blaming landlords. In the same way nobody should blame the cost of forestry as a reason for chippies to earn crazy money and firewood to cost €9 per bag.

 

[Howitzer]

So what do you do in the scenario I've outlined?

 

[mercman]

Well if the business is going to fail then it's going to fail. I'm not to sure under Company Law can a business be closed down and restarted under a new name with same trading style and practices, directors and staff. In fairness to your friend, pig eared Landlords do not do any favours for anybody including themselves.

 

[canicemcavoy]

Well if the business is going to fail then it's going to fail.

So you think it's perfectly reasonable for a landlord to currently put up their rent by 40%, even though they'll put their tenant out of business? Do you know where these mystery tenants who _will_ pay 40% extra in the current climate are coming from? Perhaps a wardrobe from Narnia?

 

[mercman]

So you think it's perfectly reasonable for a landlord to currently put up their rent by 40%, even though they'll put their tenant out of business?

It's called Market Forces. Supply and Demand. I don't know your line of business but I bet you do not operate on a Not for Profit basis. Retail Rents increased as there was such a demand for suitable properties with high footfall, location and suitability. Nobody is saying that these retailers should be put out of business, but the landlords did not obtain the properties by theft or deception and therefore in many cases have their own committments to meet.

 

[canicemcavoy]

It's called Market Forces. Supply and Demand.

Ah yes, the great immutable "market forces" that apply when property interests are making money. If the same "market forces" mean the value of their interests go down, we get the minister of finance to introduce measures to prop up the market of course.

Retail Rents increased as there was such a demand for suitable properties with high footfall, location and suitability.

You keep talking about the past. We're talking about the present.

 

[mercman]

And that's the purpose of a legal document called a lease. It gives rights to both parties. I personally never said that 40% rises in rent was correct, especially when I do not know the actual base line. I'm not interested in getting involved in a Political debate, but I'm sorry I am unable to agree with your argument. There are two sides to most disputes. There is also an Arbritration process which weighs up both sides of a dispute.