Government bans upward only rent reviews

[mercman]

You're blaming our current woes solely on bankers, and excluding all blame from landlords who overpaid for property.

I'm also amused that you have no sympathy for retailers who overpaid for their leases (fair enough), yet have sympathy for landlords who overpaid for property.

And who gave the landlords the money -- Eh the bankers working on dicky valuations.

I am not at all amused where you state I hold no sympathy for the retailers. The main difference is that if a retailer goes bang he loses his stock and his business. If a landlord goes bang the Bank take the property, the family home and all and sundry.

So I suppose you think this is amusing. Mad and Sad

 

[canicemcavoy]

And who gave the landlords the money -- Eh the bankers working on dicky valuations.

Ah right. So everyone who bought property in the past 10 years relied on their bank to tell them how much to borrow? No-one did like, say, Sean Dunne and relied on their wife to value a site?

If a landlord goes bang the Bank take the property, the family home and all and sundry.

Can you tell me a single instance of where someone also lost their family home? This is not standard practise.

So I suppose you think this is amusing. Mad and Sad

Actually, you're the one I find amusing. It's quite charming, like finding one of those elderly Japanese soldiers who hasn't realised that WW2 is over.

 

[flattea2]

The fact is that the upward only rents are an antiquated way of doing business, are against principles of an open market and are a sop to the landlords.

The sooner people realise that it is the market which will decide on all things - be it prices, wages, rents etc the better. Government interference destroys in these type of matters.

 

[mercman]

Canicemcevoy, I have no great desire to enter a discussion with you especially when you think you know it all and you do not. This property bubble is a worldwide problem -- not just in Ireland but the entire western world, the only thing it will take a lot longer to recover here. If you knew the facts regarding the person that borrowed the money, you would have a different attitude. The Banks did near 100% lending on that transaction.

Regarding the family home scenario, this is why there is presently 8 homes on Shrewsbury Road lying there unlived in.

Please don't tell me my business. The Supply and demand curve changed very quickly and as flattea2 said the market will decide the future -- nothing else. And in case you do take your head out of the sand, recessions don't last forever, the same way as booms didn't.

 

[Howitzer]

[broken link removed]

Latest press release from REI. Sorry for the entire copy/paste but they make some reasonable suggestions - in my opinion. My highlight.

Retail Ireland, the IBEC group that represents the Irish retail sector, today called on the Government to change the law on leases to suit the economic climate.
It said that an urgent response is required from all stakeholders in the retail property sector to address the difficult trading situation faced by retailers.
"In view of the current economic climate, Retail Ireland calls on Government to reform legislation on retailer's leases. Arbitrators' hands are tied by the terms of leases that are unsuited to the current extraordinary situation," Retail Ireland director Torlach Denihan said.
"To save jobs and keep as many otherwise viable and well run retail businesses open, arbitrators should be mandated by law to take account of prevailing economic and commercial conditions when reviewing rents," he said.
"When seeking a comparison-based upward rent review, a landlord should be obliged to give all material information to the arbitrator. Where an increase being sought is justified by a higher rent contained in a lease with another tenant, the landlord should be obliged to provide a comprehensive picture of his relationship with that latter tenant. Under the current process, landlord's are not obliged to divulge if a separate deal exists with the latter tenant that gives a major discount on the rent amount contained in the lease. Both the arbitrator and the tenant facing the rent review remain in ignorance of the real situation, and the incomplete information given to the arbitrator will probably lead to a misguided conclusion that a rent increase is justified," he aded.
"The arbitrator should be empowered to insert a break clause into a lease where a tenant's business has deteriorated due to circumstances outside the tenant's control. The arbitrator should be empowered to form a judgement as to the reasons for the deterioration of the business with reference to prevailing economic and commercial circumstances. Break clauses were general practice before the boom years, but some landlords refused to provide them when times were good. It should be mandatory that they be contained in all new leases."
"New thinking was shown by the Supreme Court last December in the Linen Supply of Ireland case when it allowed the examiner to repudiate leases as part of a rescue package because previous arrangements were not working. New thinking is similarly required with regard to comparison-based upward-only rent review clauses in existing leases because they are not working in the current circumstances. New mechanisms are needed so that rent reviews and arbitrations take account of an individual tenant's circumstances. Government should build on the Minister for Justice's decision to abolish upward-only review clauses in new leases by reviewing how best to replace them in existing leases by more suitable mechanisms such as turnover-related reviews."

 

[Bronte]

Can you tell me a single instance of where someone also lost their family home? This is not standard practise.


.

Yes you can lose the family home. The only way around this is to operate as a company and not let the bank have a lien on the family home or other assets.

I don't see why you have sympathy for the people in the Carluccio case, they are big boys. Yes the 60 workers lost their jobs but it seems until commercial rents in Ireland get a reality check a lot more business will go bust, but new one's will replace them and that's going to mean less rent, less overheads and lower wages for workers, and cheaper dining in the case of restaurants or cheaper clothing in the drapery business. Things got way out of hand during the boom and what we need is a sharp quick period of adjustment to get things moving again. Not sure that this is going to happen though.

 

[mercman]

Howitzer, thanks for the update. Personally I find that some of the changes which are been requested are very very off the planet. My opinion is that REI are a bunch of leeches, scratching the bottom simply to make an influence on the entire sector. Some of the Board members are very questionable in their past actions. The high property prices didn't stop some of them from jumping into the market at the very top. Even more interesting the product that are sold by some of them make it a real reason for consumers to travel North to purchase items at vastly discounted prices.

Like everything in recesssions the property market would have found its own level without interference. As mentioned earlier nobody forced some of the retail tenants to pay vastly inflated rents just to get a pitch. Now things have got bad they want to run and run and make the landlords suffer.

 

[Howitzer]

Personally I find that some of the changes which are been requested are very very off the planet. My opinion is that REI are a bunch of leeches, scratching the bottom simply to make an influence on the entire sector. Some of the Board members are very questionable in their past actions. The high property prices didn't stop some of them from jumping into the market at the very top. Even more interesting the product that are sold by some of them make it a real reason for consumers to travel North to purchase items at vastly discounted prices.

I don't know anything on their background so can't comment, merely that they are now a representative body.

As mentioned earlier nobody forced some of the retail tenants to pay vastly inflated rents just to get a pitch. Now things have got bad they want to run and run and make the landlords suffer.

Actually this is incorrect. As the highlighted sections of the article mentions, and which I alluded to in earlier posts, many tenants WERE forced into paying crazy prices.

How can someone be forced into signing a contract?



This scenario is quite common and not just me talking out of my hat. Tenant signs lease 25 years ago with 35 year term, regular rent review and upward only rent clause. This was the norm.

• At review landlord hikes rent by astronomical number.
• Tenant disagrees.
• Case goes to arbitration.
• At arbitration landlord produces lease indicating another tenant is paying a similar rate and as such it is now the market rate.
• Arbitrator finds in favour of landlord.
• Landlord gives discount to other tenant.

The tenant has 2 choices in that situation - pay the increased rent or close the business. The extent to which the tenant can even close the business is debatable as they are fixed to the contract and will be liable if they don't pay to full term. So effectively, wind up the company or pay a rent that will eventtually force you to wind up the company.

The case is obviously different for newer entrants to the market but that doesn't mean the process isn't inherantly flawed and as such needs radical reform. Most of the points raised by REI relate solely to transparency on what was a completely opaque process.

 

[mercman]

Actually this is incorrect. As the highlighted sections of the article mentions, and which I alluded to in earlier posts, many landlords WERE forced into paying crazy prices.

This was the norm.

• At review landlord hikes rent by astronomical number.
• Tenant disagrees.
• Case goes to arbitration.
• At arbitration landlord produces lease indicating another tenant is paying a similar rate and as such it is now the market rate.
• Arbitrator finds in favour of landlord.
• Landlord gives discount to other tenant.

The case is obviously different for newer entrants to the market but that doesn't mean the process isn't inherantly flawed and as such needs radical reform. Most of the points raised by REI relate solely to transparency on what was a completely opaque process.

But where these crazy prices or market prices. This is of major importance and there is a difference.

You are forgetting that the tenant is obliged to place his case to the Arbitrator. Both sides can choose to make a calderbank offer if they so wish.

Tel me in cases where tenants were making collosal profits did they make provisions to pay the landlord.

Nobody likes or wants to see others been forced out of business but REI just simply wish to make landlords suffer or in many cases go Bang.

 

[Howitzer]

I'm simply relaying a mechanism widely used by landlords in the arbitration process to force rents up to a level of their choosing. That the system can be so manipulated is the issue.

The price was a fake price which was immediately repaid as a discount or rebate to the third party tenant. Did you read the section I highlighted in the REI article?

 

[mercman]

The price was a fake price which was immediately repaid as a discount or rebate to the third party tenant. Did you read the section I highlighted in the REI article?

Yes I read it but that does not mean that the REI are correct. They just believe that that the more noise they make the more changes they will get. The squeaky wheel and all that !!

It will get to a point where International Property Funds walk away from Ireland. And that will nobody any good -- landlords or tenants. We will be left with retail properties that have simply not been ungraded.

 

[Howitzer]

I'm telling you it's correct. I personally know of 3 instances of this practice independantly of the REI report. I've detailed the consequences in the earlier posts in the thread - to which no one gave much of a viable alternative bar shugging the shoulders and going "oh well".

International Property Funds like transparency - not croney capitalism.

 

[Brendan Burgess]

I'm telling you it's correct. I personally know of 3 instances of this practice independantly of the REI report. I've detailed the consequences in the earlier posts in the thread - to which no one gave much of a viable alternative bar shugging the shoulders and going "oh well".

Howitzer

This is a very serious matter. What did the tenants who were subject to this fraud do?

If they went public on this, then commercial tenants would have a much stronger case.

I am aware of one case where the rent review, about 5 years ago, seemed mad. Apparently, the arbitrator was "well known for favouring the landlord". So I asked the retailer, why this particular arbitrator was selected by his advisor if he was so well known. Why did they not select an arbitrator known to be biased in favour of the tenant?

 

[Howitzer]

Howitzer

This is a very serious matter. What did the tenants who were subject to this fraud do?

They paid the increased rent. What else could they do?

If they went public on this, then commercial tenants would have a much stronger case.

Isn't that what REI, their representative body, are doing?

I am aware of one case where the rent review, about 5 years ago, seemed mad. Apparently, the arbitrator was "well known for favouring the landlord". So I asked the retailer, why this particular arbitrator was selected by his advisor if he was so well known. Why did they not select an arbitrator known to be biased in favour of the tenant?

Again, as the REI report states, all they're looking for is transparency. The falsified nature of the other leases wasn't apparant, or provable, under the exiting arbitration process.

The situations I'm aware of were in 2 biggish provincial towns. I don't know why one arbitrator was chosen over another, my guess would be one of limited choice in the matter.

 

[mercman]

They paid the increased rent. What else could they do?

I don't know why one arbitrator was chosen over another, my guess would be one of limited choice in the matter.

It remains as to the discretion of both valuers to AGREE and choose an Arbritrator. If this is not possible, the IAVI appoint one without any conflict of interest.

 

[Howitzer]

It remains as to the discretion of both valuers to AGREE and choose an Arbritrator. If this is not possible, the IAVI appoint one without any conflict of interest.

And again, I'm not saying the Arbitrator is biased. Merely that the system lends itself to manipulation by one party. Ultimately the tenant is bound to the lease unless a break clause can be inserted - which again again is what REI suggest.

REI are making suggestions to improve the system of commercial tenancies and contract law. Where's the problem in that? How do we compare to best practice abroad?

 

[Brendan Burgess]

Howitzer

You are specifying it in much more direct and clear language than the REI statment.

At arbitration landlord produces lease indicating another tenant is paying a similar rate and as such it is now the market rate.
Arbitrator finds in favour of landlord.
Landlord gives discount to other tenant.

To me, this amounts to fraud. And the tenants involved should challenge it in the courts.

There is a tough one for, say the landlord of a shopping centre. He gives X a discount because he is in serious financial trouble. Y demands the same discount although his business is still financially healthy.

In practice, I think that the landlords are probably refusing to reduce the rents for all tenants. He may choose not to take enforcement action against X.

 

[Howitzer]

To me it's fraud as well but it's not illegal, as far as I'm aware.

REI use more couched language but it is the same thing. If neither the tenant or arbitrator are aware of side deals what can they do? If the deal is not in itself illegal and the landlord is not obliged to reveal it's existance what law have they broken?

"When seeking a comparison-based upward rent review, a landlord should be obliged to give all material information to the arbitrator. Where an increase being sought is justified by a higher rent contained in a lease with another tenant, the landlord should be obliged to provide a comprehensive picture of his relationship with that latter tenant. Under the current process, landlord's are not obliged to divulge if a separate deal exists with the latter tenant that gives a major discount on the rent amount contained in the lease. Both the arbitrator and the tenant facing the rent review remain in ignorance of the real situation, and the incomplete information given to the arbitrator will probably lead to a misguided conclusion that a rent increase is justified," he aded.

I couldn't care less about the competitive advantage obtained by one tenant achieving a better deal than another - that's business - but it's the process that has been entered into that matters. If there's no transparency, like in any walk of life, all you're doing is inviting rogue behavior.

 

[Bronte]

At arbitration can a tenant produce another similar lease with a lower rent than the one the landlord produces at the higher rate?

 

[mercman]

At arbitration can a tenant produce another similar lease with a lower rent than the one the landlord produces at the higher rate?

Yes and any other information which is required to fight their case