The latest on the Coalition’s pledge to legislate to allow upward-downward reviews in upward-only leases is, according to RTE broadcast news yesterday, that new Minister for Justice, Equality and Defence, Alan Shatter is to refer the matter to the Attorney General (AG), Maire Whelan to consider the compatibility of any change with our constitution. RTE made it clear that the matter has not yet been referred to the AG which is disappointing for landlords, investors, potential buyers/sellers, the property industry and commercial tenants – uncertainty surrounding the issue seems to be in no-one’s interest.
Meanwhile property powerhouse and NAMA panel valuer, CB Richard Ellis (CBRE) has issued a downbeat note on activity in the first quarter of 2011, saying that there were only two investment property transactions (really three because Google made two purchases). This, according to the note “follows a year in which 29 transactions with a combined value of almost €242 million were completed in the Irish market”. What the CBRE note doesn’t tell you is that the combined value of the three transactions mentioned for quarter one was over €210m (Google’s purchase of Gasworks House for “slightly over €100m” and Gordon House for €99.9m, both in Barrow Street and the sale and leaseback of Ericsson House, Clonskeagh, €10m). So on the face of it, the first quarter of 2011 has seen sales worth 87% of the total sales for all of 2010. Wow! Also I can’t seem to find any reference in the CBRE note to the purchase of 22-25 Clare Street by the Office of Public Works in February 2011 for €5.65m. Now I am being slightly mischievous because CBRE want to highlight the collapse in transaction volume but the fact remains that transaction value is considerably up on last year.
Of course the point CBRE wants to make is that both the procrastination with dealing with the rent review issue and the issue itself are deterring transactions. Obviously not the Google, Ericsson and OPW transactions, but the complaint is merited. Minister Shatter has had his feet under the desk in St Stephen’s Green for over three weeks and given the strong commitment to this matter in the manifestoes, the Fine Gael manifesto in particular which said that reviews would take place in 2011, it is disappointing that no opinion has yet been sought from the government’s adviser, the AG.
The position on here was neutral but is now leaning towards the swift implementation of reform, on the basis that a more competitively priced factor of production – property – will benefit society more than the damage caused which will be widespread and not limited to stereotyped money-grabbing landlords. With respect to the constitutionality issue, I would be surprised if implementing upward-downward reviews in upward-only leases was judged unconstitutional. The reason for this view is that our laws closely mirror those in the UK where property rights are frequently interfered with, including those enshrined in contracts. A good example might be the reforms to residential leases in the 1970s and 80s which lead to the Duke of Westminster, who owns the freehold in much of central London, fighting the then Conservative government all the way to the European Court of Justice which ultimately held that society’s needs were greater than property rights. And that is why today in the UK, residential leaseholders can generally extend their leases or buy the freehold in their buildings. I would guess that the change now contemplated with our commercial leases would touch on similar points.
But regardless, could the Minister get a move on, one way or the other.