Although the Minister for Justice, Equality and Defence Alan Shatter made a complete hames of the Upward Only Rent Review issue last year, the announcement in December 2011 of the abandonment of Government initiatives to deal with high legacy rents was accompanied by the launch of a NAMA initiative to help commercial tenants in difficulty.
During the week, the Minister for Finance Michael Noonan responded to a highly specific question from Dublin Central Independent TD Maureen O’Sullivan where Deputy Sullivan asked about a rent increase at a restaurant where the landlord is a NAMA debtor. Aside from dealing with the specific question, Minister Noonan gave us the snippet that NAMA has approved 145 out of 149 requests for rent abatements so far. The Minister did not provide a figure for rent abatement requests still being considered. The full exchange is here
“Deputy Maureen O’Sullivan: if he can explain in relation to a business (details supplied|) the reason the National Asset Management Agency has requested a 100% increase in rent on top of the already €18,000 per annum rent of an external terrace only used 60 days maximum a year; the reason NAMA is requesting such an expense to be paid when Ireland is in a recession and restaurant turnover has declined by 30% since the economic boom with further decreases expected; the amount NAMA pays in consultancy fees to the original owner; and if he will make a statement on the matter. [29902/12]
Minister for Finance, Michael Noonan: As the deputy is aware NAMA has acquired loans from the five participating institutions and is not the owner/operator of properties. The Agency’s role is that of a secured lender. Other than properties that have been enforced, all of which are listed on NAMA’s website and which are managed by the appointed receivers/administrators, properties continue to be managed by their existing owners or their professional managers/agents albeit NAMA takes a very close interest in their efficient management and sale with a view to maximum loan repayment in order to protect the position of the taxpayer.
NAMA’s primary concern is that properties securing its loans are professionally managed at the most economical cost to ensure that rental and occupancy is optimised towards the servicing of interest and capital repayment on related loans. The owners/professional managers are responsible for the efficient running of properties, the collection of rents and service charges, arrangements for letting of vacant units and the operation of rent reviews in accordance with the leases into which tenants have entered. As lender and holder of security on the asset, NAMA’s approval is needed for key decisions such as significant new leases, rental reductions or abatements and plans for ultimate sale of the property.
On the issue of rent abatements, as I have previously advised NAMA has published very clear Guidelines, available on http://www.nama.ie, for tenants seeking a rent reduction from a NAMA debtor or receiver. It is important to emphasise that applications for rent abatements may be made in situations where tenants of NAMA debtors can demonstrate that the rents payable under their current leases are in excess of current market levels and, as a result, that the viability of their businesses is threatened. In such circumstances, tenants may seek NAMA’s approval for rent reductions. The Guidance Note is not intended to provide benefits to tenants whose businesses are trading profitably and who are in a position to honour their current contractual arrangements on rent. By the end of May 2012, the Agency had approved 145 applications for rent reductions under these Guidelines with just 4 applications refused.
NAMA is prohibited by Sections 99 and 202 of the NAMA Act and the normal rules of banking confidentiality from commenting on individual debtors or arrangements between tenants and landlords who may be borrowers from NAMA but NAMA assures me that in its role as lender/security holder it responds promptly and pragmatically to requests from its borrowers regarding lease arrangements including rent abatements on their properties where there is a justifiable case.
NAMA does not pay consultancy fees to debtors. As previously advised to the House it is the Agency’s practice to allow debtor companies to retain overhead costs from rental or other income that are produced by their assets where this is necessary for the operations of the debtor companies. The level of overhead is only agreed following a thorough and rigorous evaluation of the debtor’s business plan by NAMA. Each cost element is reduced to the minimum and NAMA advised that the level of overhead sanctioned by NAMA typically represents a very significant reduction on the level which prevailed prior to NAMA acquisition of the loans: typically, reductions of 50% to 75% in overhead costs have been imposed by NAMA.”
NAMA is not offering a free lunch to commercial tenants, and tenants need demonstrate (a) their existing rent is above current open market rents and (b) the existing rent is threatening the viability of the business. Non-NAMA tenants may feel aggrieved by the reputed intransigence of some non-NAMA landlords to reduce rents, especially in cases where tenants may be paying 100% more than the current market rents under old Upward Only Rent Review leases, that is, commercial rents in Ireland have fallen by 50% from peak. Amazingly, the cost of the NAMA initiative, despite previous warnings of multi-billion euro reduction in asset values, is ….. nil.