Readers of the Phoenix magazine (available here with subscription) are treated in the current issue to a centrefold advertisement by John Corcoran, the owner of Korky’s shoe shop on Grafton Street in Dublin who has been locked in a legal battle with his landlords for several years. The advertisement takes the form of an open letter to Minister for Finance Michael Noonan challenging the decision announced by Minister Noonan in his Budget 2012 speech last December 2011 to abandon promised changes to Upward Only Rent Review provisions in leases created before February 2010. The open letter is accompanied by legal commentary from barrister and judge Gerard Hogan, whose views conflict with those of the Government and who appears to conclude that imposing changes on UORR leases would not be at odds with the Constitution.
There hasn’t been any response from Minister Noonan to the open letter, but in the Dail this week, the Sinn Fein spokesperson for Enterprise Jobs and Innovation Peadar Toibin asked the Minister for Justice Equality and Defence Alan Shatter to outline “steps or proposals under active consideration” in respect of reforming UORR leases. In his response the Minister did not allude to any “steps or proposals under active consideration” and appears to draw a line under the issue with last year’s announcements.
However the Minister does say that “NAMA is playing a role in dealing with problems caused by upward only rent reviews applying to NAMA properties, and since the start of the year has approved cumulative rent reductions of over €6 million” We previously learned that NAMA is approving practically all applications made to it to reduce rents, though there have been exceptions. €6m is a major reduction in income to NAMA though Minister Noonan has previously said that the long term survival of businesses in their commercial tenancies will more than offset any short-term reduction in income to NAMA. Given that NAMA has approved about 150 rent reductions, the €6m cited by Minister Shatter equates to an average annual rent reduction of €40,000.
Somehow I get the impression that we have not heard the last of the push for UORR reforms.
The full parliamentary question and response are here.
Deputy Peadar Tóibín: asked the Minister for Justice and Equality the steps or proposals that are under active consideration by him to address the issue of the operation of upward only rents.
Minister for Justice and Equality, Alan Shatter: The primary responsibility which I have in relation to this matter relates to possible legislative intervention to ban upward only rent reviews in existing commercial leases. The Deputy will recall that following extensive consideration of this matter, the Government announced in December last that it had decided not to proceed with such legislation. There was a substantial concern that any legislative scheme involving interference in the contractual relationships of private parties would find it extremely difficult to survive a Constitutional challenge. In addition, the Government was advised that any model proposed would require the payment of compensation to landlords whose rights were infringed in order to ensure that the proposal would be compatible with the Constitution and with the European Convention on Human Rights. The Government was strongly of the view that payment of compensation to landlords in such circumstances could not be justified in the current economic climate.
Although legislative intervention may not be feasible, NAMA is playing a role in dealing with problems caused by upward only rent reviews applying to NAMA properties, and since the start of the year has approved cumulative rent reductions of over €6 million. I would also mention that I have commenced the Property Services (Regulation) Act 2011 which, amongst other matters, provides for the establishment and maintenance of a Commercial Leases Database by the Property Services Regulatory Authority. This Database will assist in providing readily accessible, accurate information in order to determine the market rent payable in respect of comparable commercial properties. Work is underway to ensure that the Database will be operational at an early date.
Finally, I wish to highlight the existence of a rent review arbitration code which was drawn up by a group of experts whose membership was drawn from all stakeholders in the commercial property arena. The code, which can be found on http://www.justice.ie, provides a mechanism to deal with the resolution of rent review disputes in the commercial property sector.