Ireland is believed to have been one of only two EU countries (the other being the UK) where upward-only rent reviews were common features of business leases (rental contracts) until February, 2010 when Section 132 of the Land and Conveyancing Law Reform Act 2009 banned upward-only rent reviews in new contracts. Many people may not have seen commercial lease agreements before but would expect to see a term in the lease setting out the rent to be paid for the relevant premises. Because business leases tend to be longer than residential leases and because the tenant may wish to occupy the premises for several years, provision is made in business leases for the determination of future rent. That future rent may be reference to growth in inflation, growth in turnover or to be determined by an independent valuer – these and others make for many ways in which a future rent can be determined. Up to 28th February, 2010 the likelihood was that the business lease would provide for rent reviews but that the rent review would only be upward (or have a nil increase, that is, stay the same). From 1st March, 2010 to reflect the collapse in our economy, upward only rent review clauses were banned. But only for new leases. Not retrospectively for old leases.
For existing leases, the existing terms continue to operate. So on Grafton Street you may well have a lease on one premises paying €800 psf per annum and next door paying less than €100. Businesses with “old” leases (ie those entered into before 1st March, 2010) are feeling the pain and feel particularly aggrieved at competitors whose rent is fraction of their’s simply through an accident of timing. After construction, the retail sector is said to have suffered most with employment dropping from over 300,000 at peak to 136,000 in the latest CSO Quarterly National Household Survey, retail is now the second biggest sector in the State after “Industry” and therefore a key employment sector, particularly for females. And with a general election on 25th February, political parties have been setting out their stalls. And with jobs towards the fore of the campaigns, both Labour an FG (policy document here and manifesto here) – the likely elements of the next government regardless of the current cattiness – have signalled that they will retrospectively alter old leases. Terrific news for business tenants, including the beleaguered retail sector. Dreadful news for landlords and other property investors, eg NAMA.
Interestingly the property professionals industry association, the Society of Chartered Surveyors (SCS, currently merging with the Irish Auctioneers and Valuers Institute) has issued a position paper. You might have expected this body which represents parties on both sides of the transaction to have been neutral on abolishing retrospectively upward-only rent reviews but no, it firmly comes down on the landlord side and sets out in some detail the expected collapse in commercial property values that would be expected in the aftermath of any such move. For instance, it believes that “least 20%” will immediately be knocked off commercial property values (capital values here are already down on average 60% from peak so another 20% would bring the total fall from peak to 68%, a level of fall that is already evident by the way in some cases). It also believes that property investors would seek compensation from the government with the taxpayer footing the bill and indeed a retrospective change to leases would harm Ireland’s image abroad as a stable home to foreign direct investment (FDI) which might see a government’s willingness to alter contract terms as an ominous sign (what next, the corporation tax rate of 12.5%).
NAMA of course controls the biggest commercial property portfolio in the country, worth €10bn according to the SCS. And a 20% further decline in values would see NAMA in line for a €2bn loss. The impact on our beleaguered banking sector could be even worse. Given the residual non-NAMA loans in the NAMA Participating Institutions (PIs, AIB, Anglo, Bank of Ireland, EBS, INBS) includes €70bn of commercial property lending (remember NAMA is primarily about land and development with commercial property sucked in under the heading of associated lending – pure commercial property exposures are left untouched by NAMA). So a further decline engineered by a new government might see losses at the banks balloon even further.
UPDATE: 16th February, 2011. The battle lines in the debate on retrospectively altering commercial rents (mirroring the exchanges of comments on here between Brian Flanagan and commenter NAMAJew) continue to be drawn today. In the Irish Times, Bill Nowlan argues the case on behalf of what might be seen as “the property industry” whilst in the other corner is Retail Excellence Ireland representing the retail sector which openly calls on members to vote FG/Labour to protect jobs (not sure I’d agree with its assessment of numbers employed in the sector which seems to be contradicted by the CSO Quarterly National Household Survey cited and linked above).
UPDATE: 18th February, 2011. For completeness here is the IBEC (employers association) retail sector statement on what was then only Labour’s commitment to the retrospective changing of upward-only review leases. There doesn’t appear to be an IBEC property sector statement on the matter …Oddly enough, the Construction Industry Federation (CIF) has yet to comment on the proposals, as has the Irish Property Council.
UPDATE: 23rd February, 2011. I have rarely seen such a carefully considered piece as the one penned by commercial property commentator, Bill Nowlan in today’s Irish Times in which he seems to accept the inevitability of FG/Labour’s plans for retrospective rent reviews. He cites IPD saying that on the portfolio in Ireland on which they determine their index (with the Society of Chartered Surveyors) the manifesto pledges would result in a 19.8% decline in capital prices on the IPD-monitored portfolio. In one of the best written pieces I think you could expect to see on this subject Bill argues for a system which would protect tenants whilst deterring “chancers” and “try-ons”. Whilst still firmly speaking for the property industry (and I note the photograph used in the piece is of a shopping centre owned by Irish Life who are a leading pension provider in the State – so any decline in commercial property prices will affect grannies, geddit?), Bill suggests a system of reviews which would borrow from insolvency processes and kick in where rents constituted more than 10-15% of turnover. An interesting contribution that deserves to be studied though I would think the folks on other side of the argument, the tenants, might have alternative proposals.
UPDATE(1): 2nd March, 2011. With negotiations ongoing between Labour and FG to hammer out the terms under which a new government can be formed (and with not a small chance that the talks may fail, it should be said) it seems that the areas of difference as reported in today’s Irish Times citing “sources from the two parties, speaking on condition of anonymity” do not include retrospective rent reviews. And elsewhere in the Irish Times, David Fitzsimons from Retail Excellence Ireland gives his reply to Bill Nowlan’s article last week. He refers to the failure of Celtic Bookmakers, Hughes Hughes, Sasha, Four Star Pizza, Toni Guy and Chartbusters and claims “extortionate rents” as the “fundamental reason” for their failure. It is an interesting article that tries to spell out the benefits to the economy of lower rents in legacy leases (those created before 1st March 2010 when upward only rent reviews were lawful). He says that 30,000 jobs will be protected, mostIrish pension funds invest less than 3% in property and that in fact there has been little foreign investment in property in the last eight years in any event. Elsewhere in the paper, there is an article on the latest Cushman % Wakefield “Office Space Around the World” report which ranks Ireland as 26th most expensive office accommodation location with average rents including taxed and service charges of €42psf down from €47psf the previous year and that is attracting more foreign interest it is claimed. Cushman & Wakefield also say that London City and West End rents rose by 25% last year.
UPDATE (2): 2nd March 2011. Property services powerhouse and NAMA valuation panel member, CB Richard Ellis has just published its first “bi-monthly” (I believe they mean every two months rather than every two weeks) report looking at the commercial rental sector in Ireland. The press release is here and the (very slightly longer) report itself is here. It concludes that activity picked up in January and February 2011 no doubt boosted by the fact that prime rental levels are 50% off peak and there is little new space under construction. Indeed there are only five new Grade A buildings in Dublin 2 and 4 with over 75,000 sq ft.
UPDATE: 10th March, 2011. The Irish Times continues with what seems like a series of essays on the subject of upward rent reviews and today the Head of Investments and a director of agents, Lisney, Anne Hargaden gives her views on the matter. She starts her essay with an attack on “ill-conceived arguments presented through the media” and then goes on to make what must be the most vacuous arguments you are likely to hear on the subject (1) She attacks government’s interference in property rights disregarding the fact that governments constantly interfere in rights of citizens and companies all the time and she might consider that fact the next time she sees people having a cigarette outside their offices (2) She produces calculations which show that a 30% reduction in rent will have a, er 30% reduction in capital values (3) She claims that Irish citizens and banks and pensions are exposed to property and will be disadvantaged by reductions in rent (4) She says that existing commercial arrangements should see landlords willing to reduce rents when the tenant is at the point of insolvency and (5) Using wonky arithmetic (20% of 5% is 1%, not 2%) she claims that rent is but a small part of a retailer’s cost base and insolvent businesses which produce vacated premises will soon be filled again. It is to be hoped that the property industry does not let this woman near ministerial offices if it wishes to moderate the effect of the manifesto pledge – “ill-conceived argument”, highly-selective facts and wonky arithmetic will not impress.
UPDATE: 30th March, 2011. Bill Nowlan tries to progress the debate in today’s Irish Times where he suggests that the proposal be referred to the Law Reform Commission to consider, that being the body which only in 2003 reported “The Commission is clear that it would not be appropriate to impose a mandatory statutory scheme [on commercial rents] . This would run counter to one of the guiding principles stated in the Consultation Paper on Business Tenancies 36 and reiterated earlier in this Paper 37 namely, “removal of legislative provisions which militate against commercial practice and operation of free market choice” Elsewhere Bill refers to the “prancing of pressure groups” (take a bow, Retail Excellence Ireland!) and it seems clear where Bill’s sympathies lie in this debate. But a key point he makes, for the expeditious conclusion of this issue, seems welcomed by all parties regardless of their sympathies.
UPDATE: 2nd April, 2011. The Irish Times reports on a year-old letter from NAMA to the Department of Finance which complained in May 2010 to then-Minister, Brian Lenihan that altering upward-only lease terms to allow upward-downward reviews would devalue NAMA assets and force NAMA to overpay for the remaining tranches since it was valuing by reference to November 2009, disproportionately benefit “foreign” commercial tenants and have unhelpful consequences. The letter was penned by NAMA CEO, Brendan McDonagh and its Head of Portfolio Management, John Mulcahy. It is a year old and a Rice-Daviesesque reaction might be appropriate : “they would say that, wouldn’t they”
UPDATE: 18th April, 2011. David McWilliams has come out in favour of lower rents, though he doesn’t go so far as to support banning Upward Only Rent Reviews. John McManus delivers a barely literate and partly inaccurate article in support of changes to UORRs in the Irish Times. He incorrectly claims that the recent Central Bank of Ireland stress tests did not consider the abolition of UORRs when the explicit change projected in the adverse scenario was 20% different to the baseline scenario specifically to accommodate the expected 20% drop which the SCSI has said would follow the abolition of UORRs. The article focusses on improving competition by setting rents at market levels.
UPDATE: 11th May, 2011. John Moran, managing director of JLL in Ireland tells the Irish Times today that the “threat” of abolishing UORRs is stopping investment and he cites as evidence the one office investment transaction in Q1, 2011 in Ireland (the Layden Group reportedly bought 42,000 sq ft Boole House in Clonskeagh, Dublin 4 for €9.25m in April, 2011 which isn’t even Q1 – apparently it was a sale and leaseback by telecoms giant, Ericsson). John goes on to claim that there was €4bn waiting to enter the investment market at the start of 2011 but that most of this “has voted with its feet and chosen not to deploy itself, citing that Government interference with the market and contracts is an absolute impediment to investment.”
UPDATE: 8th June, 2011. A study has been conducted by CBRE in Wexford town, sponsored by a number of parties who would appear to have an interest in defeating the proposal to abolish UORRs. According to the Irish Times “The study found that of the 136 retail properties in the town only 2 per cent of them were refused rent abatement by their landlords. However, when the 45 per cent of the shops which are owner-occupied as well as vacant units and recently let stores are discounted from the survey, those refused rent reductions accounted for 19 per cent of the total.”
UPDATE: 17th July, 2011. Without citing sources, Aine Coffey in Ireland’s Sunday Times (not available online without subscription) reports that a Bill is making its progress through the Irish cabinet and will be presented to the Oireachtas in September/October. The Bill is to have a five-year sunset clause which the newspaper claims is to bat off challenges to its constitutionality. A sunset clause merely means the Act will be discontinued after five years but it is not clear why a sunset clause would make the Act immune to legal challenges by disgruntled landlords. Other features of the Bill are reported to include
(1) It will only be in “exceptional cases” that tenants will get changes to their leases
(2) The tenant must demonstrate that rents are threatening their viable businesses
(3) The tenant must demonstrate “the upward-only review clause prevents the rent from reverting to a market rate”. It’s not totally clear what this means, it might simply mean the tenant must show that the lease is an UORR lease.
(4) Landlords will be entitled to defend attempts to change rents if they can demonstrate rents being based on costs incurred on the premises, though a defence will not be available based on existing bank loans.
(5) The circuit court will be the court with authority to hear cases but the tenant must wait a year after a review was first sought from the landlord before becoming entitled to apply to the court.
(6) According to the Sunday Times “the circuit court will also have the power to rule on rent arrears”. Again this is not clear – perhaps tenants will be entitled to reduce their rents paid pending an outcome of the circuit court.
All in all, this report is worrying in the sense that all of the above details have the potential to change property valuations. Minister Shatter should be making a prompt statement on the matter and his Department has been asked for comment.
NAMA Wine Lake 
NWL,
If FG/Lab government follow through on their policy on rent
reviews, the 2nd set of Nama business plans (1st set assumptions were wrong as a result of the IMF/EU memo)
can all be thrown in the bin.
This legislation will require an amendment to the constitution to make it stick. In the current climate
this will easily pass.
Values will fall as per your post and rents will fall well below € 20 psf in Dublin. The effect on Nama and the banks will be huge. As a direct result of this expect further capital injections into the banks from the state.
No capital repayments will be made on any loans and less than 50% of interest or less will met on most commercial properties loan facilities. Interestingly DCC rates may be higher than the rent on some properties.
Such a pity that the FG/LAB new masters are about to make our very serious problems turn into a spiral of disaster.
The policy would give the “kiss of death” to NAMA, the banks, what remains of the Irish property market and any future inward investment from Pension Funds and investors.
Yes, it would be very serious. BUT, it would also help reduce costs/prices and improve national competitiveness.
Brian,
Reducing rent costs means that the Banks and Nama lose money which in turn means the State loses money.
This is simple. If we lower rents by a significant margin, Nama and the Banks will recieve less money to pay interest on the outstanding loans let alone make any capital repayments.
Values of properties will be in free fall and further equity will needed to be put into the banks. Nama was set up to
protect asset values not destroy them as they have been doing for the last two years.
There will be no floor in the commercial property market and our zombie banks have no capital to lend. So chaos for a generation.
We should be focusing on immediate reduction in local
authority rates by using 2010 values instead of 2005 values. This would reduce current rates bills by over 50%
for tenants. We have tenants whose rates bill is nearly
60% of their annual rent !!!
Rents will need to fall but only when we know that a floor
has been reached in the property market and Nama are
selling their Irish assets at a 50% discount. I would propose
that in 2015 we could look at reducing commercial rents on a phased basis depending on maket conditions and state finances.
Well this is going to be a controversial topic NAMAJew. As you say the property market will collapse further with the retrospective abolition of upward only rent reviews, NAMA will incur a significant loss (and I don’t think it will be anywhere close to the SCS’s 20%, it could well be 50% for certain commercial premises) and the State-guaranteed banks with €70bn of non-NAMA lending for commercial property will be staring at further losses (€20bn would be a rough ballpark for the additional black hole) and yes we may upset the international folks who may think Ireland isn’t a sound place for investment because we tear up contract terms retrospectively. But look again at that loss of employment in retail for example 300,000+ employed in retail in 2007, 136,000 today. High rents are a common complaint theme amongst small and medium sized enterprises (SMEs)/ businesses upon which we depend for new employment (much more than exportheavy MNCs). Look at the competitiveness of office space where prime Belfast is almost 1/2 of prime Dublin. And as for reducing rates, who will make up the shortfall in local government funding? The taxpayer (or As Vincent Browne and now Gerry Adams would say, the citizen) presumably.
This is not an easy topic at all. I know it is a raw subject amongst the property industry. But it is not just the leaseholder of Korky shoes (the shop on Grafton Street with the building high poster “High Rents are killing our jobs” (see photograph here http://irelandafternama.wordpress.com/2011/01/17/a-brief-return-to-grafton-street/), high rents are killing certain businesses, mostly SMEs and at the very least these two policy initiatives (the FG one seems more doubtful in my view) will open the debate in earnest because in two weeks, these two parties are likely to be at the levers of power.
“Rents will need to fall but only when we know that a floor
has been reached in the property market and Nama are
selling their Irish assets at a 50% discount. I would propose
that in 2015 we could look at reducing commercial rents on a phased basis depending on maket conditions and state finances.”
Wake up and smell the bacon NamaJew, property has collapsed.
We need to establish a ‘real’ commercial market base ASAP and proceed from there and stop this endless tinkering with the market. The slow pace is death by a thousand cuts, lets get on with it.
Rates should be addresses to, capped but based on a mix of profit/turnover. Basing rates on the value of the property they are in is a double whammy in both directions, up and down, and has overhead costs (valuations/enforcement etc); every business produces accounts and pays for them – turnover and profit (cro look-ups) do not require major overheads for any local council. Giving local councils the power to raise taxs is not clever.
JR there is no market because of Nama. There is no tinkering with the market because there is no market period. There are no banks period.
The State and Nama in two years have destroyed property asset values. So when you say, ” Lets get on with it ” you
might enlighten the rest of us?
NJ, the problem is not that there is “no market” but that there is no demand from prospective purchasers, consumers etc. in addition to there being no credit. Not only that but demand is declining because of emigration, belt tightening etc. Nama, or the State, cannot be blamed for that or for destroying asset values as these assets were clearly hopelessly overpriced and supply (in many areas and sectors) greatly exceeded demand. So, the (simplistic) solution is to lower prices and wait for demand to recover. This may take years and if assets are dumped on the market (as some people propose) at firesale prices in order to “show results” the recovery will be even slower.
As an aside, I look askance at some of the election promises about creating zillions of jobs through various schemes. How can these jobs be sustainable if there is no increase in demand? Creating a hundred new jobs is a pointless, zero sum game unless demand picks up or the new jobs are servicing foriegn tourists or export markets. The jobs will follow increases in demand so the focus must be on getting more people to spend more money in Ireland on goods and services with high local added value. This requires creating confidence in the future and lower savings by those who can afford to save. Jobs will follow a resurgence in demand.
nama is an exercise in tinkering,
bank bailouts are an exercise in tinkering,
yes you can argue that “The State and Nama in two years have destroyed property asset values.”
Would it have happen if the state and nama were not around?
At a simplistic level the reason it happened is that it was preceded by a bubble. One of the main reasons why (in my opinion) is that banks went berserk. If they had not gone ‘mad in the head’ with crazy lending these problems would not be significant, because the bubble would not have happened in the first place. By all means blame the developers for consuming – but its in the nature of pigs to eat whats put in front of them; it used to be in the nature of bankers to be prudent.
The crash (in hindsight – I’m no economic fortuneteller) was going to happen/had started to happen, regardless/in spite of trying to assist/save the day with bank bailouts and nama. It can be reasonable argued that this ‘tinkering’ did the opposite of assisting, but surely its not the underlying reason.
By ‘getting on with it’ I mean that we have to arrive at a point where buyers and sellers interact (I don’t have the RICS longer and more legally precise ‘willing’ definition). Are the bailouts and nama making the road to this point longer? Lets get to this point, transactions will begin to happen and we move on from there. Tinkering, distortions, interference (especially by politicians) with any market does not assist in the medium/longer run.
With regard to enlightenment, I’m not the guy on the Damascus road chucking lightning bolts, you’ll have to find your own and I wish you luck in that regard. I’m just repeating/regurgitating some basic facts.
JR,
Please read Bill Nowlan’s article in todays Irish Times. Really
says it all !
This is the link,
http://www.irishtimes.com/newspaper/commercialproperty/2011/0216/1224289924460.html
Thanks NAMAJew, the post has been updated to include Bill Nowlan’s article and also a statement by Retail Excellence Ireland which sets out the counter-arguments.
Good article, and Bill is right in so many of the things he is saying and in my opinion slightly ‘off note’ in others.
Retrospective tinkering is the worst kind and should not be contemplated in my view. I also concur wholeheartedly with Bills remarks regarding ‘property rights’ but IF property rights are so ‘special’, is my money not my property as well – and look what they have done with that! My/Your property rights don’t stop at our front doors, as opposed to and opposite to a banks front door. Some observation on Bills well penned article; but a word of warning, it is difficult to disassociate well held principles with the current mess we are in and navigate accordingly so I’m wouldn’t be too critical of anyone who is thinking/assisting.
Bill works for NAMA in an advisory capacity (according to his web site, wkn.ie), no sin in that at all but he should be reminding us of that fact when his Quill quivers.
“The fall in values will push even more loans into default and make the banks more insolvent. This probably does not worry too many people until they remember that the taxpayer will have to fork out more money to recapitalise the same banks.”
Obviously a fall in value could push more loans into default if the interest is not paid. They could probably be technically impaired with loan to value covenants being broken etc. ‘Yields’ do not get a mention in this article and as even Brian Lenihan now hopefully knows (as opposed to being illiterate as correctly pointed out by NWL), yield is an equation of two sides as I’m sure Bill can appreciate.
I can appreciate the statement of a bank being ‘more insolvent’ when viewed in the context of our current mess and the dance we have been led in order to get here by our government. But come on, ‘more insolvent’, you either are or you are not, how more dead than dead do you want to be? Lets not all be led a merry dance.
“more money” exactly – should they have been bailed out by us to the degree they were in the first place.
“Ireland will become the laughing stock of the world.” Moot point but the tenses are in a muddle, then again we all suffer the i(the only context where I don’t apply a capital)rish jokes – our philosophies can accommodate. Stopping the self-flagellation is perhaps a good starting point but ho hum each to their own.
“The change to upward and downward reviews in new leases has brought us in line with European though not UK laws,”
Is there any sane person who now thinks that upward only rent reviews were a good idea?
“The core problem in Ireland is that the sales culture took over at management and boardroom level in the Irish banks in 2003. The banks then handed out mad loans based on mad property projects. Good banking practices and basic economic principles were forgotten in the dash for short-term profit and bonuses.”
Exactly right and Amen to that but this caused a property bubble and what happens when a bubble busts, ask the dogs in the street.
“Are we now seeing the populist sales approach of two major political parties vandalising our economic infrastructure for votes?”
Yes, unfortunately it’s call politics and we endlessly let them bribe us with our own money or worse still let them bribe us with our childrens money (being flippant it’s a pleasant change for them to be bribing us with someone else money, then again the circular paymaster is us anyway, ah well there was a moment there).
p.s. pleading to the people who have their boots on our throat is admirable but surely you have to see the big picture as to why its there in the first place. Property is a symptom but not he core cause as pointed out.
One paragraph says it all. He states that we will become Zimbabwe (without sun, of course) if we legislate retrospectively for short term political gain. He is correct. Our credibility, gravely damaged as it is, would be completely gone with international investors and funds. Just when we need all the investment from outside that we can get.
If it happens, there will be nobody left in employment in the country to turn out the lights – no matter what the retailers say.
We have no money. We need inward investment. That investment will bring liquidity. The liquidity encourages credit. With liquidity and credit we get growth and that brings jobs.
The politicians, once again, are showing their financial naiveté and ignorance and are playing with fire.
Goodnight NAMA and the Banks – not to mention IPUT (the Irish trade union pension funds), life policies and economic recovery.
Thinking further on this….. It looks inevitable that FG will implement their policy regardless of the consequences. Hence, what will the consequences be?
More competitive infrastructure for inward investment?: Not really. They can find empty offices at a 50% discount to recent rents available all around the country.
Lower rental levels to existing tenants: Yes, In itself, in the current climate it will give help to small retailers. The big UK multiples seem to trade on regardless.
Lower values: Yes, Perversely, this may bring investors back into the market. They cant resist a bargain, especially the US funds, who are used to these type of leases.
Landlords in negative equity: No question. Yet, as this is a child of the government, it may mean that NAMA will have to deal with the reality that the fall in value has been caused by government policy and this may let the developers “off the hook” in terms of their guarantees.
Every cloud has a silver lining!
How will this affect (wonder is grammatically correct?) NAMA?
Well, if you take an office building currently over-rented for €2 million per annum, it is probably valued at roughly €2m @ 8% yield = €25m less SD and costs of say 10% = €22.5 million total.
New value after FG legislation will give a rental level of €1 million (50% reduction in current market). But there should also be a tightening of yields because of the new lower valuation and potential of upside rental levels. So:
Value of asset: €1m @6.5% yield = €15.4m less SD and costs of 10% = c. €14m
That gives a new haircut to NAMA and landlords of existing leases of 38%
If we make an assumption (i hate doing that!) that NAMA’s inventory of loans has approximately €10 billion of legacy leases, it could reduce their recoveries by almost €4 billion.
Nasty!
…. not too sure that we would even get down to a 6.5% yield with just market “up-or-down” reviews. It really is quite a different animal. So a 38% writedown and a further €4 billion loss may be optimistic….. It could be a 50% writedown and a further €5 billion loss.
Whatever it is, if the legislation is put in place, it’s not going to be pretty!
Two major Aviva deals (€400 million plus) fell “out of bed” yesterday. It begs the question if the buyers walked away because of the threatened change in legislation.
As more (wise) commentators are trying to say – and let me put words in their mouths- this crisis is no longer about money alone. I comprehend this as concern for patients on gurneys, with heart attacks caused by mortgages, on houses still declining in value. It has become a crisis of society, democracy and sovereignty.
So, the solution will be found not through Bankers, NAMA or Politicians, but through society, democracy and sovereignty.
Regarding NAMA and the crisis, maybe some are looking through a microscope at an astronomical problem that needs a telescope.
Someone, on this blog I think, pointed out when things get bad you call your Bank, when things get really bad you call an attorney.
Well when things get worse still, then you tear up contracts with both and rebuild, starting with caring for society, instilling democracy and earning sovereignty.
Not quite the approach we are witnessing.
Very well put, sf ca writer. It is so true. The issue is much bigger than money, banks or the economy. Our pygmy politicians just don’t understand that. I doubt if they ever will.
Sf Ca
You may have won post of the year on Nama Wine Lake!
The blog on the rent review question and the excellent comments by all may be the most important issue that
has ever been addressed on the site.
We are where we are, but now we are discussing a new government policy which could lead to the total collapse of the Irish economy and Irish society.
We all need to make contact with senior figures in the Fine Gael party and try to explain the consequences of the proposed rent review legislation.
[…] at JLL says that the Q1, 2011 figures do not include the effect of the proposed abolition of Upward Only Rent Reviews (UORRs) which, she claims, would lead to a “20 to 30 per cent” further decline in capital […]
Commercial property should be a service to enterprise, trade and employment. Why are so many bloggers terrified of market rents?. Why are landlords,speculators and wheeler dealers against market rents?.
The headline in today`s business section of the Sunday Times reads ” Rent fears sink Treasury deal” In this article it states , the boards of Treasury Holdings , Nama and the Construction Industry Federation will be very unhappy if tenants in existing UORRs leases are allowed market rents.
The Great Crash 1929 current edition page 28
“Governments were either bemused as were the speculators or they deemed it unwise to be sane at a time when sanity exposed you to ridicule,condemnation for spoiling the game ,or the threat of severe political retribution”
“what is unnatural will not endure”
@Houdini
No, UORRs will not endure in their historical form. There is new legislation that does not allow for their further creation. However, to introduce laws that retrospectively overturn lawfully and freely entered into contracts is another matter entirely.
Letter to the Irish Times Tuesday March 2 2010
Chane in rent reviews
Madam,
There seems to be a possible misapprehension ,with far-reaching consequencies,in regard to upward-only rent review clauses in commercial leases.
The law has been changed by the Land and Conveyancing Law Reform Act 2009,which has just come into force. This provides that,irrespective of the wording of the clause,the rent may be reduced for a fair market rent.
However ,the change only applies to new leases; so that is no help to hard-pressed business tenants.
It is reported that the Attorney General has advised that to extend this change to existing leases would be “retrospective” and therefore unconstitutional. With respect,this view seems to be wrong, in that retrospective change would be one which applied to rent reviews which had occured or became due in the past;not to existing leases.
More important,there have been in the past few decades been several laws modifying landlord and tenant law and these have usually been made to apply to existing leases. This practice was upheld as constitutional ,by the high Court in the Shirley case in 2006. The details of this rather technical area, including a list of the landlord and tenant statutes just mentioned,are worked out in an article I wrote,published last year; “Do changes to landlord and tenant legislation apply to pre-existing tenancies?” (2009) 14 Conveyancing and Property Law Journal
No doubt, it is a happy coincidence that the establishment view of things coincides with the interests of the banks, which have advanced money to landlords to acquire premises on the basis of existing rent levels; the banks’ interests would be damaged by a change which would reduce rents.-
Yours etc
Prof David Gwynn Morgan
Professor of Law
University College Cork
@John “…..retrospective change would be one which applied to rent reviews which had occured or became due in the past;not to existing leases.”
Care to explain what you understand by that, John? Because as I understand it, he is saying that change to a rental level that has already been set is retrospective.
Also, I wonder if someone could explain in English what is meant by the term “pre-exisiting leases”? Is it leases that once existed but have now expired?
Maybe he only learnt to speak Welsh?
@John: BTW, the Shirley case had nothing to do with commercial leases. It was about the expiration of longterm ground rents in the town of Carrickmacross. The Shirley family own one half of the town’s main street since Cromwellian times.
To clarify my last posting:
The Shirley Estate owned the freehold title to some 40 properties on the west side of the Main Street in Carrickmacross for more than 400 years.
Gus O’Gorman (a local shopkeeper) won the right to buy out the freehold to his premises at Upper Main Street. JES Holdings Limited (the Shirley family) took its constitutional challenge to the Supreme Court where it is argued that the legislation allowing tenants to buy out the freehold was unconstitutional and was an unjust attack on the property rights of JES Holdings. It lost.
Nothing to do with UORRs.
Professor Morgan is a distinguished Professor of Law at University College Cork. His opinion is ,and I may be wrong,that the banning of UORRs in all future commercial leases from 1st March 2010 is retrospective.
When the Irish government legalised divorce it was retrospective ; it affected previous marriage contracts. Many prior changes to landlord and tenant law was retrospective.
I am not a legal expert–he is.
@John: I doubt that is his opinion. The banning of UORRs in future commercial leases cannot, by definition, be retrospective. Such an hypothesis is self-contradictory
@John: “Many prior changes to landlord and tenant law was retrospective.”
Can you give me just one example?
In relation to divorce, it is a personal and human rights issue. It is not a commercial contract – not in Ireland as yet, anyway. And where it is (as in the USA), there are pre-nuptual agreements that allow for the break up of the marriage and that set out the financial consequences associated with breaking the contract.
I have no legal knowledge. I am puzzled by how you can retrospectively interfere with future rent reviews?.
Very bad news for NAMA and good news for tenants. Tenants win the Supreme Court Challenge in the Shirley case. Irish times today –
“In his judgment yesterday Mr Justice Fennelly, for the five-judge Supreme Court, said that it was settled law that legislation enjoyed the presumption of constitutionality, and if two constructions were possible, the courts must use that which interpreted the law as constitutional.”
The section being challenged was reasonably open to an interpretation consistent with the appellant’s constitutionally protected property rights.
This should encourage tenants who are disputing UORR leases to proceed to the Supreme court if necessary. It also further confirms the “LIARS” accusation at the government who pleaded that they could not act for fears of constitutional challenges and compensation to landlords. Now proven to be complete balderdash! LIARS LIARS LIARS