Promised in both the Labour and Fine Gael General Election manifestos, and in the subsequent Programme for Government, talked about by Minister for Justice, Equality and Defence, Alan Shatter for the past six months and the subject of much debate, speculation, dark warnings, impassioned pleas and on here, sometimes heated arguments; now at last, the outline of the Bill to do away with Upward Only Rent Review terms in all leases is exclusively revealed here today.
Minister Shatter has recently indicated that the Bill will come before the Oireachtas at the end of October 2011 or November 2011. The Bill, the Landlord and Tenant (Business Leases Rent Review) Bill 2011 will give commercial tenants – remember this doesn’t affect residential tenancies at all – the right to seek a current market rent. The heads of the Bill, which set out in general terms the operation of the new legislation, have been obtained on here and this blogpost interprets this information.
So here we go:
Introduction
(1) The Bill will only apply to commercial leases created before 28th February 2010 [remember that leases created after this date were not permitted to contain Upward Only Rent Review clauses]
(2) For a commercial tenant to benefit from the Bill, they will need to rent a premises where the rent is higher than the market rent and the tenant will need demonstrate that the rent threatens the present or future sustainability of their businesses. There is no detail at this stage as to how sustainability will be measured, and this is likely to be a contentious part of the actual Bill. Also the tenant must demonstrate that reducing the rent to a market rent will significantly change the prospects for the sustainability of their business.
(3) Any new rent will apply for a period of five years, after which Upward Only Rent Review terms will kick back in.
Procedure
Phase 1
The tenant submits a request to the landlord for a market rent, together with a brief justification for the request/change. The landlord must respond to the request within 28 days to advise whether or not they agree to the contract rent being substituted with a market rent. If the landlord agrees to a market rent being inserted in the lease, then the landlord and tenant must try to reach agreement on that rent. The landlord will be entitled to demand certain information from the tenant such as details of the control of any company, employee headcount, accounts and other financial information and importantly, information supporting the tenant’s claim that the sustainability of the business is threatened by the existing rent. The landlord must also make information available to the tenant showing loan obligations. The new agreed rent will come into effect two months after the original tenant request. So tenants should not be considering the format of their requests.
Phase 2
Obviously this is where the landlord and tenant were unable to agree a new rent in Phase 1 or where the landlord hasn’t responded to the tenant’s request. Both the landlord and tenant will be required to attend an as-yet-undetailed mediation service. Mediation must take place promptly – 28 days is mentioned but it is not quite clear as to when the clock starts, but it is implied that it will be 28 days after the landlord’s deadline for responding to the tenant’s original request or when landlord and tenant fail to reach agreement in Phase 1
Phase 3
If mediation fails to provide a solution acceptable to both landlord and tenant, then the tenant may apply to the Circuit Court for a decision. The application by the tenant must be within 12 months of making the original request. This is at odds with previous speculation about the legislation which suggested the tenant would be obliged to wait 12 months before applying to the Circuit Court. The Circuit Court can back-date its decision to reduce rent from two months after the original request by the tenant.
Importantly, rent arrears must be cleared by the tenant before the new market rent can kick in, so if a tenant has withheld rent in anticipation of the new legislation, they will need make good their arrears to the landlord in order to take advantage of this legislation. Also if the landlord is unhappy with the Circuit Court-determined rent, then the landlord can terminate the lease with the tenant within six months of the court’s determination. Importantly, the tenant can also terminate the lease if the court-determined rent is unacceptable. From a landlord’s perspective, this might be the most contentious part of the Bill.
So how might this work in a contentious case?
(1) 1st December 2011. Tenant submits written request to landlord seeking a reduction in rent payable under the terms of the existing lease
(2) 28th December 2011. Landlord declines to respond to the tenant. The tenant applies to the as-yet-undetailed mediation body.
(3) By 25th January 2012 the mediation body must issue its determination of the new rent
(4) If the mediation service produces a proposed rent which is not acceptable to either landlord or tenant, then the tenant will have until 1st December 2012 to apply to the Circuit Court for the court to impose a market rent in the lease.
And how might the finances work?
(1) The tenant presently pays €30,000 per month in rent. The market rent is €20,000.
(2) If the Circuit Court agrees to the reduction in rent from €30,000 to €20,000 then the tenant will be entitled to a refund from 25th January 2012, regardless of how long it takes the court to determine the new rent.
(3) The tenant must seemingly continue to pay the existing rent until the Circuit Court determines a new rent
(4) The new rent of €20,000 per month will apply from 25th January, 2012 to 24th January 2017, after which the rent will either increase to the market rent in 2017 or remain at €20,000. It will not reduce.
Issues:
(1) It’s not at all clear what metrics or criteria will apply to tenants trying to demonstrate the sustainability of their businesses – now or in the future – is threatened.
(2) It’s not clear who will be undertaking the mediation
(3) It’s not clear how any costs will be borne by the landlord, tenant and court service.
(4) The new rent will apply for five years, it won’t be reduced or increased during that period. And the intention is that after five years, the rent will either stay the same or increase to the market rent then. The above process can only be invoked once, so if rents drop by another 20% say in 2013, tenants won’t be able to initiate a second bite at the cherry.
(5) There is no mention whatsoever of applying the scheme on a store-by-store basis. That will be a relief to many landlords who feared the likes of Tesco would seek a rent reduction on one premises, despite Tesco’s business overall being robust.
(6) There is no information on what happens to rent payable by the tenant until the Circuit Court makes its determination. The Bill seems to assume that the existing contract rent remains payable unless or until the Circuit Court issues its determination.
What effect will the proposed legislation have on commercial property values?
(1) There is some anecdotal evidence that the steep decline in Irish commercial property prices in Q2, 2011 of about 5% was in part attributable to the imminent introduction of this promised piece of legislation.
(2) At the start of this year, the Society of Chartered Surveyors in Irelandciting calculations from IPD claimed that commercial property prices might drop by 20% on average as a result of the mooted changes. Jones Lang LaSalle also indicated in July 2011 that changes to existing UORR arrangements might lead to a 20-30% decline in capital values.
(3) My guesstimate is that prices will drop 5-10% as a result of the above changes because some of the decline has already occurred in anticipation of the changes, and also the scheme is not as wide-reaching as might have been hoped for by some tenants. A key part of the proposed legislation – how tenants might evidence the threat to their businesses presented by current rents – is not yet detailed but it seems that even if the present rent is above market rent, the tenant will need jump through several hoops before they qualify for a rent reduction.
(4) If a building is subject to tenancies entered into after 28th February, 2010 -for example One Warrington Place whose tenant is Bord Gais – then the new legislation will not have any direct impact as these tenancies are excluded from the new legislation.
(5) Investors – domestic (a very rare breed) and international – may still have concerns about the impact of the legislation on potential investments, and they will be particularly interested to see how sustainability of existing tenancies will be measured, but there might be some cute manoeuvrings to finalise deals in advance of legislation which seems less intrusive than previously thought.
NAMA Wine Lake 
Seems like a reasonable comprise for both the landlord and the tenant.
Reasonable compromise? Going halfway to meet a totally unreasonable demand is not a reasonable compromise.
UORRs area law against gravity in the property sector. The stipulation that the tenant must show that tenant their business is in jeopardy, as well as the nebulous issue of what “market price” really is, means that the bill has been hobbled before it is even passed. The return of the UORR regime after five years simply proves that the government is uninterested in dealing with this egregious practice.
The Minister’s interests are not in in protecting tenants, businesses, or jobs. The Minister’s interest is in protecting landlords and their continued revenues; A rather shameful position for Irish minister above all others. Small businesses must simply join the queue of small people being squeezed to pay for the lifestyles of property ascendancy.
There is a balance to be struck between the legitimate interests of the landlord and the tenant.
Personally I would come down more in favour of the tenant as I see commercial property as a cost of doing business more than a productive sector of the economy. It is does play an important function in the economy but ultimately I believe lower commercial prices/rents are better for the economy.
However, the legitimate rights of the landlord cannot be completely ignored. And the original contract entered into by both parties should be honoured if it doesn’t lead to bankrupting the tenant.
If the government simply wanted to protect the landlord they could have done nothing.
Landlords have very little legitimate interests. They are rentiers who add no value to anything in the vast majority of cases. Their interests are nowhere near as important as tenants both commercial and residential, and should not be ranked as so important by anyone.
Land will always be there, and properties will always be there as well. However, jobs and enterprise will not. Landlords themselves are a commodity, and ensuring their profits over the profits of businesses does the economy little good(Except in a construction boom, but enough said there). Our society’s need for landlords is akin to its need for shoes; we might need them, but we don’t need to look after their interests over the walking man.
This is a very old debate about the excessive profits of the landowning industry–here’s Lloyd George’s 1909 speech on the matter. The Irish Government has heard the debate and has come down almost entirely on the side of the landlords. The profits of the nation are to be channelled to them at all costs, and if you don’t like it you can just close up your business and leave.
And great scoop by the way!
No reason to think it excludes semi state or BK banks/ financial institutions for example AIB could utilize this ?
@John, no exclusion along those lines, no. So yes it seems the mechanisms will be available to semi-states and state-controlled banks.
Great news at last for the Irish taxpayer.
“Sale of three portfolios of AIB branches which had a total value exceeding €160 million. The properties extended to 20,000 sq.m in total, comprising 45 individual properties throughout Ireland.”
http://www.savills.ie/case-studies/investment-case-studies/aib-sale-and-leaseback-of-various-portfolios.aspx
@john, so the assumed AIB argument would be that the leaseback deal is a threat to the sustainability of their present /future business?? I can see infinite legal argument in regard to this…great to finally be getting some clarity on it though. The ability for the tenant to simply terminate if the court determined rent is unacceptable is the most surprising aspect.
This will be gutted and filleted before the the bench at the Supreme Court. So why the hell did they not put an amendment before the people worded along the lines of this, ‘ The Government will place into being a Board that will decide current market rents’. It’s not too late.
“Importantly, the tenant can also terminate the lease if the court-determined rent is unacceptable”
Does this mean that if a tenant is currently unhappy with a tenancy, this may be for a number of reasons and not just rent related and can satisfy the criteria to begin this process. They can move through each phase outlined above by not agreeing to any proposed new rent level stating that the rent is still too high and when the circuit court determines the rent in phase 3, the tenant can just not agree with the decision and walk away from the lease and all their obligations ? This seems a major flaw in what is being proposed, I would have thought that the circuit court decision should at least be binding.
@Room 101, you have put your finger on what is likely to be the most contentious part of this Bill. The information currently available does not expand on what is written in the above blogpost, so on the face of it, what you describe might indeed be feasible for a tenant disgruntled for a variety of reasons.
There’s an interesting legal point here regarding the OPW who rent on behalf of government bodies. For the purpose of the Landlord and Tenant Act the government is considered to be a “commercial tenant”, which on the face of it makes them a qualifying tenant for the purpose of this Act. If the country is bust, does that mean that the Irish government can argue that they can’t pay?
The proposed legislation is drafted by a barrister who has no experience of commercial property let alone how such legislation will be perceived internationally – Good luck to NAMA trying to sell Irish Commercial Property in London and other international markets
There could be another two years or so of confusion on pricing as a result. What a mess…!
The legislation as proposed is completely political. They clearly haven’t thought the repurcussions through on this.
Someone will sue for relief/adjustment on their loans from the Government, commensurate with the valuation degrade created by such lease adjustments, and the cost will, once again, fall back on the taxpayer.
Crazy.
BTW, if this affects OPW leases, this is the government unilaterally enacting laws to benefit itself in order to renege on its contractual obligations….. all leading to the European Courts.
@Sean yes they were very active at the top of the market in sale leaseback
“The bank made €100m when it sold off 12 Dublin bank branches earlier this year to developer and investor Gerry Gannon for what is believed to be a sub-3% yield”
http://www.rte.ie/news/2006/1025/presswatch-business.html
Interesting times at Nana with John Mulchay over there
“the €750million sale-and-leaseback of AIB’s Bankcentre”
http://www.joneslanglasalle.ie/Ireland/EN-IE/Pages/InvestSalesandAcquisitions.aspx
“TWO BRITISH investment funds have dropped plans to buy Liffey Valley shopping centre, located off the M50 in west Dublin, because of the promise by Fine Gael and Labour to force the renegotiation of all commercial rents if they are elected”
http://www.irishtimes.com/newspaper/finance/2011/0219/1224290287448.html
It actually clears it up the proposed legislation was already affecting the market according to some sources.International investors are sharp enough to discount overage rent to market.
@John, if a property was worth €100m with an old fashioned UORR lease and €60m with a market rent, and the building happened to have old fashioned UORR tenants, then an investor would pitch their offer between €60-100m depending on their assessment of the effect of the abolition legislation. I don’t think the market had completely discounted existing UORR rents as there was always the chance the legislation would fail (which it might well do still) or that it would be less far-reaching than expected.
Good riddance. This country can do without that type of shameless and unreasonable greed.
This question is totally off the topic covered above(Can I say that the Authors Contributions to peoples understanding of NAMA and other property related topics has to be saluted)
My question relates to the 2009 legal case involving Liam Carrolls Zoe Group of Companies.
In the Courts judgements serious questions where raised about the Business Plan that carroll had submitted to the Court along with an Independent Accountants Report by KPMG.
Is there any possibility that a copy of these documents could be located and posted here so we can see an example of how far prices ect have fallen in comparison with projections in the Documents above?
Thanks
@Patrick, I will see if I can locate any papers which can be posted. It is not clear at this stage how the sustainability of the tenant’s business will be measured, but presumably practices in examinership will be looked to as a possible model, so the Liam Carroll papers may indeed be helpful.
@nwl one could argue the widening of yields on grafton street reflects this they were trading at or around 3 at peak.
With capital markets where they are these days it’s moot very little interest in “stories” or long explaniations to investment committes regarding legislative changes most investors would mark the rents to market and discount overage rent.
“Earlier this year another prominent unit on the street let to Boodles changed hands at a yield believed to be in the order of 6.35pc while last year a German fund, Deka, bought the Tommy Hilfiger unit on the street at a yield of 6.4pc in a similarly sized transaction.”
http://www.independent.ie/business/commercial-property/german-fund-buys-prize-aib-unit-for-euro28m-2248363.html
“the tenant will need demonstrate that the rent threatens the present or future sustainability of their businesses”-use a health ratio.
If as a tenant I decide that the ‘proposed’ rent is still not acceptable and I must be ‘current’ with rent will the ‘proposed’ rent that I rejected be back dated or is the ‘penalty’ for cancelling the lease a year of above market rent.
If the landlord ‘rejects’ the proposed rent and terminates as a tenant will I get a refund for the rent above the proposed rent that I paid while waiting for the CC to make a decision.
“Tenant occupancy cost ratios are calculated by dividing the tenant’s total occupancy costs by the tenant’s total sales”
“Median occupancy costs at U.S. neighborhood centers are 8% to 9% of sales, while U.S. regional malls typically range between 9% and 16% of sales”
http://nreionline.com/taxnotes/retail-landlords-face-quandary-0501/
@ Patrick @ NWL
off topic again, but front page of Sun Times business had story about sale of Sentinel Building in Sandyford for 800k, Flemins examinership bus plan (< 3 years ago) valued at 20 m +. Defo an interesting project to be done. Assume the examinership plans are in the public domain.
@nwl fame and fortune to follow shortly but great scoop
‘NAMA Wine Lake, an anonymous but widely followed blog’
http://www.reuters.com/article/2011/10/04/ireland-property-idUSL5E7L40DI20111004
In the Republic of Rent the landlords interests reign supreme. Ruinous Irish commercial lease law i.e. upward only rent reviews tied to long leases, destroyed the Irish economy by incentivising the over-renting of tenants and massively inflating the valuation model for commercial property. Reckless Irish banks lent tens of billions against these ruinous leases not against the properties. They were nothing short of economic terrorism.
Our current economic existance depends on “the kindness of strangers”. Our fellow members of the eurozone are keeping our ATMs working. No other member state of the eurozone tolerated this ruinous commercial lease law. It is the most anti-tenant commercial lease law in the the world and played a substantial role in creating the greatest property crash in the history of mankind. The troika who perpetrated this economic terrorism are -the Society of Chartered Surveyors, the Law Society and the commercial property speculators.
NWl
The publication of those documents would be much appreciated and worthwhile
Thanks
David McWilliams has more to say on the area of landlord’s interests being protected.
Sacrificing jobs to protect landlords is plain wrong
Suppose that a landlord enters into a commercial lease with a company, but insists that the lease is backed by a personal guarantee. Company succeeds in obtaining a reduction under this procedure. Can the landlord look to the guarantor for the shortfall? And if not – why not? Any justification for interfering with property rights applies only to sustaining the business – not to abrogating the guarantee to sustain the personal assets of the individual giving the guarantee.
@jcsmith, nothing that I have seen on personal guarantees and the implication is that if the court determines a lower rent than is specified in an existing lease then that loss is borne 100% by the landlord. There is also nothing in what I have seen on compensation to the landlord, which looks problematical. I’d guess the government is going to try to ram this through on the back of the constitutional get-out of infringing on property rights in the common good. But I can see issues with this approach at EU level.
@nwl assuming the above ‘market’ rent is refunded the tenant must be current before CC makes decision.Not clear if the tenant elects to terminate will they be entitled to a reimbursement of above ‘market’ rent paid before that decision made.Some people may take the position that charging and receiving usurious rent is ample compensation.
regarding contracts freely entered into etc so did all the developers with the banks and recent events/comments appear to indicate they will not be enforcing those agreements.
A farcical situation with the ‘landlord’ in Nama not servicing his debts appears they will be ‘forgiven’ and should be TAXED but most likely wont and the tenant is supposed to honor his !!!
The least Nama could do if they want to take a position and be taken seriously is to provide some examples or backup to any claim of diminution in value attributed to abolishing UORR.
This ruinous lease law is unique in the eurozone where lease lengths are on average 5 years long whereas in Ireland they are 25 years long. In the rest of the eurozone rents are reviewed annually by reference to the CPI index. In Ireland they are reviewed every 5 years using the notorious ratchet upward only rent reviews. If the landlord could find any fool to agree an absurd rent you were forced to pay it also. It was wide open to corruption. A substantial majority of tenants felt there was systemic corruption with landlords and their agents using side agreements,secret agreements and variouis other tricks to massively increase the rent. IMO this practice renders all tenants contracts/leases void who have been through the rent review system . No court in the world could allow tenants businesses to be destroyed using these corrupt practices which were widespread. The tenants should be suing for damages .
The guarantee issue is a minefield that clearly has not been addressed and it shows the lack of commercial “nous” in the barrister that drew this legislation up. It is a minefield and a bonanza for the lawyers …. once again.
It is common that startup company leases (with a PLC associate) or an Irish subsidiary of a multi-national Forbes 500 are backed by a guarantee of the parent giving the landlord comfort that the terms of the lease will be honoured. The proposed Bill does not speak to this issue at all.
interesting situation in London regarding guarantees not a expert but appears to be affecting the sale of Citi Tower
‘A Court of Appeal ruling has made the acquisition less appealing. The outcome of a case between House of Fraser and its landlord on Victoria Street in London means landlords cannot necessarily pursue guarantors where leases have been assigned.’
‘This lease is assigned to a Citi subsidiary – CIB Properties Ltd – and potential buyers are unwilling to pay the £1 billion-plus sought for the building with the uncertainty created by the legal case.’
http://www.irishtimes.com/newspaper/finance/2011/0924/1224304677101.html
Why did the irish government sign these ruinous leases on behalf of the citizens of our country and waste hundreds of millions of the citizens money.
@Conrad Brewer. I am sure landlords would much prefer to get their rent reviews linked to CPI annually. With the current 5 year rent review system (with the exception of the last few years) landlords have always had to play catch up. In a climbing market they have to wait 5 years until they achieve a market rent, at least if the reviews are annual the rent is much closer to the market value for more of the time. Tenants for decades have benefited signing up to leases with reviews every five years. As I said before it is only now the opposite is the case.
The decision to guarantee the banks also saddled the Irish taxpayer with numerous onerous above market rental arrangements.The Irish banks entered into top of the market sale and leasebacks then wasted the proceeds on idiotic badly conceived projects the CASH is all gone but the above market rents were passed onto the Irish taxpayer courtesy of the bankers.All of this of course was encouraged and enabled by the ‘professional’ firms.Links above in earlier posts relating to Jones Lang and Savills.
Thses ruinous leases were also described as neutron leases. The occupier/tenant was destroyed but the property remained in tact.
The new CEO of AIB can easily make back his proposed 1million by rejecting numerous leases and reducing the rent in many others.Failure to do this renders him unqualified to lead the bank and if AIB does not avail of the legislation then they are simply incompetent.
http://www.irishtimes.com/newspaper/finance/2011/0727/1224301447046.html
@Messrs Brewer & Beer; (Is that you John?) As I have said before, since the 1950s, 80% of the time the rents have been below market level and the tenants have benefitted. It is only in the past 3 years that the situation has reversed and the tenants started to whinge. This was not what they were used to.
I accept that we need to be competitive, but this is the craziest piece of legislation that I have ever seen – and I’ve seen a few nutty pieces!
It diminishes our standing internationally as a stable environment for business investment and it is akin to using a sledgehammer to crack a nut.
In the last week I have seen the rare sight of an offer placed on a €50 million investment property. The offer was hedged against the UORR legislation. €10 million was to be left on deposit and the price was to be reduced to €40 million if the legislation was enacted. A fall of 20%…. and it was based on the possibility of only one third of the tenants being affected. Two thirds of the space was occupied by a multi-national tenant that could not be regarded as a qualifying tenant under the Act.
Who will carry the cost of all these capital losses? In the end it will be the taxpayer. The losses of the few – landlord and tenant – spread over the many…..Again.
@wstt using your anecdote for illustrative purposes
Market cap rate 8 it’s multi tenant implied NOI or RR of 4mio
1/3 impacted or 1.4mio
Expected rental reduction of 800,000 to be passed onto tenants to grow the business pay taxes and stay in premises.
So the “buyer” is anticipating the 1.4 to be reduced to 600,000 utilizing same cap. rate for reduction as usual a bit extreme but …..
Why is it a “loss” who lost …..
Fagan made similar claim in IT linked above regarding Liffey Valley who “lost”…the Duke of Westminister …
@John gallaher: Your figures are correct. The offices are over rented by just over 100% (45 euro/sqft – current rent 20 euro/sqft). Apologies, I was unclear about where the losses fall. The tenant benefits in the rent reduction, which falls on the landlord/funder. That rental loss and subsequent capital loss will eventually transfer to the taxpayer when compensation is sought in the courts for retrospective interference with legal contracts.
Who will lose?
The tenant transfers his loss to the landlord and possibly to the lender. Actually, this loss to the lender is more of a probability than a possibility as the increase in yields has resulted in a fall in capital values already. In consequence, this fall has exposed loan to value ratios, thereby ensuring that any further loss in value will likely impact on the banks and wipe out the landlords’ equity.
Without doubt, the landlord/lender will sue the government in order to recoup their loss. A successful suit will transfer the loss to the taxpayer.
In summary, the tenants’ losses will eventually have been consigned to the taxpayer.
Q.E.D.
The proposed legislation requires the tenant using you anecdote again to continue paying double the market rent until CC reduces it.
They can easily add a section that also requires the landlord be current with his regarding taxes debt service etc.
After this is a society that has no problems jailing a 65 year woman for exercising her constitutional rite to private property I would hope it can fend off a few vexatious lawsuits by the likes of the Duke of Westminister.
Gerry Gannon paid sub 3 cap linked above for his AIB portfolio assuming the office building used in your anecdote would have traded at at 4 it’s multi tenant then the “value” at one point was 100mio
That’s a very small group of potential “owners” most of whom are now in Nama or non domiciled xpats who also liked to play in the Irish property market.
The qualifying tenant provides employment can grow expand his business redistribute the rent savings into the Irish economy as opposed to offshore or a BK developer.
The proposed rent savings of 800,000 annually may allow the owners of the business to trade up in resi inspire confidence in the employees to also purchase homes cars etc.
The legislation actually the proposed one is tamer than most pundits predicted was well signposted it was a pre election pledge by both parties and may have impacted yields but your “buyer” may also have credit issues regarding the affected tenants and be marking the rent to market.
Not enough info to do complete analysis thats the problem with anecdotes but it’s worth 40mil down from 100mio are they going to sue the estate of Brian Lenihan for the bank guarantee or the developers who BK the country?
@john gallaher, As you say it is down 60% from peak.
Who do they sue? The government (we the people).
Reflecting on the guarantees. The guarantor will have guaranteed the terms of the lease. So if the rent increased under an UORR, the guarantee would increase. Similarly if the terms of the lease were legislated downwards, the guarantee would decrease.
The new legislation will give the incompetents in NAMA a great excuse for failing to meet their already limited financial objectives. Given a euro for 40 cent, they have already managed to turn it into 30 cent. Looks like we are headed for 20 cent and the sinecure for the incapable is hardly up and running 2 years so far.
With the help of our legislative politicians, it shouldn’t take them too long to go through the rest.
The people of Ballyfermot were delighted when the Duke of Westminister decided to stay in Ballyfermot and not to sell his Liffey Valley shopping centre. Ruinous Irish lease law was a plague inserted into our country’s commercial life. No other business community in the eurozone had to endure this plague, the most anti-tenant lease law in the world. This plague destroyed the Irish economy.
No, John, it didn’t. Brian Lenihan did that in September 2008. NAMA is doing it now. BTW, it’s only since rental levels are in excess of market levels that tenants started to cry. They said nothing when it was the other way around – which was most of the time. Oh, and the French have rent reviews every 3 years, not five.
This debate resembles the classic “..re-arranging of deckchairs on the Titanic”.
It looks to me as if Irish commercial lease law attracted “investors” who are so lacking in imagination and energy that it is only natural to see the panic and the rush to blame and offload “losses” to someone else.
No risk and guaranteed reward leases have made a lot of people very lazy.
Is it time to get back to work – pack away the golf clubs and get off the bar stools? To do someone that actually creates wealth – real wealth?
I applaud every young person who gets off their butt and out of this country. Away from the navel gazing Silas Marners who want to make the rest of us just like them.
PGD if memory servers me Silas found ‘wealth’ from Eppie..the last ‘brain drain’ had disastrous impact on Ireland.
Wstt landlords achieved higher sales prices or equity releases if the rent was below ‘market’ in anticipating of a reset.
‘The initial valuation conducted by DTZ Sherry Fitzgerald (as Valuer) as at 12 December 2005 valued the Portfolio at e500,465,000 using passing rent of e27,009,911 per annum and an estimated rental value of e28,179,558 per annum.’
Click to access Opera%20final%20OC.pdf
hopefully Treasury will take advantage of new legislation after all the taxpayer is picking up the 1mio rent bill !!!-same link pg55
“7 Treasury Holdings Group Real Estate NR NR 1,021,905′
@john gallaher: “landlords achieved higher sales prices or equity releases if the rent was below ‘market’ in anticipating of a reset.”
I’m not sure what point you are trying to make here, John? It is true that if a building is underlet with a rent review due then one could expect a tighter yield than if it was over rented….. I may be missing something, but, what has that got to do with the proposed legislation?
‘ BTW, it’s only since rental levels are in excess of market levels that tenants started to cry. They said nothing when it was the other way around – which was most of the time’
Landlords/owners were not penalized in selling or in equity draw downs by tenants paying ‘below’ market.
In the link above which is ‘opera’ the only Irish CMBS issued by Treasury one of the major tenants is….wait for it…. Treasury which is by any metric or measurement insolvent and paying 1million in annual rent..sorry the Irish taxpayer is. The point is as they are basically BK and dependent on the generosity of the Irish taxpayer… will they look to reduce the rent bill.
@john gallaher; “The point is as they are basically BK and dependent on the generosity of the Irish taxpayer… will they look to reduce the rent bill.”
How do I know? But I still don’t understand your point.
the jet is gone………
‘We can only hope and assume Ronan is meeting all of his monthly interest and capital repayments on time and that he will be able to do so indefinitely. If he isn’t able to do so, then we are indulging him in an extraordinarily opulent lifestyle that is an affront to the 440,000 people on the live register and their families, to hundreds of thousands of others who are experiencing negative equity and to the even greater numbers who have suffered income falls and who are deeply worried about how they will make ends meet’
http://www.examiner.ie/opinion/columnists/matt-cooper/lets-hope-we-dont-have-to-pay-for-johnny-ronans-jet-set-lifestyle-too-114234.html
@wstt its Friday was being ‘funny’ will take your advice from earlier post and have few beers………all best to Ireland looking forward to the game.
They are insolvent Bk bust done dusted over etc……..
‘REAL ESTATE Opportunities (REO), the listed property investor backed by Treasury Holdings, is relying on the support of the National Asset Management Agency and a number of other creditors to stay solvent, the company said yesterday.’
http://www.irishtimes.com/newspaper/finance/2010/1030/1224282314272.html
In the Republic of Rent the property professionals/experts are the Society of Chartered Surveyors (SCS) . This Republic has the most anti-tenant commercial lease law in the world i.e. upward only rent reviews tied to long leases. The SCS are the mouthpiece for the landlords,property speculators,wheeler dealers, property syndicates and property spivs. The SCS lobbied against the tenants and for the speculators to retain this ruinous commercial lease law. Unbelievably the most anti-tenant organisation in the world run the commercial property arbitration system. What chance did an Irish commercial tenant have of obtaining a fair rent?
Aahh John Corcoran, for God’s sake…. give it a rest.
I post under my own name seriously
@ john gallaher. Not you John. I was referring to John Corcoran masquerading as Conrad Brewer.
BTW, Sláinte and enjoy the match. I think that it should be an exciting one.
Hmmm – so no one wants to pay for the lavish lifestyle of the NAMA developers. But it’s okay to dump the ‘losses’ of commercial landlords on the taxpayer?
As Jay Bourke said recently it’s time to get off yer asses lads and do some work for a change – no more sitting in the bar of the 19th hole watching the rent roll in.
Yep, the brain drain will damage thus country irreparably. But, since one prominent player in commercial property said just last year that 24,000 jobs in retail was a price worth paying to retain UORR, I can’t see too many tears being shed for our young emigrants. Not in namawinelakeland anyway…
@PGD; “But it’s okay to dump the ‘losses’ of commercial landlords on the taxpayer?”
Eh, can we start at the beginning….. In the beginning are the losses of the commercial tenants. They are to be dumped onto the commercial landlords, who in turn will dump them on to the taxpayer.
Simple really and problem solved – for the tenants.
@wstt Wealth and worry go hand in hand. To maintain one’s real capital, one must be skilful, bold, and lucky.
Property interests run Ireland and always will. This legislation is merely an alternative to receivership and will make no difference to our interests. Congratulations to Minister Shatter, at least you know who your real boss is. This is real politic and not romantic dreamer idealistic politics. We will never allow market rents in Ireland.
@Will Baxter: For Pete’s sake, stop whinging.
We already allow market rents in Ireland under the existing legislation and it enables both upward and downward adjustments.
It is tenant friendly, in that rental levels are traditionally set every 5 years as opposed to 3 years in France. And therefore landlords, in all probability, will once again be subsidising tenants in four out of five years.
Reckless Irish banks combined with ruinous Irish commercial lease law were a lethal combination that created the monster commercial property bubble. When this bubble burst it vaporised the entire Irish banking sector.
In valuing commercial property in the rest of the eurozone the guiding philosophy was the quality of your property, in Ireland it was the quality of your tenant. The Society of Chartered Surveyors , the most anti-tenant organisation in the world and the property interests mouthpiece lobbied to retain this feudal system. This crew also ran the commercial property arbitration system which a substantial body of tenants felt was systemically corrupt.
Come on lads used to a higher level of discourse than this let’s leave the personal attacks for the playground.
Unfortunately no “conspiracy” or master plan just plain simple incompetence.
@wstt – in the beginning was the collapse of the economy brought on by a banking crisis and bursting property bubble. You should know that, surely?
Businesses collapsed but UORR rents shored up the landlords. So businesses lose turnover catastrophically – these are not small losses, it’s Armageddon.
Still, best not complain. Best to lie down and be rolled over once again.
Shocking….
Extracts from the sitting of The Joint Committee on Enterprise Trade and Employment –Tuesday 30th March 2010 –The terms and Conditions of Commercial rental Leases and their effect on Trade and Employment.
Peter Stapleton MD Lisneys and senior vice president of the Society of Chartered Surveyors. “The only reason it does not work is that there is a lack of transparency. That is where it begins and ends. The arbitrators are confined to dealing with the evidence put beforethem. Arbitrators face a significent challenge given the proliferation of confidentiality agreements clauses ,side agreements and so on and the fact that the information is so fettered. They cannot obtain the information they need other than where there is a case for mandatory disclosure.”
Brian Goff MD La Croissanterie “There is a greater problem in the arbitration process than mere transparency. From tenants point of viewthevprocess is deeply flawed. They have lost confidence in a processwhere the perception is that the odds are stacked against the tenant.It is more than a transparency problem. In shopping centres, for example before making a decision that is seen as favourable to a tenant, the arbitrator must think about their positionand about how that decision may effect the capital value of the centre. That puts the arbitrator in a difficult position and ensures the odds are stacked in favour of the landlord.”
John Corcoran MD Korkys “In this very small country with a population of 4 million , we are paying some of the highest rents in the world. There is a rigged market ,capably orchestered by the men on the right in this room. This has been very damaging for this country and has helped to destroy it. There is news today that the Quinn Group is in trouble and the banks have more than 20 Billion in bad loans going to Nama. Much of that is a function of the rigged market that is upward only rents. It is anti-tenant, anti-job and very destructive.”
Tom Dunne Head of the School of Real Estate and Construction Economics at DIT. “One may say the market was rigged against tenants. That was the way the market was at that time and certainly landlords took advantage of it.”
Deputy Ciaran Lynch (Labour) “I agree 100% with Mr Corcoran that it is a rigged and distorted market”
Mr Nick Crawford Auctioneer ” The SCS has admitted that the system under which it works is flawed because there is no information. There are a number of reasons rents have risen 300% in ten years while inflation in the same perios has been just 35%. First, the rent review system uses the highest rent in a given area as a comparision. If a new entrant comes in and signs up to a high rent it acts as a stick to be used against every other tenant in the area, whether the new entrant fails within six months or not. Having worked in an agency I have rented shops at an unsustainable level for my client, knowing that the business will not last but that it can be used as a stick with which to beat every other tenant in the street. There is no allowance for the use within the guidelines in most leases. That means that if one industry at one time is doing better than another industry,there is also a bias towards the most profitable industry use. So if the mobile phone shops are doing well , the rent paid by a mobile phone shop coming in is put against a shoe retailer etc. The comparables are shared by word of mouth between surveyors, generally speaking. They are not evidenced in writing. I have found surveyors to be very honourable people. There is room for error because it is passed by word of mouth.
In addition , a landlord who may own five or six shops in a street will use confidentiality agreements to keep the headline rent high. They can do deals and drop the rent. Confidentiality agreements are written and as the statement has pointed out , that information does not come into the public domain. Therefore Mr Corcoran in Grafton Street might be hit by a higher rent than the other tenant is not paying because of a confidentiality agreement that is not written”
All the above is on the Dail record.
e is a case for mandatory disclosure”
Extracts from the sitting of –The Joint Committee on Enterprise Trade and Employment–date 30th March 2010—issue “The terms and Conditions of Commercial Rental Leases and their effects on Enterprise Trade and Employment.”
Deputy Ciaran Lynch (Labour)
There is a knock-on effect. Carluccio’s set up business with an unsustainable model and went to the wallin a short period. However, the companies represented by Mr O’Dwyer used the rent model of the time as part of the arbitration process. The company has now gone but people in the Grafton Street area are living with the legacy issues, which are to the benefit of the people represented by Mr O’Dwyer. A distorted rent, such as that applying to Carluccio’s
goes to the wall because its rent is unsustainable but other companies in the area have the same unsustainable rents and cannot appeal against the rates set by the benchmark. Companies represented by Mr O’Dwyer benefit from the madness of that mechanism.
Tom Dunne Chairman of the Society of Chartered Surveyors working group and Head of the School of Real Eastate and Construction Economics DIT
It is the way the market works”
Further extracts.
Chairman Deputy Willie Penrose (Labour)
” I ask Mr Corcoran to conclude as we have another important matter to discuss in the Dail that will make this issue pale into insignificence”
John Corcoran Spokesperson Grafton Street tenants Association.
“This is one of the building blocks for the other problem that destroyed the Irish economy. It did not make sense for a small country like this to end up with the fifth highest rents in the world. Representatives of a responsible company like Canada Life with $450 Billion worth of funds should heve been phoning the Taoiseach, pointing out that he had a problem with crazy rents and recommending that he check the market which appeared to be a major bubble. The banning of the upward-only rent review received very favourable overseas comment. Many serious journals in Britian , commended the Government on doing it. If the Government were to ban the current ones, it would also receive very favourable comment and overseas investors would see the Government is serious about making this economy more competitive. If we continue to allow the destruction of jobs because of paying these people on my right twice or three times the market rent we will not get much favourable comment in international journals, including the Financial Times and others. It is a joke. Rents have been caught up in a major bubble for a long time. It has invited much comment that a country of only 4 million people we are paying some of the highest rents on the planet.
Surveyors must be challenged on why they did not warn the Government that there was a major problem in the market and something quite crazy going on. An IMF report pointed to the dangers in this regard. Instead of these people putting their noses in the trough and driving prices ever higher, they should have behaved responsibly by alerting the Government to the problem of rent levels that can only be described as crazy.
They should have issued a warning that the house was on fire. By ignoring that, they now have to deal with the problem in the next room “
@PGD, In the beginning, Eve ate the apple – and Paradise was lost!
We are talking here about the transfer of losses to the ultimate sucker – the taxpayer. In particular tenants’ losses. This mindset began on an ignoble night in September 2008. Since then everyone – including tenants – have sought to follow suit.
@wstt – Your argument represents everything that is atrocious in this mess.
Clearly you must be sitting pretty or you wouldn’t be able to be so dismissive of the pain of so many others…
Have a good laugh….
@Conrad Brewer (HelloJohn); UORRs have already been legislated against going forward. What you ask the government to do is to turn the law of contract on its head and introduce retrospective legislation that would dump us in a position of ridicule in the world’s investment community. It is unconstitutional and contrary to EU law.
All you are doing is transferring your losses to the taxpayer. It is akin to using a sledgehammer to crack a nut and you should be negotiating with the landlords. The problem both the government and the tenants have is that the sledgehammer is defective and crazed.
The objective is admirable, the method proposed to achieve it is harebrained and ill-judged.
@Conrad Brewer, Actually, John, ahe lease is a private agreement between independent parties and should not be subject to interference or intervention from the state. You are asking the government to prostitute themselves to intervene in a private contract between a commercial landlord and a commercial tenant in order to pass on your losses to the landlord and eventually the taxpayer.
Shatter acting just like a politician trying to get elected, has fallen for this and is is now showing his naivete and is pandering to populist and media influence stirred up by tenants with agendas. He has now come up with the farcical wheeze that rents will be subject to the actual or supposed viability or solvency of the tenant.
In other words he believes that a failed commercial tenant (office, industrial or retail) who can’t run their business in a viable manner, will get a rent reduction from their landlord; while…… wait for it………… their competitor, who runs their business well will have to pay a higher rent.
Jesus wept. What lunatic dreams this stuff up?
In a democracy power comes from the ballot box. The optimum , most equitable, and simpliest solution which would eliminate the two-tier market would be to implement Fine Gael’s election manifesto 2011 ” We shall pass legislation to give all tenants the right to have their commercial rents reviewed in 2011, irrespective of any upward-only or other review clauses”.
@PGD, For the record, I’m not “sitting pretty”, but I do not believe that:
The pain of bondholders should be transferred to others.
The pain if bankers should be transferred to others.
The pain of developers should be transferred to others.
The pain of tenants should be transferred to others.
People should accept responsibility and the consequences of their actions, not transfer them to the general body of taxpayers, who are the victims and have no responsibility for any of this mess. It is not the capitalist way.
@Conrad Brewer. You argue from a narrow biased viewpoint, preferring the tenants’ interests above the interests of investors and in flagrant disregard for the principles of the law of contract.
The proposed solution is far from simple; it is optimum only if you are a tenant and it is certainly not equitable, which is defined as “fair and impartial”.
It seems that the government’s policy on rents is to reward the bad businessman by allowing him a rent reduction, while penalising the good businessman who is making a profit by allowing him none. How discriminatory is that?
And how crazy and uncommercial are the political and legal minds who drafted this garbage and are promoting it?
There is a problem with every solution. Commercial property is meant to be a service to enterprise ,trade and employment, however with ruinous Irish commercial lease law it destroyed all three. The ability of an enterprise to adapt to changing circumstances is essential to it’s success. UORRs leases have damaged the efficiency of the Irish economy by incentivising over-renting and restricting the mobility of enterprises and the natural filtering processes within markets.
The government ‘s first priority is the maintenance and creation of jobs. High street landlords are passive investors and do not create jobs or stimulate economic activity.
The least bad decision is market rents for all commercial tenants and let the economy move on from the current paralysis.
The value of property have dropped but one group of “investors” have managed to bullet proof their portfolio by including in their contracts the now illegal UORR clause.
Show me one example where a tenant was able to negotiate their lease prior to February 2010 on this clause (or any other clause) and then the “freely negotiated” aspect of this debate will be won by the landlords.
Commercial property leases have clauses that no tenant would freely choose. UORR, no breaks, 25 years duration, and in the case of small retailers, personal guarantees…. If this isn’t evidence of an anti-competitive cartel, I don’t know what is.
If any other industry “fixed” this many aspects of their operations the competition authority would have them under investigation. I wonder what is stopping them from investigating the industry now?
This ruinous lease law was a plague inserted into Irish commercial life by the institutional investors ,who acting as a cartel ,imposed it on all commercial tenants. It was the economic terrorism that destroyed the Irish economy. It has destroyed thousands of Irish businesses and jobs and continues to bleed commercial tenants dry and destroy their balance sheets by massive overrenting. Most tenants are just hanging on ,praying our government act in the public interest and intervene in this tragic affair. There is a case before the European Court of Human Rights Charlton V Ireland alleging this.
@PGD & Conrad Brewer: This discussion is just going ’round in circles, John. Your puppet Minister believes in rewarding failure, while penalising success. I don’t. You believe in transferring losses to others and believe that it’s equitable. I don’t. I believe that private contracts should be honoured. You don’t. We just see things very differently.
Further extracts Joint Oireachtas committee –30th March 2010
Frank O’Dwyer
CEO Irish Association of Investment Managers
“I do not believe , for example, a local institution has bought a property on Grafton Street in the past decade. Some of the representatives from the Grafton Street body might know better. People were investing out of Ireland and investing in the UK , and there was a sense that property prices on Grafton Street were heating up too much”
The institutions knew it was a bubble in 2000 . This was long before David Mc Williams or Morgan Kelly knew. The masters of the universe knew 12 years ago it was a monster bubble. They kept their heads down and bled the tenants dry using their ruinous lease law , the most anti-tenant lease law in the world.
Further extracts from the Oireachtas Joint committee 30th March 2010
Frank O’Dwyer
CEO Irish Association of Investment Managers
“Under the competition Act, I am not in a position to tell the committee what concessions are that were identified in our surveys. If I asked member firms about that i would be accused of facilitating a CARTEL.”
Further extracts from Oireachtas Joint Committee 30th March 2010.
Deputy Ciaran Lynch (CL)
How many would have confidentiality clauses
Frank O’Dwyer (FOD)
I did not ask but I can certainly find out.
Cl–At a guess, would it be half of the total.? Would it be three quarters.
FOD–It could well be . I would mislead the joint committee if I were to say I knew the precise figure.
CL—Is it standard practice to attach a confidentiality clause?
FOD—I would expect there to be confidentiality clauses.
CL—An open and transparent mechanism for recording leases would overturn the culture that exists at the moment.
FOD—We believe the Department of Justice ,Equality and Law Reform working group is a good idea to omprove transparency.
CL—Mr O’Dwyer’s business operates contrary to the intention of the legislation as the standard practice, when there are downward rent reviews,is to bind the tenant to a confidentiality clause”
Exclusive I have just heard from a very senior figure in Fine Gael that the IMF have sanctioned the Fine Gael election manifesto ” We will pass legislation to give all tenants the right to have their commercial rents reviewed in 2011, irrespective of any upward-only or other review clauses”
They have honoured their promise-they have stood by their contract with the Irish citizens ,despite the massive property vested interest lobby. The exact same lobby that created the greatest property crash in the history of mankind. Fine Gael have fought the good fight, they have finished the course, they have kept the faith. This is great news for jobs, for enterprise and for the Irish economy. This is likely to save a 100,000 vulnerable Irish jobs and create thousands more. Enda Kenny at last has shown real leadership and guts to stand up to the group who destroyed our entire economy. Hats off to Labour as well.
We run this country and we will never allow market rents in this jurdisdiction. When this current emergency is over our political friends will reinstate the upward only rent reviews.
NWL
Any Luck Locating the Liam Carroll Documents??
tick tock, its mid november now, all quiet from the goverment on this issue. has anyone any up date ?
Yesterday 18th November a delegation of Retail Excellence Ireland’s
members were informed by the private secretary to the Taoiseach that the
government will not be proceeding with legislation to ban upward-only
rent reviews in existing commercial leases. The REI members were
informed that the promised legislation had encountered substantial
constitutional difficulties.
Any chance REI will issue statement ?
The uncertainty is not assisting a morbid investment market.
@wstt predicted this but clarity is required.
No uncertainty any more. It’s binned.
As I said before, politicians’ promises are like whores’ kisses. …. Only the niaive believe.
@ John GALLAHER
Better still any chance the Government will issue a statement so we can watch the “morbid investment market ” which has been held back due to the uncertainty about upward only rent clauses,, go through the roof. There should be a rush akin to the gold rush when foreign investors realise that a bankrupt country is able to strong arm rents out of bankrupt tenants.
COME ON IRELAND
It actually beggars belief that politicians who aspire to be legislators have not even got the intelligence of first year law students and know that they cannot overturn legally entered into commercial contracts.
It goes beyond that. It also reflects on their advisors and civil servants. No wonder we need the Troika to explain the basics to us. Pathetic.
The property interests run Ireland and always will. We will never allow market rents in this country. This government will announce in the very near future the removal of the ban on upward only rent reviews in all future commercial leases. This is real politic not the fairy tales your naive tenant bloggers engage in. Market rents are over forever in Ireland.
With the way things are going throw in 2% increase in VAT and it all may be moot.
@Conrad if you read back up I was actually in favor.
The uncertainty was equally as bad as this outcome
Will or Conrad was there any solid explanation given,who had most to lose in proposed change?
Was there any lobbying ?