“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” Fine Gael Manifesto 2011
“In the context of the Government’s consideration of upward only rent reviews, the Department of Finance prepared a short economic assessment of the potential effects of removing the ban on upward only rent reviews, with a view to informing the policy response being developed by the Minister for Justice and Equality. The Minister has sent this assessment to the Minister for Justice and Equality.
A ban on upward only rent reviews would have a downward effect on the market value of certain properties, including properties which underpin loans transferred to NAMA or remaining with the banks. The Minister has previously stated that any potential downside from a NAMA/banks perspective would have to be weighed against the necessary objective of easing pressures on the commercial sector.” Email from Department of Finance in October 2011
“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.” Statement by the Grafton Street Tenants Association on 19th November, 2011
Yesterday the Grafton Street Tenants Association, a group of retail commercial tenants on one of Dublin’s premier shopping streets announced that An Taoiseach’s office had informed it on Friday last that the present Government was abandoning its manifesto pledge to abolish so-called Upward Only Rent Review (UORR) clauses in existing commercial leases. Enquiries atDublinproperty companies and at other tenant representative organisations confirms the statement from theGrafton Streettraders. The Taoiseach’s office has not yet to respond to a request for comment.
If confirmed, the decision by the Government will be a body-blow to commercial tenants who were given a political promise that their rents would be reviewed in 2011 so as to reflect commercial rents in the present marketplace which are down some 50% from peak levels in 2006/7. Vociferous tenant groups such as the Irish Small and Medium Enterprise association (ISME) and Retail Excellence Ireland (REI) as well as smaller tenant associations and individuals have campaigned to ensure the Government delivered on its pledge and will be bitterly disappointed if this abandonment is confirmed. It is claimed that existing rents which may reflect peak rent conditions are threatening businesses which would otherwise be viable and would also lead to a boost to employment.
On the UORR debate there were always going to be winners and losers. And if the latest development is confirmed then the winners will be landlords which range from grannies dependent on the rental income on a shop to support their retirement, to large multinational institutional investors and domestic pension funds and of course NAMA which had predicted the promised changes would reduce the value of its portfolio by €billions. They will hope that the abandonment of the threatened (or promised) changes (or reforms) will mean the value of their investment is safer and that they will have more confidence in the income to be generated from their investment.
Those on the fringes of the market, the property companies and agents will be pleased in the sense that the abandonment will create confidence and stability in the investment market, an investor buying a commercial property today will not need worry that the Government will intervene in the lease contracts to disadvantage the landlord. So what has been said to have been a major obstacle to investment in commercial property will be removed. Good news for property owners and agencies who facilitate transactions.
Not good news for the Government who will look like cowboys in having promised legislation which couldn’t be delivered, and the promises weren’t just chapel-gate rhetoric, for the past seven months Minister for Justice, Equality and Defence Alan Shatter has been making pronouncements on the imminent introduction of new legislation. For the proposed legislation to be abandoned at this late hour does not proclaim competence and ability at the heart of this Government. It doesn’t reflect well on the Attorney General either who has presumably been coaching along the development of the legislative reform.
The view on here is mixed. That businesses will continue paying Celtic Tiger era rents when the economy was purring along, is bad news for an economy that has collapsed, in that these businesses will pass along higher rents in their pricing which is a distortion of the economic reality. On the other hand, private contracts and property rights will have been respected and there should be an unblocking of transactional activity in the commercial property sector.
There are feature blogposts on here which reported on the UORR issue – an exclusive preview of the new legislation as presented to the Attorney General in October and an examination of the issues here and the political positions as set out at the time of the General Election in February, 2011.
UPDATE: 21st November, 2011. Retail Excellence Ireland, the main trade body for retailers in Ireland, has issued a statement which tends to contradict the statement from the Grafton Street Tenants Association. REI says that it met with An Taoiseach’s office last Friday but the statement says “David Fitzsimons of Retail Excellence, who attended the meeting, said it was not understood the legislation had been shelved”, but it is conceded the legislation faces challenges but the statement goes on “Mr Shatter’s press spokesman said he was not in a position to expand on the issue other than to say the Minister would make an announcement “shortly”” In addition to the statement from the Grafton Street Tenants Association, private enquiries from here to property companies suggest the legislation has been “binned” but An Taoiseach’s office has not yet responded to a request for a comment.