“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.
NAMA Wine Lake 
Is this not a Constitutional level conflict of interest. This as very much distinct from the common law enforcement of contract.
How is it in the interest of a property owner to have UORR? Wouldn’t it be in his interest to lower rent so the business using his property can survive? Does UORR mean that a tenant cannot negotiate a rent downwards if the landlord is willing to do so?
UORR does not stop a willing landlord from negotiating. I spoke to the facilities manager in a NAMA controlled shopping centre in Dublin this week and he told me that this is happening as a matter of course. It is done within the parameters of the NAMA-agreed business plan.
Easy way around constitutional problem is a windfall tax on the portion of rent that is above the market rent. This would basically mean that the State would get the benefit of that extra rent rather than the landlord. The tax could start at 10 percent and scale up to 90 percent over a few years and so minimise shock to the market whilst at the same time providing certainty.
The constitutional problem is with the Government using policy to protect its commercial position against the interests of others that have equal stance under the Laws.
Nope, this is not a constitutional problem. Government is constitutionally entitled to protect own interests.
@aol wonder who the biggest landlord in Ireland is,with the most to lose by this change ?
If I had to guess as not enough information in the public domain,it would be NAMA.Whoever,owns the most amount of investment property,had most to lose.
..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 passing or contractural rent from credit worthy tenants agreed,the proposed legislation was not a blanket for ALL tenants.
Just wondering, do we know what proportion of commercial tenancies are on these UORR contracts? Even roughly?
Anecdotally, there was a side promise made on Friday that the government would force the landlords to reduce the rents to the retailers on an individual basis. But the retailers should be tired of hearing promises from politicians that they know neither can, nor will, ever be kept. Fool me once……
@wstt if a tenant qualified under the ‘proposed’ legislation,their business would have to be in difficulty.Would any investor not ignore the UORR clauses and underwrite using market rents.Basically discount overage rent for weaker or struggling tenants.The ability to collect it would have to be questioned.
For example, Liffey Valley comes back to market.
Obviously,rents from all national or international tenants,who were not affected by the proposed legislation would be counted in full.
But would investors not write down ‘mom and pop’,or local tenants to market,ignoring any UORR provisions.
Completely understand the argument regarding retrospective legislation,but in reality above market rents from weak tenants would have to be discounted in underwriting.
It’s cheaper and more efficient to work with existing tenants than incur vacancy costs,leasing expenses,build out costs.
Never understood the argument that the proposed legislation affected values.
If a tenant can’t pay,clauses in leases are meaningless.
@John, I think it came down to whether the tenant might have made sacrifices elsewhere in their cost base (or profit margin) to pay the landlord the existing rent which at worst might be a peak rent from 2005-2008 or whether there were personal guarantees or other assets that the landlord could pursue if the tenant defaulted on the lease.
@NWL that’s very draconian,we never pursue personal guarantees.
Most of the time they are useless.
If a persons business fails,assuming they were good actors,they have suffered enough.
Would Irish landlords look to prefect guarantees,in the event of a genuine business failure?
It’s not worth the legal fees, or time not to mention the eithecal issues to torment people who had suffered business failure.
Tenants in the US hand back the keys shake hands and everyone moves forward,Judges also frown upon it
But then again tenants also have the Chapter 11 option, which levels the playing field.
This is an opportune time to thank all our colleagues who assisted with this landmark government decision. Firstly our distinguished Minister for Finance Michael Noonan , the distinguished members of Ireland First, also the board of Property Industry Ireland and the Society of Chartered Surveyors. The objective statistics from the surveyors which clearly showed 99.9999% of all landlords were granting substantial rent reductions was decisive in winning this debate.
Our media friends at the Irish Times ,the paper of record, who facilitated Bill, Duncan and all the boys wonderful full page opinion pieces. These brilliant objective opinion pieces clearly showed these tenants are chancers and we dont want another Zimbabwee here in Ireland. To CBRE on the wonderfull Wexford study which clearly showed all Wexford tenants love high rents.
I strongly recommend all surveyors not to forget the Irish Times when they next playing their adds and of course please use myhome.ie as much as possible.
As for these whinging tenants on Grafton Street paying the fifth highest rents in the world, consider yourself lucky that you’re not paying the highest rents on the planet.
If I may Will can you also reach out to the ‘landlord’ most directly impacted by this.
No backup,examples,just a ‘number’ why that one ?
‘In May 2010, the chief executive of the National Asset Management Agency (Nama) wrote to the then minister for finance pointing out a change in the law would mean they had overpaid banks for assets bought. It has been reported a further 20 per cent fall in Irish property prices would cost Nama, and therefore taxpayers, another €2 billion to €2.5
http://www.intrepidsecurity.ie/news-article.php?id=111
Not to worry, Abramovich to the rescue of NAMA. From the sublime to the ridiculous.
http://www.dailymail.co.uk/news/article-2063864/Roman-Abramovich-talks-Chelsea-Football-Club-Battersea-Power-Station.html
@Will Baxter, I began to read your comment and initially thought – “What generosity of spirit!” The thought didn’t last long! The problem that the retailers had is that they fought a battle that they could not win because of the tactis employed.
If you go to war, you need the answer to two questions: 1) Can I win this? and 2) What do I need to do to win it? Curiously enough the war was winnable. It was the tactics employed that was the mistake. Wrong weapon used. A sledgehammer (in the shape of overthrowing constitutional and commercial law) to crack a nut (achieving market rents for underwater retailers).
Bad strategists and advisors all around, legally, politically and commercially .
Anyone who took the time to review the legislation,realized that the writing was on the wall.It was badly drafted and ill conceived.
Who ever was tasked with preparing it agreed with the concept,but could not articulate it,due to some degree in the retrospective nature of the proposal.
“That’s fine in practice, but will it work in theory?”
I think most people agree that changes are required,modernize bankruptcy laws,it gives tenants in onerous leases lots of leverage.
http://www.irishexaminerusa.com/mt/2011/05/24/dr_garret_fitzgerald_19262011.html
@john gallaher, You got it in one, John!
The idea that the state would interfere retrospectively in contracts between commercial bodies was always ludicrous.
…. but the civil servants will screw up the proposed bankruptcy laws, just like they do everything else by being too curmudgeonly cautious. It won’t be competitive time-wise with the UK. A half-hearted law for a half-hearted people. We are victims – lost our cojones centuries back, and managed to lose our sovereignty twice. The fighting Irish – my a*se.
The ‘draftsman’ was tortured writing it.
It was neither one thing nor the other,but it’s very inequitable,to have neighboring and possibly competing retailers,operating on vastly cost basis.
Never ‘ bought ‘ the diminution in value argument,tenants can either pay or not,regardless of lease clauses.
But the fake ‘hope’ that probably encouraged some retailers to hang in there,is a poor reflection on everyone involved.
@ Kirsten Delaney
Apparently, you have not seen how the big boys play.
http://prairiepundit.blogspot.com/2009/04/obama-screws-gm-bond-holders.html#!/2009/04/obama-screws-gm-bond-holders.html
With the increase in VAT, courtesy of Ms. Merkel, most retail business in Ireland will go under even quicker than you can say “lower my rent”.
@Jake, Interesting and it is what our useless “shower in power” should have done to the Anglo bondholders – but what has it got to do with retrospective legislation relating to UORRs?
Who does UORR really impact? In the case of propert rented to private sector tenants market values will always eventually be negotiated between landlord and tenant. UORR only benefits owners of property let to Public Sector and NGO type tenants and of course this impacts on the taxpayer in terms of increased costs. Can we not design a law which allows this type of tenant to negotiate his rent in line with commercial market levels at certain eg 3 year intervals.
NAMA (taxpayer owned) V public sector tenants ( taxpayer funded)??
@Tom Paine: We have a new law that does exactly that – at 3 to 5 year intervals, or indeed at whatever intervals are agreed between the parties. You just can’t retrospectively alter private contracts without the agreement of both parties.
BTW, this is the first time in almost 50 years that the market rent is BELOW some of the lease levels. Historically, for 80% of the time market rents have been above legacy lease levels.
@Tom the good news is that Ireland is about to experience a ‘Klondike gold rush’ of overseas investors.
Numerous “experts” with vested interests,proclaimed that UORR changes was the single most important factor in deterring overseas investors.
In fact it may be an opportune time to take a ‘punt’ on Aer Lingus,as inbound flights are expected to be full with investors!
From the “Taxpayers” prospect you have also “saved/gained” a few billion,NAMA was vehemently opposed to this.Due to the clandestine and secretive way they operate,you are not allowed know how that rather eye popping “number ” was arrived at.
But coincidentally, it was big enough to “influence” it’s intended audience.
But in fairness Tom,the Govt. etc made promises that looked very suspect to a legal challenge.Fair enough,but the overseas investors argument,NAMA claim regarding erosion in values was scaremongering of the worst kind.
“Gold was discovered in large quantities in the Klondike on 16 August 1896 and when news of the finds reached Seattle and San Francisco in July 1897 it triggered a “stampede” of would-be prospectors to the gold creeks”
Just to be clear: will UORR still be banned for future leases? The Grafton Street Tenants Association email makes that distinction, but the quoted section of the DoF email doesn’t.
@WSTT
I was referring to the following from KD:
“The idea that the state would interfere retrospectively in contracts between commercial bodies was always ludicrous.”
The Obama administration violated the contractural agreement between the bond holders and GM (both commercial bodies) “retrospectively”.
Yes, you are correct, this what Ireland should have done. It all looks mute now as the EU is rather quickly falling apart today.
After exhaustive all nighters,the ‘quants’ over at NAMA publicly stated that the ‘Taxpayers’ portfolio would be negatively impacted to the tune of 2.5Billion.
This sophisticated portfolio modeling,utilized state of the art “cloud computing’-IT costs year to date 487,000 pg 26- and would have shamed the number jockeys over at Blackrock.Rest assured reams and reams of data was produced and rapidly shredded.
But it’s ‘worth’ breaking down this number,after all these ‘quants’ are also running numbers and modeling the largest ever commercial endeavor by the State.
The ‘NAMA Value” of it’s loan portfolio is 27Billion-pg 2.
Assuming say 20% of it’s portfolio was potentially threatened by UORR,resulting in exposure of 5.4Billion to income producing investment properties in the state,affected by the change!!!
According to NAMA this 5.4Billion portfolio would have suffered a reduction in value of 2.5Billion or 46.29 %.The residual value of the now decimated portfolio would be 2.9Billion.
The proposed legislation was very specifically targeted,excluded more tenants than it included.The NAMA numbers are indefensible, they should be called to account for them before the next committee hearing.
It was extreme spin,misinformation and disingenuous of NAMA to “throw” a number out there,it’s begs the question on who’s behalf??
The taxpayers,really !!!
I refer you to the distinguished Irish Times business editor John McManus’s article of April 16th last. In Ireland the vested interests always win out over the public interest.
I refer you to the distinguished Irish Times business editor’s article of 16th April last headed ” Upward-only rent reviews will tell a lot about reform hopes” In Ireland the vested interests always win out over the public interests.
@wb the “retrospective” nature of the proposal is a very arguable point,”legally” binding contracts entered into by consenting adults and all that guff.
The overseas investor one is complete and utter rubbish,the number NAMA produced is also farcical.
They should be called to explain,illustrate and back it up
NAMA “book” is 27Billion,consisting of a vast array of assets covering the whole spectrum of real estate,plus some dodgy “Art” assemblages/collections!!
Have them questioned at next committee,they put a “dog into the fight” have them defend it.
@John, I thought it was disingenuous of NAMA (and others) to suggest as late as last month that the changes to UORR would mean a decline in commercial property prices of 20%. That may well have been true at the start of 2011 when the SCSI/IPD produced that estimate but since then property has fallen by over 10% and that is in part due to the fact that FG was elected with a pledge to remove such terms. I’d guess at this stage that the changes would have led to a 5-10% reduction.
@NWL let’s assume the almost 500,000 grand IT year to date spend was allocated intelligently !
It simply MUST have induced any one of the off the shelf,portfolio modeling software packages available for RE,say ARGUS or TIMBERLINE.
NAMA must have “flagged” the impacted tenancies and ran numerous scenarios.It’s possible to use numerical codes instead of actual names and address.Considering the number of people directly impacted by this why would NAMA do make available this analysis?
It’s impossible to think or imagine that they “picked” an enormous,gigantic number out of thin air to influence the debate,that would be career ending.
Say it ain’t so !
http://www.argussoftware.com/en/
http://www.sagetimberlineoffice.com/
@John, no I don’t think NAMA plucked a number from the air. The number claimed by NAMA is the same as SCSI/IPD and repeated by other property professionals. The issue is that this was the number at the start of 2011. And we had two quarters of meaty declines in Q2 and Q3 which were to an extent caused by the uncertainty over UORR. So NAMA hasn’t made up gigantic numbers, but what it has done is repeated the numbers recently even after large declines have been recorded in anticipation of UORR changes.
So they outscored the numbers to an independent company !
NAMA should have run it’s own numbers, intelligently and objectively analyzed the impact.That’s their job instead of parroting others.
The owners of the “valley” the Duke and your good friends Avia must be delighted.
“The owners of Liffey Valley, Aviva Investors and Grosvenor Estates”
http://www.independent.ie/business/irish/liffey-valley-sale-put-on-hold-after-aviva-rejects-bid-of-8364300m-1866854.html
But all is lost not take heart from the historical Barca strike,onwards and Eh UPWARDS.
“In many parts of the city landlords had been forced to come to terms with their tenants, agreeing to reduced rents rather than facing the prospect of having no income…….”
http://workersolidarity.org/archive/rentstrike1931.htm
@NWL book is 27bil. are we to believe that the portfolio consists of sufficient “impacted” income producing Irish RE to have a 2.5 bil. hit !
Complete and utter rubbish,the book is a mix of English,European,hotels,golf courses,development land,etc.etc.
The Irish Government alone in the eurozone, endorsed this ruinous commercial lease law, and copperfastened it for all other commercial tenants . Why. It has cost the Irish citizens hundreds of millions if not billions in over-renting over the decades. Who advised our Government to sign these ruionous leases and waste it’s citizens money.
The institutional landlords /pension funds just didn’t rob its tenants by over-renting ,they robbed their pensioners by overcharging on fees/management fees and bid/offer spreads.
@WB NAMA requires a sharp and swift reminder of whom they actually work for,the person responsible for that ludicrous ‘number’ ,based on ‘estimates’ by vested interests,should get too enjoy a significant amount of quality family time.
One of the ‘winners’ here are the owners of Liffey Valley,lets take a quick look at them
Assume readers here know Aviva,they are currently pursuing a strategy know as …get the fu.. out of Ireland,sorry ACCELERATE it quickly.
“Last month Aviva announced that around 950 staff would be made redundant, with a further 300 facing outsourcing of their jobs.
Aviva’s strategy for Ireland, known as “Accelerate”, involves moving the company’s business to a combination of online delivery and sales through brokers, with Aviva in Ireland operating as a branch of the UK.’
http://www.rte.ie/news/2011/1122/aviva.html
The Duke is know to be a keen negotiator,with rather esoteric tastes and a somewhat reckless side, some would say self destructive streak.
‘Despite his incredible wealth, multi-billionaire Gerald Cavendish Grosvenor haggled with one of the Emperors Club girls for the cost of their date, according to the report.
“Reckless, boastful, stupid, weak – such lacerating words hardly exaggerate the case against the duke,” wrote the Daily Mail.
http://articles.nydailynews.com/2008-03-12/news/17893488_1_emperors-club-richest-man-spitzer
These are the ‘winners’ from UORR,nice work NAMA.
Ah, John… I agree that they are one of the winners, but IMHO, that is a narrow view, pension funds (taxpayers’ investments), individual investors (mom and pop!) and trade union funds are also winners. Similarly, you could say that if the legislation was upheld, multi-national retailers would be the winners. The truth is, that whichever way this went there were going to be winners and losers – but there were ways of doing this without contravening the property rights in the Constitution and overturning the principles of contract law. It’s just that our legislators don’t have the knowledge, experience or creativity to give life to practical ideas.
They would rather pursue Sean Quinn to make another impotent point.
@wstt you know I completly agree that there were strong grounds to challenge it,the proposed legislation was a joke.
My issue is NAMA getting involved,for whom,were they instructed or took a flyer.
The overseas investor point was laughable too.
NAMA’s put their neck on the line on this one,defend the number.
Speaking of Sean the scurrilous,salacious,prurient “reporting” in the Indo. is a national embarrassment,especially given the “history” of the owners.
Despictibale “gotta” gutter journalism,they should be ashamed of themselves.
Here is but one example….
http://www.independent.ie/business/irish/i-have-just-euro11169-in-the-bank-says-sean-quinn-2935669.html
Aploigies NWL off topic.