Minister for Finance, Michael Noonan presented his leg of Budget 2012 this afternoon which mostly comprised changes to taxes. He announced that stamp duty on commercial property transactions would drop from 6% to 2% with effect from midnight tonight – One Warrington Place has just become €1m cheaper. He also announced changes to Capital Gains Tax on commercial property transactions where the property is held for more than seven years but we must wait a few hours before we get the full details.
The Minister dropped the clanger that the much-anticipated Upward Only Rent Review (UORR) reform which was promised in the Fine Gael manifesto and which has been regularly referred to by justice minister, Alan Shatter, as being prepared, examined by the Attorney General and to be brought before the Oireachtas before Christmas 2011 – is to be scrapped. Now it’s been decided that it’s legally too difficult, conflicts with the Constitution, would be open to challenge and would mean landlords needed to be compensated. Landlords will be happy. And at least there is certainty which will be welcomed by many on the sidelines of the property industry. Beleaguered commercial tenants will be dismayed and incandescent with rage. From this perspective, Minister for Justice, Equality and Defence, Alan Shatter and Attorney General, Maire Whelan both look like clowns who have stymied the investment property market for ten months and delivered a big fat nothing to beleaguered commercial tenants,
With UORRs, Minister Noonan did offer a ray of hope to commercial tenants of NAMA property, and said that NAMA would issue details of a scheme today to help commercial tenants in NAMA property whose businesses were jeopardised by high rents. NAMA has produced a document (available here) outlining the scheme, and in essence if you’re a business tenant of a NAMA property and can prove that your business is at risk because of existing lease rents, then NAMA will consider your position or in most cases as NAMA is not in fact the direct owner of the property, will facilitate an arrangement between the owner and the commercial tenant.
The other NAMA-related announcement was that NAMA is to get an advisory group which will advise the Minister for Finance on the management/disposal phase of NAMA’s existence. Looked to me like a kick in the teeth to NAMA’s existing staffing and skillsets but regardless a NAMA spokesman said “NAMA welcomed the announcement of the establishment of an advisory committee” and that the Agency “forward to engaging with the Group in the months ahead”. The Minister said that he would issue a formal Direction to NAMA pursuant to the NAMA Act setting out the brief of the new group and how the Agency was to cooperate with it.
NAMA Wine Lake 
Surprise, surprise yet another major broken promise, that is going to lead to further unemployment. Any landlord who was hanging on by their finger nails will now let go and let staff go. Shatter is starting to look like the star cabinet minister for mea cupla.
From the minister’s speech:
“I am establishing an Advisory Group to advise me on NAMA’s strategy and its capacity to deliver on that strategy through property disposal and the ongoing management of assets. ”
This is probably the most significant announcement in the Budget.
What is the point of a board except to set strategy? If the Minister does not have the confidence in the present board to set strategy, then he should remove the board or those members in whom he does not have confidence.
Setting up an advisory group is not the right answer.
If I was a director of NAMA, I would resign. If I was the Chairman, I would have resigned as soon as I was informed of this new committee.
@Brendan, and it’s not as if the NAMA board members are complete strangers to Minister Noonan. Remember that NAMA board member, Brian McEnery who is an insolvency expert at Horwath Barstow Charleton in Limerick was also Michael Noonan’s director of elections for his bid to retain his Limerick seat in the General Election in February 2011.
Minister Noonan also referred to his decision to create an advisory group was informed by the former HSBC banker Michael Geoghegan’s review in October. And lastly it was NAMA board member’s Peter Stewart’s departing words which referred to the Geoghegan review being a “watershed moment” for NAMA – something with which the NAMA chairman, Frank Daly seemed to disagree – and Peter Stewart claimed the review would result in significant changes at NAMA.
Give you 3 guesses who ends up heading the advisory board….
Not surprised at the ‘advisory group’ decision as I had blogged many moons ago that Nama’s board had too many insiders and locals and not enough *real* expertise. See:
http://www.planware.org/briansblog/2010/03/nama—too-many-locals-and-insiders.html
No other tenants in the world have had to endure this ruinous commercial lease law. It was one of the greatest commercial scandals of all time.
The Irish government endorsed this ruinous lease law and copper fastened it for all commercial tenants, and wasted hundreds of millions of it’s citizens money.
……I’m not even going to say “I told you so!”
You got namechecked and quoted about One Warrington Place on the Nine O’Clock news on RTE1 this evening in relation to the point about the €1M saving.
I agree with Brendan Burgess. The announcement by Noonan that he will set up a NAMA “advisory group”, spells the beginning of the cull that is about to take place in the top echelon of the agency. So, “Farewell” then, Frank…… and Brendan…. and…..
I don’t have any problem with the Minister, based on Geoghegan’s advice, deciding that the board did not have broad enough skills. But the solution to that is to replace some members of the board with more appropriate people.
Setting up another advisory body to second-guess them serves no practical purpose.
There are two vacancies on the board. The types of people who would be suited to the advisory group would be better off serving on the board.
Brendan
Does this not amount to a quango having a quango pushing the quis custodiet ipsos custodes into the realm of clinically paranoid; for certain what’s his name will have a brief to overlook this new body.
Would it not be simpler and far cheaper to open up NAMA to public view.
Apparently it was mentioned on Drivetime yesterday, that Michael Geoghegan will be heading up the Advisory Group. I presume that they will only be reporting orally to the Minister so.
@ NWL NAMA’s fingerprints are all over the Budget and have effectively driven almost all of Mr. Noonan’s policy announcements, not just the ones outlined by you. It appears that Brian McEnery is playing the role that Feargal O’Rourke of PWC had when his first cousin Brian Lenihan held the post.
1) The cut in Stamp Duty on commercial property. This will as you have so correctly pointed out dramatically point in relation to Warrington Place keep down the cost of purchasing commercial property. It will also obviate the expensive restructuring many businesses went through to ensure that property sales were done as share sales to reduce the stamp duty exposure to 1%
2) Certainty has been given to the small property speculators that interest deductibility and the massive overhang of capital allowances. Getting rid of them would in the words of the Minster be “creating real difficulties for many ordinary people.” He added in the next paragraph as further justification, “The report also highlights the vulnerability of small investors to insolvency if they lose these reliefs; a finding backed up by recent research from the Central Bank that shows high levels of negative equity and arrears in the buy-to-let mortgage sector.” Finally he adds “The report concludes that reliefs to small scale investors should not be restricted but that there is scope for larger investors to contribute more.” We have a new class of the “deserving poor”. They are small time property speculators hoisted on the petard of their own greed, but Fine Gael have decided that they are deserving of a large share of the State’s limited largesse. His assurance of no changes ensures that any new Minister (i.e. Joan Burton) has had her guns spiked in advance.
3) The effort to get the domestic home market going. The proposals will not cost the Minister much but the savings if he can engineer significant sales of housing units under NAMA control are huge. let us assume the disposal of 10,000 units @ €150,000 each. This gives us a total of €1,500M. Of that €180M approx flows to the State in the form of VAT. The balance is a transfer of debt off the books of NAMA or its proxy builder. A disposal of 20,000 units would go a very long way to ensuring his tax yield for 2012 reaches the target. But most importantly gets debt off NAMA’s books. This measure will it is hoped enable NAMA to hit its repayment targets. We have the most indebted household sector in the EU, but don’t worry!
4) NAMA have successfully seen off any adjustment to existing leases, ensuring their income flow from occupied properties remains.
5) Even the adjustment to the taxation of the residual values of Approved Retirement Funds after death ensures that there is no major numbers of forced sales. Many of the older and unrestricted ARFs are stuffed full of apartments. Rather than moving back to the pre McCreevey position when the residual value would be taxed as income on the day of death of the pensioner and any residual value becomes part of his estate, a small increase in the flat tax to 30% keeps disposals to a minimum.
@Niall
I agree 100%. NAMA might might as well have written a lot of the above budget changes. They were all for NAMA benefit.
NAMA losses are now to hidden under the hood of stamp duty tax breaks, CGT freebies and maintaining UORR.
So if NAMA do manage to succeed and pay bonuses to its staff, lets be clear where the bonuses are coming from. Tax foregone.
This is crazy.
Essentially the mandarins refuse to admit that NAMA has completely failed to achieve its objectives. They will throw any amount of State money at it in order to avoid embarrasment. They should not bother beacuse like Fianna Fail the mandarins don’t do embarrassment.
@ Joe
I don’t think the Stamp Duty reduction will cover any NAMA losses, it will perhaps make a lot more transactions feasible and get cash flowing in NAMA’s direction. Personally I feel that transaction based taxes are lazy taxation and welcome the reduction in Stamp Duty. The CGT holiday is predicated on an increase in prices, which I personally can’t see and as such will not cost the State anything.
However if someone is interested in buying a property now, they will be looking at the rental yield. Lower Stamp Duty reduces the cost of the purchasing transaction and the CGT holiday is a bonus, but only a very silly person will be banking the tax gain in advance.
I agree that these actions have a look of desperation about them, but the creators have NAMA are all gone or going, Lenihan, Bacon & even Mr. Cardiff.
The biggest issue will be finance, which I don’t see being available in any substantial amounts. Despite what the Minister said about the saving ratio, household deposits are not particularly strong. (Though a friend of mine recently sold a house in Mullingar which the purchaser funded from savings and a Credit Union loan!)
Also I am not sure whether new houses offer a great deal when compared to older houses in existing areas. Well built houses in settled areas are readily available. If you are a couple buying for the first time such areas are affordable again and must be more attractive than outlying areas.
The Government has failed to provide us with an estimate of emigration in its various publications, which it must have as it would have a required input in calculating its labour force projections. However if we assume emigration of 100,000 and immigration of 25,000, net 75,000 leaving, this will surely influence demand for housing. The Irish Independent ran a story on on 30th November base on the ESRI quarterly review, though that publication did not mention a figure http://www.independent.ie/national-news/generation-emigration-75000-people-to-leave-ireland-next-year-2949492.html
The troika who were responsible for imposing the world’s most anti-tenant commercial lease law on our now banrupt country were,the institutional landlords, the Society of Chartered Surveyors and the Law Society. During the recent debate whether tenants in legacy upward-only rent review leases should be allowed market rents, the surveyors lobbied against the tenants. These same surveyors preside over our commercial rental arbitration system which tenants believe is corrupt.
Members of the Law Society and the Judiciary own billions of Irish commercial property containing the notorious ratchet upward-only rent review (UORR) lease clause. The esteemed senior counsel Dermot Gleeson with his partners the Fitzpatrick family,are the owners of 52 Dawson Street. They had a rent dispute with their tenant Carluccios in the recent past. Their landlord neighbours in 51 Dawson Street is the esteemed senior counsel Anthony Kidney and his partner Ronan McNamee. Kidney V Charlton will be heard in the Supreme Court next Friday 16th December 2011. This is very likely to be a landmark case.
The lease is a 35 year lease, no break clauses and contains the notorious ratchet upward-only rent review lease clause. The defendants are asking the Court to consider the legality of the upward-only rent review clause, prior to the appointment of an arbitrator. Neither the plaintiffs, nor the defendants are the originl parties to the lease. I believe this is the first case since the banning of UORRs in all future commercial leases on 28th February 2010 , where an Irish court is asked to consider the legality of the upward-only rent review lease clause in an existing commercial lease. I urge all interested parties to take note of the great significence of this Supreme Court case.
KiIDNEY V CHARLTON Supreme Court 16th December 2011
The Irish Times – Friday, January 23, 2009
Rent reviews must consider recession
The MASTER of the High Court has said the economic downturn should be considered when “upward only” clauses governing rent reviews for commercial buildings are being interpreted.
Edmund Holohan SC made the comments when he delivered his “written reasoned decision” in a case involving the Apollo Gallery, 51C Dawson Street, Dublin. The decision is an expression of his views on the law. A legal decision on the actual case is a matter for the courts.
He said the interpretation of rent agreements by the courts in the context of the recession will be “informed by public policy”.
“Even in a case in which the drafted meaning is clear and unambiguous, the device of severance of an offending clause will be employed by the court where performance would be contrary to public policy.
“In Ireland, fair rents have been a public policy objective since the days of the Land League.”
He noted that during the first 100 days of Franklin D Roosevelt’s presidency in the US, measures to combat the Depression included the invalidating of clauses in private contracts concerning payment in gold, “clauses which in deflationary times had much the same real effect as the ratchet type commercial rent review clause”.
The plaintiffs, Anthony Kidney and Ronan McNamee, want an arbitrator to conduct a rent review in relation to the Dawson Street premises. The 35-year lease on the building dated October 30th, 1986, provides for a rent review every five years “on the basis of an upward only clause”, he said.
The defendants, Julian Charlton and Edward Charlton, are asking the courts to clarify the legality of the upward only clause, prior to the appointment of an arbitrator. Neither the plaintiffs nor the defendants are the original parties to the lease.
Mr Holohan noted that there tend to be two types of upward only review clauses. Threshold clauses state the rent may fluctuate according to changes in market value, but never fall below the rent agreed at the outset. Ratchet clauses state the rent must never fall below the rent that applies at the time of the review.
The clause in the case before the court referred to the “rent previously payable” as the base line, but this may not refer only to the rent payable immediately prior to review, Mr Holohan said.
“As a general principle, the bargain between lessor and lessee is one of long-term mutuality, and rent review clauses must be viewed in that light. There is no presumption in favour of constructing a clause so as to make it upwards only.”
Mr Holohan said it was a “common mistake by valuers to read an upward only clause as precluding any reduction in rent”.
“A court will not be easily persuaded to accept an interpretation which will give the lessor a windfall in a time of recession. And the courts will surely never rubber-stamp any interpretation which clearly has the effect of unjustly enriching either party.”
Mr Holohan said the courts will look to see which interpretation of the clause is most reasonable.
He said arbitration must be carried out fairly. “A system in which rent reviews are apparently adjudicated by estate agents whose day job is the marketing of like property usually by reference to selling points such as ‘strong rental growth potential’ is prima facie a system which gives rise to significant and legitimate misgivings.”
He said arbitrators should attend carefully to the clarification which the case, when heard, would bring to the area. The case was forwarded to the courts for hearing.
@WB thanks will review,also have not had chance to get to NAMA guidance notes.
http://www.nama.ie/
@JG
I wouldn’t waste your time. Unless you’re bust no tenant will ever get a rent reduction from Nama. It’s the return of the Penal Laws.
Minister Noonan announced in the budget that there would be rent reductions given by NAMA to tenants in distress. Tenants in the square in Tallaght and in
Donaghmede SC. would like to apply for the reductions but it is impossible to establish whether the landlords are in Nama. All requests for reductions have been refused and in most cases correspondence is not even replied to. NAMA does not allow any communications at all so is this announcement a mirage? . Any suggestions from you NAMA experts
@Despero, “NAMA does not allow any communication at all”
Well that’s just not true. Frank Daly, the NAMA chairman has invited correspondence personally addressed to him if there is dissatisfaction with the sales process. This is supposed to be aimed at improving the receivership/estate agent performance where properties are in receivership, but why not write to Frank and say that the newly published NAMA scheme for helping commercial tenants in distress is not working.
Also, NAMA has given TDs and Senators a special email address and phone number to contact the Agency. So get down to a constituency office and describe your experience. Many TDs in particular are keen to help tenants in distress so why not use these public representatives.
@despero emigrate ….. it’s Friday evening could not resist!
Technically NAMA purchased loans,to the best of my knowledge the loans belonging to the owners of the square are in NAMA.Not sure on other deal.
I linked the NAMA guidance notes above,too early to advise or make suggestions,they just came out.This will get NAMA’s attention,but may also get you into expensive and futile litigation.
Provided info on Barca rent strike before,but here you go,Liffey Valley worth a look at,ownership is absentee.
“A rent strike is a method of protest commonly employed against large landlords. In a rent strike, a group of tenants come together and agree to refuse to pay their rent en masse until a specific list of demands is met by the landlord. This can be a useful tactic of final resort for use against intransigent landlords, but carries the obvious risk of eviction in some cases.”
Barcelona,Glasgow,New York,next stop Dublin.
http://en.wikipedia.org/wiki/Rent_strike
@Desperado, NAMA is a republic within a republic. The problem is the it is a North Korean republic. One accountable to no one. No answers to queries. Just dictatorial powers, an order of “do it” instead of a response. Six weeks to get permission to pay loans off in full. Months to receive any decision of consequence. No communication, just dictation. Like the subjects in North Korea, we are a submissive people, living under a dictatorship.
There are only two answers for the oppressed, whether they are tenants or debtors – revolution or emigration. Those like the UK multiples have already indicated their intention to take the latter option and where they can are leaving, beginning as their leases expire, after the Christmas period.
And, BTW, to quote Paddy Kavanagh, after he had a few Jamesons, “You are bulling a dead cow” if you expect an answer from NAMA.
@Desperado, On what to do…. Prepare…… Rent an outlet in a vibrant market abroad. Take your stock and ship it to your new destination. Gather whatever cash you can. Hand back your keys. Flip the whole lot of them the bird and get on the plane with your family. The weight will lift from your shoulders from the moment the wheels go up.
If sufficient funds available hire Davy,they appear to have all the right connections.Despite repeated violations and fines,sure wasn’t it only last week Brendan was in the London office!
“Davy Property has been successful at stabilising distressed portfolios through strengthening the asset and capital structure, repositioning distressed assets and raising additional funding. More recently we have been involved in preparing Business and Refinancing Plans with developers for submission to the National Asset Management Agency (NAMA)”
http://www.davy.ie/Generic?page=propertyrestructuring
@Desperado. The only thing it takes is courage, something that the generations before us had in spades. They did not stay here to be subjugated to the will of others. In the words of Steve Jobs:
“Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma – which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition.”
Success is never guaranteed in anything we do, but neither need failure be fatal. If we have the courage to rise and continue, even though we are wounded and the shirt on our back is in tatters – that is what counts.
This budget is akin to the proverbial “moving the deckchairs on the Titanic” scenario.
The whole eurozone banking system is unlikely to last much beyond
March 2012. And Ireland ought to be preparing to abandon ship, not messing around with deckchairs. Commerzbank has a 6 billion funding shortfall for just the next 30 days. I have two cousins that are professors of maths in the USA and just talking with them you realise that nobody can stop the gravity of maths tearing this debt fiasco down.
Should Enda and Michael our two schoolteacher leaders (wonder if they taught even kindergarden maths) harbor any crazy notions of further binding us to this mess and seeking to avoid referendums on the matter, they would be well advised to think otherwise. That sort of a decision would be so crazy it would make NAMA and the bailouts seem sensible by comparison!
Without sending everyone to sleep with details of the euro banking ratios of assets, deposits, collateral and debt, I’ll quote David Stockman, former Director of the White House Office of Management and Budget during the Reagan Administration, “it is only a matter of time before the French and other European banks, which are stuffed with sovereign debt backed by no capital due to the zero risk weighting of the Basel lunacy, topple into the abyss of the shadow banking system where they have funded their elephantine balance sheets. And that includes Germany, too.”
The German banks are as bad or worse than the French. For example, how many know that Deutsche Bank is levered 60:1 on a TCE/assets basis, and that its Basel “risk-weighted” assets are only $450 billion, but actual balance sheet assets are $3 trillion? In other words, due to the Basel standards, which count sovereign and other AAA assets as risk free, DB has $2.5 trillion of assets with zero capital backing!
Budget 2012? – Fuggedaboutit (I’m in New York) it’s just a deckchair. The ship is going down!
Thanks wsrr and Jg would love to emigrate but tied into long lease in shop paying 4 times the competition next door and personal guarantees. By staying open I am losing money but would lose more if I closed. I think the landlord is in NAMA. I lookes at the guidelines for seeking rent reductions but there seems to be no way to apply to NAMA.
@despero where there is a will there is a way,they are under intense media and political pressure.NAMA took an extremely unpopular and polarizing position on UORR.
Reluctant to dispense individual advice in such an open forum,but sometimes drastic and dramatic action is required.However,easy for me to say that,seated thousands of miles away in NY.
I will review the guidelines,also follow up on NWL advice,contact your local TD.
@wstt and Jg – How come everyone on this blog is in New York? What about the sinking ship? Who will launch the lifeboats? Thanks for the pep talk.
@desperado, If , as you say, your landlord is in NAMA… he must be local, i.e. he/she is not an institution. Talk to him, tell him the situation and get a strategy to go into NAMA with together. Presumably, he needs to have his loan restructured also, and this is where the stupidity of NAMA’s position comes in, because the Act does not allow that to happen! But if you both approach NAMA, get your rent written down to a market level, the politicians and the gobsh*tes in NAMA will eventually realise that they will have to write his loan down too – it’s just a matter of time. But together you are stronger and have more chance of solving this than if you were on your own. Your landlord is your ally here, if he is astute enough to realise it and foresee past the media drivel to the future.
@Despero some of us naively did try,still waiting to hear back !
Even flew over from NY to be videotaped,as WSTT points out they are still debating decisions,but the people I was scheduled to talk with were unfortunately, at a conference.
WSTT is a “tourist” here but may become an illegal alien,he is more American than most.
There are lifeboats,where….culturally I would not “fit” too many years in the rough and tough NY RE market.Plus,I like a few pints.
@Despero. “Despero has evolved over the years from a psychic, chess playing, trickster who would cause the League problems from time to time, into a nigh unstoppable juggernaut of destruction, and psionic menace of the highest order.”
Desperado: Outlaw, particularly in the American Old West (more like myself!)
Apologies… I’ll get it right next time! :-)
Harcourt Developments — They will not talk to tenants at all.
NWL did something on them.
https://namawinelake.wordpress.com/2011/11/24/did-nama-facilitate-a-450-worker-construction-project-in-northern-ireland-by-selling-loans-for-a-song/
There should be some sort of Tenant advisory service,similar to New Beginnings,not familiar with these guys at all,and apologies Despeo,left the oul sod long time ago.But did study all this L and T nonsense and make a career out of it.
Umm, foolish. Pat Doherty heads them up. I would retain Paddy Murphy ex BoI to negotiate with them on your behalf.
Despero, If you email NWL, I have left a mobile number with him.
@WSTT adios and desperado too,tis the season .
Good luck with them,cash is king,rent in the lifeblood of developers.
Despero, There’s a private email for NWL under the “about ” tab
@despero
my 10 US cents if you want it.
Help is never available until it is too late. This is true in many aspects of life. By keeping your head above water you are in effect making it worse on yourself. As I pointed out before — people drown not because they panic, but because they did not panic soon enough.
Dont’ cling on. Say “I’m beat”, take the hit and move on.
To use an Irishism….Soonest.
I know it is not that easy. But that’s why my advice is free. Do it.
Kidney V Charlton–Supreme Court 16th December 2011
This profoundly important case was heard on Friday last at the Supreme Court and adjurned until 27th January 2010. Judge Adrian Hardiman stated “this is so serious”. The defendant Julian Charlton representing himself and his brother ,the lessees asked the court to consider the legality of upward-only rent reviews(UORRs) and also stated that Judge Laffoy of the High Court ,who had heard his case may be biased /conflicted because she publishes the book of codified commercial leases. This is the the first time since the banning of the ruinous UORRs in all future commercial leases that an Irish court has been asked to consider the legality of the UORR clause in a legacy UORR lease.
There was no mention of the corrupt arbitration system or the alleged cartel which operates in the Irish commercial property market.
@Will, I believe the adjournment is to 27th January 2012, that is, next month.
Apologies typing error–yes its adjurned till 27th January 2012–next month.
@WB apologies mobile,is there a “link” or website for this case,would actually like to read it if possible.