Archive for March 28th, 2012

[UPDATE: 30th March 2012. The text of both the Fianna Fail Bill, Landlord and Tenant (Business Leases Rent Review) Bill 2012 and the Sinn Fein Bill, Landlord and Tenant (Business Leases Rent Review) Bill 2012,  is now now available – both are pretty light on detail for what would potentially be a serious interference in property rights]

The most fractious issue in the Irish commercial property world last year was the uncertainty created by the incoming Government’s commitment to abolish Upward Only Rent Review (UORR) clauses in commercial leases created before February 2010. Although commercial property covers a wide spectrum including office blocks, hotels, pubs, and industrial factories/warehouses, it was retailers who were most vociferous in promoting the need for a mechanism to allow rents to be reduced to current market levels which are 50% less than peak in 2006/7. The uncertainty was ended on 6th December 2011 when Minister for Finance, Michael Noonan announced to the Dail that “it has not proved possible to develop a targeted scheme to tackle this issue that would not be  vulnerable to legal challenge or require compensation to be paid to landlords” Following the announcement, landlords were ecstatic, tenants were crestfallen and the property industry generally was pleased that the uncertainty had been removed.

Well today, a measure of uncertainty returns with the tabling of a Bill by Fianna Fail to abolish Upward Only Rent Reviews. The Bill is called the Landlord and Tenant (Business Leases Rent Review) Bill 2012 and it should be published shortly on the Oireachtas website here. Fianna Fail deputy Dara Calleary, who introduced the Bill, sets out more information about its contents and objectives here. Fianna Fail presently has 19 deputies in the 166-member Dail though it is likely to find support from other elements of the Opposition, but ranged against a Government which holds a decisive majority with 109 even after deducting the four who have lost the whip, the Bill seems unlikely to get off the starting blocks.

Elsewhere Sinn Fein has said that it will introduce a similar Bill, the Public Interest (Reviews of Commercial Rents) Bill 2012. Retail Excellence Ireland has predictably welcome the Bill though it appears not to have been tabled in the Dail just yet.

Will the whole UORR debate be re-ignited? Difficult to say, the Government took nine months last year before announcing its abandonment of any changes on constitutional grounds which was apparently after receiving advice from the Attorney General so you might think these Bills will not progress for both legal and political reasons. But you never know…

There are feature blogposts from last year on UORR here and here.

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In the Dail last week Minister for Finance, Michael Noonan revealed that NAMA had agreed overhead levels, presumably annual levels, of €55m in respect of 41 developers whose loans with the Agency amounted to €18.6bn at original par values. That according to the Minister represented 0.3% of the original par values. Which might sound like great value for money. After all, receivers and asset managers generally are said to get 1.5% of their assets under management according to NAMA – its chairman Frank Daly has said that before an Oireachtas hearing and NAMA’s 2012 projected costs also refer to insolvency/receivership costs being 1.5% of the assets under management.

So obviously 0.3% is considerably less than 1.5%. Of course the 0.3% relates to the original par values of the loans, it represents 0.7% of the value placed on the loans by NAMA with respect to November 2009 values – remember NAMA applied an average 57% haircut to the loans it acquired. And given the 20-30% declines in Irish property prices since November 2009 and the fact that NAMA paid a “long term economic value” premium of 9% of November 2009 prices, it seems that NAMA is in fact paying the 41 developers NOT 0.3% of the CURRENT MARKET VALUE of the assets under management, more like 1.1% of the CURRENT MARKET VALUE of the assets. Of course 1.1% is still less than 1.5% though presumably there is far more direct management of these loans by NAMA, whereas receivers would be expected to take practically all of the burden away from NAMA.

NAMA’s receivership costs and overheads paid to developers are set to come under increased scrutiny as the Agency continues in its asset management phase. Meantime, we learn today from Iris Oifigiul that NAMA has had receivers appointed to five more companies which seem to be controlled by two development groupings.

First up is Ashburton Construction Limited, the company controlled by directors Kevin McNulty and Conal Byrne. Interestingly NAMA made an application in Dublin’s High Court against this company and a related company PA Bello as well as the two directors personally. NAMA has now had Kieran McCarthy of Hughes Blake Chartered Accountants appointed as a receiver. This is the first time I believe this firm has been used by NAMA.

Next we have Coolfadda Developers Limited, the Cork-based development company whose current directors are listed as Vera Slattery, Conor Slattery and Geraldine Collins, the company secretary is Paul Collins. NAMA has had Ken Fennell of Kavanagh Fennell appointed as receiver to five developments in Cork and Kerry – (1) Killowen, County Kerry (2) Dunmanway Road/Convent Hill in Bandon, County Cork (3) Rathcoole, County Cork (4) Curryclough, Bandon, County Cork and (5) Sneem, County Kerry

Next up, we have what appears to be a related company to Coolfadda, Neidin Developments Limited whose directors are listed as Paul Collins, Conor Slattery and Anton Hunt, its company secretary is Conor Slattery. Again NAMA has had Ken Fennell of Kavanagh Fennell appointed as receiver to a 39-acre site in Kenmare, County Kerry and a 11-acre site also in Kenmare..

Next we have another related company, Veracon Limited whose directors are listed as Vera Slattery and Conor Slattery who is also the company secretary. Again Ken Fennell is the receiver and the property subject to the receivership appears to be 88 Main Street, Bandon, County Cork.

Lastly we have another related company, PGC Developments Limited whose directors are  listed as Geraldine Collins and Paul Collins, who is also the cimpany secretary. Again Ken Fennell is the receiver and the property subject receivership also appears to be 88 Main Street, Bandon, County Cork.

Remember you can see a comprehensive list of Irish foreclosure actions by NAMA here and in this regularly updated spreadsheet.

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Okay NAMA was really just an interested party, but yesterday in Dublin’s High Court, the redoubtable Mr Justice Peter Kelly upheld an arbitration ruling that was made late last year which said that Ireland’s second-largest grocery retailer, Dunnes Stores was liable to pay a NAMA developer, Holtglen Limited, €20.3m in respect of a shopping centre development, the Ferrybank Shopping Centre – pictured here – in Kilkenny. Judge Kelly’s judgment is here.

It was 2007, at the height of the Celtic Tiger property boom, that Dunnes entered into an agreement in respect of Ferrybank. Holtglen had then gone on to develop the shopping centre but had failed to comply exactly with the terms of the agreement and Dunnes refused to stump up the monies applicable under the contract. The arbitration ruling last year had found that, although Holtglen hadn’t delivered on the original contract, it did remedy the breaches and consequently the monies referred to in the contract were in fact payable. Dunnes appealed the arbitration ruling to the High Court.

NAMA was dragged into this because the Agency acquired the loans relating to the shopping centre in October 2010. Dunnes argued that because Holtglen is insolvent, a term in the agreement allowed it to repudiate the agreement, but this is where NAMA came in and eventually provided Dunnes with an undertaking which read “all obligations of Holtglen to Dunnes Stores under the Development Agreement whether in respect of matters arising before or after the giving of this Notice of Substitution shall be deemed to be obligations of NALM [National Asset Loan Management Limited] as if it had at all times been a party to the Development Agreement in place of Holtglen”

The judge criticised NAMA for delivering its Notice of Substitution late in the day – so late in fact that a hearing scheduled for February was deferred in order to give Dunnes an opportunity to consider the document. But alas for Dunnes, the judge has now dismissed the complaint about Holtglen’s insolvency and Dunnes must now pay more than €20m to Holtglen. NAMA will be pleased given the 65% decline in commercial property values since 2007 when the agreement with Dunnes was struck. According to the Irish Times today, Dunnes has until Friday to appeal Judge Kelly’s refusal of a stay on yesterday’s judgment to the Supreme Court.

The shopping centre itself is set to officially open next month.

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