“I can make the pub work at €15,000 rent but not €30,000 — no publican is that good” Publican Eoin Quinlan of Quinns pub in Drumcondra, the pub has now finally closed at the behest of the Irish Bank Resolution Corporation (IBRC)
The fate of businesses struggling to pay rent on commercial premises may depend on the landlord, or more particularly, the bank providing the landlord with loans.
Last December 2011, when Minister for Finance Michael Noonan dropped the clanger that this government was abandoning its commitment to reform commercial property leases so as to outlaw Upward Only Rent Review clauses, the Minister did announce that NAMA was coincidentally introducing a new policy to deal with commercial tenants of premises subject to its loans. If the businesses could demonstrate to NAMA that their survival was at risk because of high rents, then NAMA would in principle facilitate a reduction in rent. Since then NAMA has had over 150 approaches from commercial tenants and appears to have approved rent reductions in 95%-plus of cases, reductions totaling €6m per annum.
So, if you happen to be a commercial tenant whose landlord is in NAMA, you have some potential remedy if struggling to meet your rent payments. NAMA is for all intents and purposes a state agency. NAMA has a policy on rent reductions and it is available here.
IBRC – the name of the bank created by the merger of Anglo Irish Bank and Irish Nationwide Building Society in 2011 – is also a state agency because Minister Noonan is the shareholder of 100% of the shares in IBRC. But IBRC doesn’t have a policy, and commercial tenants like Eoin Quinlan, the landlord for 25 years at Quinns pub in Drumcondra, Dublin who has finally closed his doors, with €250,000 of rent arrears. IBRC says that it will entertain requests from landlords, but not tenants. After being prodded in the Dail, Minister Noonan says he is now consulting with IBRC to see if they might adopt the same policy as NAMA. But it seems that will be too late for Eoin Quinlan.
Minister Noonan is the shareholder in 99.8% of the shares at Allied Irish Banks, AIB. And AIB doesn’t even get involved in such matters, leaving the relationship between tenant and landlord entirely with the landlord and not intervening. And Minister Noonan seems not to have any plans to change this state of affairs.
So, if you are a commercial tenant whose landlord has borrowings from a State agency, you should be praying that you’re lucky enough to have a landlord who is in NAMA. At least then, there is a policy to address problems with meeting the rent. If your landlord is in IBRC, then you are less protected and if you are in AIB, you are on your own. Shouldn’t Minister Noonan need a lottery licence for allowing this state of affairs.
The policies across the three institutions was set out by Minister Noonan in response to parliamentary questions from the Sinn Fein finance spokesperson Pearse Doherty in the Dail yesterday. These are the full responses and questions.
Deputy Pearse Doherty: To ask the Minister for Finance if he will provide the policy adopted by the National Asset Management Agency with respect to reducing rents to commercial tenants, who are facing financial distress, of buildings under the control of NAMA borrowers or its receivers..
Minister for Finance , Michael Noonan : The National Asset Management Agency approves requests for rent easement or abatement from its debtors where a tenant demonstrates that the rent payable under a lease is in excess of current market levels and that the viability of a business is, as a consequence, threatened. By end-October 2012, the Agency had received 273 rent abatement applications through debtors/receivers: 210 had been approved, 4 were refused, 9 were non-Agency or otherwise inapplicable and the remaining 50 were under review at that point. 159 applications have been received since the Agency’s Guidance Note on Upwards Only Commercial Leases was published last December. Since the start of the year, NAMA has approved cumulative rent reductions through debtors/receivers of over €6 million bringing the total rent savings to date since inception of this initiative to approximately €9.7 million with a further €3.4 million currently under review. NAMA proactively works through debtors/receivers to facilitate rent abatements where the contractual rent is in excess of prevailing market rates and where, as a consequence, the viability of tenant businesses is undermined.
NAMA’s Guidance Note on Upwards Only Commercial Leases is available on its website, http://www.nama.ie. The Agency engages with industry representative bodies in the retail sector to promote understanding of the Guidance Note and its applicability.
Deputy Pearse Doherty: To ask the Minister for Finance if he will provide the policy adopted by the Irish Bank Resolution Corporation in which he is the sole shareholder of 100% of the shares and on the board of which he has seconded a person (details supplied), with respect to reducing rents to commercial tenants, who are facing financial distress, of buildings under the control of Irish Bank Resolution Corporation borrowers or its receivers.
Minister for Finance, Michael Noonan : The overriding mandate of IBRC is to maximise the recovery of loans on behalf of the State and to wind down over time. The underlying approach of the Bank is to work constructively with each borrower on an individual basis.
I have been advised that the tenancy arrangements for commercial properties, financed by IBRC, are principally governed by contractual lease agreements between the borrower (or receiver) as landlord and the lessee (tenant). In circumstances where IBRC receives a request from a borrower (or receiver), to add its consent to an amendment to lease terms, agreed with the lessee, typically a payment concession in terms of a lower rent or a rental holiday, the Bank will undertake a thorough review through its multi-faceted credit processes. This will include a comprehensive assessment of the individual tenant’s financial profile and underlying business circumstances, in order to assess fully their ability to meet their existing contractual obligations.
I have asked IBRC to review NAMA’s policy guidance on upward only rent reviews to see if IBRC could implement this policy guidance or a variation of this policy guidance and I understand that this matter is currently under consideration by the Bank.
I should also note that the person referred to has not been seconded to the board of IBRC but to the bank’s senior management team as the Head of Market Solutions.
Deputy Pearse Doherty: To ask the Minister for Finance if he will provide the policy adopted by Allied Irish Banks in which he is the shareholder of 99.8% of the shares and is responsible for the appointment of persons (details supplied) as public interest directors on that Bank’s board, with respect to reducing rents to commercial tenants, who are facing financial distress, of buildings under the control of AIB borrowers or its receivers.
Minister for Finance, Michael Noonan : I am informed by AIB that it is committed to operating its business activities on a commercial basis as the bank seeks to protect its economic interests. As such, the bank approaches each particular situation on a case by case basis to ensure the appropriate outcome is achieved. In the case of commercial properties, the legal relationship that exists is typically between the borrower and the commercial tenant. As such AIB does not typically have remit to intervene in this contractual relationship directly. However, where the bank does become involved in restructuring individual cases AIB will examine and explore options with its borrowers with a view to structuring the best long term economic outcome given current economic conditions for all parties.