[UPDATE: 25th March 2013. The judgment is here]
This is potentially a major development in Irish case law which puts in doubt the ability of a commercial landlord to enforce so-called “Upward Only Rent Review” terms in pre-February 2010 leases. RTE is reporting that Judge Peter Charleton this morning ruled in a rent dispute over the iconic Bewleys Café outlet on Grafton Street in central Dublin. The landlord which includes the colourful Johnny Ronan failed in its attempt to enforce the UORR term in the lease and the Judge has apparently ordered the rent to fall to current market levels, which are more than 50% less than peak rents in 2006-8.
Unfortunately the judgment is not yet online at the Court Service, though attempts will be made to get it so that it can be posted here.
The RTE report on the judgment is sparse and really doesn’t explain the basis for the judgment but it does say “the decision of Mr Justice Peter Charleton will have huge repercussions for landlords who have been claiming upwards only reviews and will be widely welcomed by hard pressed shop tenants” which implies that the judgment will be relevant to other UORR leases.
NAMA, commercial landlords and commercial tenants and their representatives will be following developments in respect of this case closely.
[Note: UORR lease terms were common in Ireland in commercial leases pre-February 2010 when they were abolished for new leases entered into after that date. UORR leases provided for periodic reviews of rents but the reviews could only be upward or flat, and reductions were not allowed. This means that if rents were set during the boom, they are probably more than double the current market rent following the financial collapse. This Government promised to abolish such terms in older leases but in December 2011 abandoned the commitment stating it was incompatible with the constitution and would be too expensive to implement]
UPDATE (1): 25th March, 2013. The Irish Times is now reporting the outcome of this case and it too, indicates that the case will have far-reaching repurcussions when it states “The case was regarded as a test case in the contentious area of upward-only rent review lease agreements” The report provides some additional information on the lease which apparently has rent set at €1.5m from 2007, but there is still little on the principle which allowed the Judge to reduce the commercial rent in this case, let alone anything to show why the facts of this case would be widely applicable to other UORR leases.
UPDATE (2): 25th March, 2013. The colorful judgment from Mr Justice Peter Charleton is now available here, though it is not yet available online from the Court Service website. It would appear to me from the judge’s remarks that he is sympathetic with the plight of commercial tenants.The 35-year lease was entered into, in 1987 when the rent on the 4-storey café on Grafton Street was set at the equivalent of €213,000. In 2007 the rent was revised upwards to €1,463,964
Threshold lease versus Upward Only Rent Review lease – Bewleys contended that the lease was a so-called “threshold lease” and that the initial rent in 1987 of €213,000 was a base and no subsequent review could lead to a rent below that level. Ickendel contended it was a normal Upwards Only Rent Review lease, and that each rent review couldn’t lead to a rent below the immediately-previous review. So,Ickendel was contending that the 2012 review couldn’t result in a rent below the rent set in 2007 of €1,463,964.
The judge recognizes that the Irish Supreme Court “have made it clear that no re-writing of what the parties have agreed could possibly be permitted either in the guise of sympathy for any party struck in a financial quagmire or pursuant to any notion of the courts construing public policy in aid of a result”
Each rent review provided for a rent that was “equal to or greater of (A) the rent payable under (sic) during the preceding period or (B) such revised rent as may from time to time be ascertained in accordance with the provisions in that belief contained in the clause 6 hereof (whichever shall be greater) “ and the all important “clause 6 hereof”, clause 6.2 states “the anterior rent to be so determined by the arbitrator shall be such as in his opinion represents at the Review Date the full open market yearly rent”
Where the Ickendel lease fell down, in Judge Charleton’s view, was that it failed to use the term “immediately preceding” and the Judge has interpreted the expression “the preceding period” to mean any period preceding the current period, and that could be the rent in 2002, 1997,1992 or 1987. This interpretation is likely to instill fear hearts in many commercial landlords who may have believed that “the preceding period” meant the period “immediately preceding the current period”.
Will this judgment have wide repercussions? It seems that property lawyers are suggesting it will have which would indicate that many UORR leases make reference to rents not falling below the previous period but fail to qualify “preceding” with the word “immediately”.
Personally, the judgment looks dodgy to me. When reference is made to “the preceding period”, it seems the word “the” is referring to a single period and not plural periods. And that a reasonable construction in commonsense English the “the” would refer to the immediately-previous period. The judgment may be appealed, and this blogpost will be updated with any news.
Not to worry; I’m sure a justice or two during the appeals process will have investments… sorry I mean, sympathies with the institution of UORRs.
Apparently the Bewley’s lease did not have a specific clause that said rents could only go upward so they are still dicing and slicing these leases but with 20% average retail vacant throughout the country they, that is the courts, are being forced to let in a chink of reality.
I regard the Irish courts as being analogous to the patient who goes to different psychiatrists for years but finally after being told the same thing in different words meets the “right” psychiatrist, whom we will be told is, “brilliant!”. In fact, the cure was always available to the patient (Irish judicial system) but was awaiting the moment when it could be accepted.
The Irish courts now find themselves finally having to accept that the economic reality of these leases demands the cure be accepted. There will be another bit of dicing and slicing but then finally the curtains will be drawn fully back.
The pension funds and others who were dependent on these gravity defying leases must now be shuffling about very nervously indeed. It is a pity their income stream was dependent on regressive, inequitable, penal clauses being placed into leases by the dominant party. It is a pity also, that so many businesses and jobs have been lost for the want of our judicial system grasping the nettle earlier. Can some of these now sue for losses that they incurred? This could have far reaching implications.
There is no way this judgment can stand. If it does, it will devastate Ireland’s judicial/commercial reputation. The key is that the lease states “first clear yearly rent of £168,000 and thereafter during each of THE SUCCESSIVE PERIODS of five years of which the first shall begin on 1 January 1992 a rent equal to the greater of (A) the rent payable under (sic) during the preceding period…”
‘The preceding period’ clearly refers back to the successive periods, and where they are successive, the preceding period is clearly the last one just ended.
Our financial reputation has taken a battering internationally; I sincerely hope that our legal one won’t suffer the same fate, which it will if this judgment is allowed to stand.
All this case showed is how politicised the Irish commercial court has become. Peter Charlton manipulated the facts in the case to fit the result he wanted to hand down. His summary flies in the face of reason.
The Marland Homes case that he relies on so extensively had nothing to do with leases, it was about a contract to purchase land by way of license via a third party from the Dublin City Council. The vendors could not deliver as they had no right to sub-sell. What’s that got to do with upward only rent reviews – except to prove that you cannot interpret a contract except by the letter of it? Its obfuscation, pure and simple.
Our courts are a laughing stock. It’s the final frontier. After our pea-brained politicians and the inept mismanagement of our financial affairs, it is the fitting and final ignominy to our new future as a banana republic..
I have no axe to grind here. I fully agree that rents need to be reduced and that above market rents are unfair, but the way to achieve it is not by debasing the decisions of the courts and reducing the judges who hand them down into political minions.
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