Change in Law a Severe Blow for Banks, NAMA & Taxpayers

Tuesday 30th June 2009: The Irish Auctioneers & Valuers Institute has described the amendments proposed by Minister for Justice Dermot Ahern to the Land and Conveyance Law Reform Bill 2006 as yet another severe blow for the main banks, NAMA and, by extension, the taxpayer.

According to Roland O’Connell, of the Commercial Property Panel on the IAVI National Council, “The outright banning of upward-only rent reviews will significantly further reduce the value of development land and vacant buildings, impacting on banks and pension fund balance sheets. As a result, the Irish banks, NAMA, pension funds and the taxpayer will have an even higher hill to climb than has been anticipated to date.

“The current rent review system played a vital role in enabling developers to finance the development of major new office and retail developments. As well as reducing development land values and making the financing of new schemes more difficult, this new legislation will delay the return of development activity to the market and will have a severe knock-on effect for the economy as a whole.

“If the Minister is determined to proceed, the IAVI strongly recommends that he should allow tenants and landlords to contract out of the Act (subject to both parties having received legal advice), which would enable them to agree to upward-only rent reviews, in circumstances where this will benefit both parties.

“By doing this, the Minister will widen the choices available to tenants, developers and landlords in the interest of all parties. In a situation where rent reviews could go upward or downward, landlords tend to grant shorter leases in order to protect their position. From a tenant’s perspective, in cases where they have invested heavily in furnishings and fit out, they typically prefer security of tenure and would not welcome legislation that makes this almost impossible to obtain.

“For fairness and equity, the IAVI recommends that a base level, which is the initial rent or rent first agreed between the parties, should be established. Guaranteeing that this rent cannot fall would at least provide a floor and assist in financing major projects and would mirror a provision of the Code for Leasing Business Premises in England & Wales 2007.

“While recognising the Minister’s good intentions, the IAVI believes that the proposed legislative changes will have farther reaching economic effects than the Minister has considered and that these will have grave negative consequences for the government, tenants, landlords, banks and taxpayers” he said.

Notes to editor:

About the Code for Leasing Business Premises in England and Wales

The Code for Leasing Business Premises in England and Wales 2007 is the result of collaboration between commercial property professionals and industry bodies representing both owners (Landlords) and occupiers (Tenants). There is a section on Page 1 (4) about Rent Reviews as follows “Rent reviews should be clear and headline rent review clauses should not be used. Landlords should on request offer alternatives to their proposed option for rent review priced on a risk-adjusted basis. For example, alternatives to upward only rent review might include up/down reviews to market rent with a minimum of the initial rent, or reference to another measure such as annual indexation. Where landlords are unable to offer alternatives, they should give reasons. Leases should allow both landlords and tenants to start the rent review process.”

http://www.leasingbusinesspremises.co.uk