The Irish Auctioneers & Valuers Institute (IAVI) has described the banning of upward-only rent reviews in business leases by the Minister for Justice as a retrograde step and one that is not conducive to recovery in the property sector. In fact, following on from the ridiculous 80% windfall tax in the NAMA legislation, this Government seems intent on further undermining any recovery in the property market.

Áine Myler, President of the IAVI said, “This approach looks solely at the retail market and not at the commercial property market as a whole. It ignores issues in the office sector which are as important to the economic prospects of the country.

“There are clear circumstances where it works to tenants’ advantage to enter into a lease with upward-only reviews. Prolonged rent-free periods may be offered to compensate for fitting-out and moving costs without which a move to new premises would be unaffordable. This handholding move by the Minister dictates lease terms and precludes these choices for parties acting with professional property and legal advice,” she said.

In a submission to the Oireachtas Joint Committee on Enterprise, Trade and Employment the IAVI recommended that the legislation should at least allow tenants and landlords, acting under legal advice, to contract out of the Land Reform Act allowing them the choice to agree to upward-only rent reviews. This widens the choices available to landlords and tenants in the interest of both parties.

In addition, the IAVI recommended that it may be wise to allow both parties, again properly advised, to agree that the initial rent in any lease would be a base level, below which it would not fall even in cases of upward or downward reviews. 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.

According to Ms Myler, "At present the Government, the banks and NAMA are dealing with the problems brought about by an unprecedented fall in property values. At a time when restoring confidence to the market and attracting inward investment should be a top priority, this move to prohibit upward-only rent reviews will automatically de-value development land and existing buildings, especially those that are unlet.

“This move brings increased uncertainty to an already unstable sector and will make property less attractive to national and international investors. These reductions will impact on Government, NAMA, banks and pension fund balance sheets and lengthen the road to economic recovery. The market has already self-corrected to provide much more competitive lease and rental terms and the timing of this announcement couldn’t be worse.

“The existing rent review system played a vital role in enabling developers to finance major developments. This change in legislation will delay the return of development activity to the marketplace and reduce its scale once it returns. In addition, funding for new developments will be extraordinarily difficult to obtain as it will be difficult to confidently predict a minimum return on investment. These factors will have a severe knock-on affect for the economy as a whole.

“This amendment (to the Land and Conveyancing Land Reform Act 2009), which bans upward-only rent reviews was introduced to alleviate the problems faced by retail tenants who, facing severe reductions in turnover, found their existing rents were too high. However, it does nothing to assist these tenants as the legislation is not retrospective. In reality, it will have negative repercussions for the tenants it was supposed to help and for the property market as a whole, making their leases practically unassignable,” she said.

Notes to editors

IAVI members have a unique perspective of the market as they act for tenants and landlords. Our members want to ensure that the widest choice of solutions is available for both tenants and landlords and to find the best result for both parties in a transaction.

In a situation where rent reviews could go up or down, landlords often grant shorter leases to protect their position. This poses problems from a tenant’s perspective, as they may have invested heavily in furnishings and fit-out, and would typically prefer security of tenure. They are unlikely to welcome legislation that makes this almost impossible to obtain.

Many tenants in difficult trading circumstances are seeking rent reductions as part of cost cutting measures. Most professional commercial landlords will try to work with viable business tenants during such times. The IAVI National Council has prepared a framework for their members to assist clients to agree rental reduction terms, when warranted.


Carina O'Neill

Bracken Public Relations

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