Upward only rent reviews that are causing financial hardship for tenants leasing expensive commercial properties can only be reviewed where those properties are owned by NAMA, but not where they are in private ownership.
This is according to both Minister for Finance Michael Noonan and Minister for Justice and Equality Alan Shatter, who outlined the situation in relation to both circumstances during the Budget speeches on Tuesday last.
In relation to NAMA owned properties and tenants experiencing difficulties in paying rents, Minister Noonan stated: “I am fully aware of the difficulties that upward only rent reviews are causing for some businesses. Indeed, despite exhaustive work over the past few months by my colleague the Minister for Justice and Equality, including preparation of draft legislation, it has not proved possible to develop a targeted scheme to tackle this issue that would not be vulnerable to legal challenge.
“I consider that NAMA can play a role in dealing with the problems caused by upward only rent reviews which apply to NAMA properties. NAMA advise me that it has policy guidance in place for dealing with tenants experiencing difficulties in paying rents, including where upward only rent reviews might apply. NAMA have agreed to publish their guidance on this and I welcome NAMA’s realistic approach to this difficult issue.”
The Minister outlined that the existing position allows for tenants and landlords to mutually agree revised contracts. However, where there is a failure to reach agreement NAMA’s policy guidance will provide an opportunity for tenants of NAMA properties to seek a review of their rent, including through the appointment of an independent valuer. The process would apply to business leases which are the subject of upward only rent reviews where the debtors are landlords of premises where NAMA has acquired the loan on the underlying property. It will have to be shown that rents are in excess of current market levels and the continued viability of the tenant’s business must be threatened by high rents. NAMA has confirmed to the Minister that it will facilitate this evaluation process as much as possible.
In relation to existing business leases with private owners, Minister Shatter stated it was with considerable regret that “the Government has decided it is not possible to proceed with the legislation to abolish upward only rent review clauses” in such cases.
The Minister added: “The proposals I brought before Government earlier this year had the particular aim of providing relief for tenants whose businesses might otherwise be viable, were it not for the adverse impact arising from the fact that the rent they were paying was significantly above prevailing market levels. However following consultation with the Attorney General, it was clear that this particular approach gave rise to significant Constitutional difficulties. It was also clear that any legislative scheme, involving as it would an interference in the contractual relationship of private parties, would find it extremely difficult to survive a Constitutional challenge. Most pertinently, at this difficult time in our economic circumstances, Government was made aware of the fact that any legislative proposal would require the payment of compensation to those whose property rights would be infringed if that proposal were to be compatible with Constitutional and European Court of Human Rights norms."
The Minister acknowledged the inevitable disappointment likely to be felt by those who had campaigned for change in this area and expressed the hope that landlords would continue to engage with their tenants in order to provide appropriate rent concessions. He also urged those landlords who had yet to engage with their tenants to accept current realities and behave in a socially responsible manner.
The Minister concluded: “This has also been an uncertain time for those contemplating investment in the commercial property market. I would hope that the clear decision not to proceed with the proposed rent review legislation will remove that uncertainty and pave the way for renewed activity in this sector.”