Court Orders 53% Rent Reduction on two Grafton Street Properties
As the economy has declined and as the retail and services industries in particular suffer, debate continues on the issue of commercial rent reviews. It had been hoped that the restriction on upwards only rent reviews introduced in February 2010 by Section 132 of The Land & Conveyancing Law Reform Act 2009 would resolve the issue. However this restriction only applies to leases created after 28 February 2010 and in practice landlords appear reluctant to agree to anything other than upwards only rent review clauses in new leases in the hope that this restriction will be reversed in the future.
Therefore uncertainty remains for tenants, particularly those tied into upwards only rent review clauses in leases created before 28 February 2010. However some tenants have discovered that their leases do not provide for upwards only rent reviews and such tenants are now becoming more determined in their efforts to settle a realistic rent review with their landlord. Over recent weeks two cases have been heard by Dublin Circuit Court in relation to properties on Grafton Street.
The first case, heard by Judge Deery, concerned Burger King’s outlet on Grafton Street and involved the franchisee’s application to court seeking renewal of its lease under Landlord & Tenant legislation. While the landlord accepted the tenant’s renewal rights, agreement could not be reached on the issue of rent and the matter was referred to Court. In the Circuit Court Judge Deery granted a lease for a five year period and ordered the rent to be fixed at €205,250 per annum, a reduction of 53% from the previous rent. The previous rent of €436,750 was agreed in 2004, a thriving time for city centre businesses. Following the judgment, some surprise was expressed by commercial property experts that rather than reach agreement with its tenant, the landlord allowed the matter to go as far as the Circuit Court in such economically challenging times.
The second case, in which Hayes solicitors acted for the tenant, R&C McCormack Limited, involved the company’s store at 51 Grafton Street which trades as McCormack Celtic Jewellers. The company has operated from its Grafton Street store for over 45 years and in 1990 successfully applied to the Circuit Court under Landlord & Tenant Legislation for renewal of its lease. At that time its lease was renewed for 35 years and the rent review provisions in the lease provided for rent reviews every 5 years by agreement of the parties or by reference to Court under the provisions of the Landlord & Tenants Acts 1967 – 1987. In the intervening years, rent reviews were agreed between the landlord and tenant without reference to the Court. However at the most recent rent review date in April 2010, agreement could not be reached by the parties and the matter was referred to the Circuit Court by the tenant.
The relevant test for the court to consider is contained in Section 23 of The Landlord & Tenant Act 1980 which requires the court, when fixing a rent, to consider what a willing tenant not already in occupation would give and what a willing landlord would take for the relevant property taking into account the term of the tenancy and the letting values of properties of similar character in a comparable area.
Following evidence from commercial property experts for both the tenant and the landlord, Judge Lindsay commented that the matter had come before the court because of the inability of the parties to reach agreement themselves. In acknowledging the right of either party to refer to the matter to court and taking into account various comparable Grafton Street lettings referred to by the experts, Judge Lindsay ordered that the rent be reduced from €150,000 to €70,000. The reduction of 53% is identical to that ordered in the Burger King decision.
Whilst it is important to acknowledge that the option of referring rent reviews to court under Landlord & Tenant legislation is not open to all tenants, tenants should review the wording of rent review clauses in their leases carefully to ensure they are fully aware of the effect of such clauses and to ascertain if there is any scope for negotiation with their landlord or even referral to court.
For further advice, please contact a member of our Property team.
Marie O’Riordan
Solicitor