Upwards only rent reviews – a thing of the past
On 28 February 2010 the much-hyped section 132 of the Land and Conveyancing Law Reform Act 2009 came into effect. This section effectively curtails upwards only rent review clauses.
Standard long term leases generally contain clauses providing that the rent will be reviewed every five years. Until recently, it was common practice that these clauses would provide that the rent could only be reviewed upwards. This has now changed.
Section 132 provides that rent review clauses in any lease created after 28 February 2010 will be construed as providing that the rent payable following review shall be an amount which is less than, greater than or the same as the existing rent. Landlords will no longer be able to insist on upwards only rent review clauses.
Whilst section 132 does not specifically require rent reviews in accordance with current market rent, it will put tenants in a stronger position when negotiating their rent reviews as they will no longer be tied to an upwards only rent review.
Section 132 will only apply to leases created after 28 February 2010.
The Government has however announced the establishment of a working group to look at the issue of commercial rent reviews and in particular the use of arbitration and the adequacy of the information available to parties in the context of rent reviews. In announcing the establishment of the group, the Minister for Justice, Equality and Law Reform, Mr. Dermot Ahern, T.D., acknowledged the concerns with regard to existing leases and rent reviews. The group has been asked to consider the operation of the current system for determining the rent payable on foot of rent review clauses and is to report to the Minister by the end of June.
From a landlord’s perspective, section 132 will give rise to uncertainty on the level of rental income in the future. Some landlords had hoped that the legislation would include provision for both the landlord and tenant to agree to contract out of the section but such a right has not been included.
For more information on commercial leases or rent review, contact a member of the Property and Private Client Team.