Rent review clauses are found in the majority of leases of commercial property with terms of 10 years or more.
Typically, they enable an annual rent to be reviewed in line with market rents every 5 years. Historically the clause would provide that the rent would never be reduced, rather would remain the same or would be reviewed ‘upwards only’.
Since the enactment of the Land & Conveyancing Law Reform Act 2009, ‘upwards only’ rent review clauses are prohibited in all leases created after 28 February 2010. However the position regarding leases, created then, which contain upward only rent reviews, is less clear.
This is a cause of concern for both tenants and landlords alike. Tenants, struggling to stay in business, often do not succeed in re-negotiating a lesser rent with their landlord and risk their business failing. A landlord is often pressurised into keeping the rent at the higher rate due to financial obligations to a lender.
The Supreme Court delivered judgement on one of the main cases dealing with these types of clauses on 1st July 2014, in a case concerning Bewley’s Café on Dublin’s Graton Street. In this case the High Court had decided that provided the reviewed rent did not fall below the initial rent levied when the lease was granted, then, a rent could rise and fall on each review date, in line with market rates.
However the Supreme Court overturned this decision, and based on its interpretation of the specific wording of the rent review clause in the lease of the café, it decided the Lease had an upward only rent review clause on each review.
This decision is far-reaching for landlords and tenants, however, it cannot be assumed this ruling would apply to all similar leases.
When considering purchasing property subject to a long leases or taking an assignment of a lease from an existing tenant, the exact wording of the rent review clause should be considered in detail before agreeing a purchase price or assignment terms.
If you are an existing landlord or a tenant of a Lease which is subject to rent review, contact us for advice.
Julie Mullan, solicitor, has extensive experience on all aspects of commercial conveyancing including leases of commercial properties.
If you have any questions about commercial properties or leases Julie can advise you. Please get in touch.