What does the new law on rent reviews mean?
Rent reviews form part of virtually every commercial lease. A rent review effectively means that after a period of years after the lease was created (normally every five years) the landlord and the tenant have an opportunity to review the rent that is passed by the tenant to the landlord each year. In most leases of over five years duration that were created in the last 20 years, the rent review clause was upward only, meaning that the rent could not fall below the actual amount that was being paid at the time of the rent review. This effectively meant that the landlord was never going to receive any less rent than what was agreed at the start of the lease.
With the economic slowdown there have been calls by tenants to have rents reduced as the recession has bitten into turnover and profit leading to an inability to meet the rental demands of their landlords. Many landlords have had to adapt to these new trading conditions, reducing rents accordingly in order to keep tenants in their properties and indeed in business. In recent months a campaign led by Retail Excellence Ireland (REI) had lobbied government to consider the adoption in to law of both upward and downward rent reviews. The Minister for Justice, Dermot Ahern, signed a banning order on December 1st 2009 on upward only rent review clauses under section 132 of the Land and Conveyancing Law Reform Act. The change will come into effect on February 28th this year.
This in theory will mean that if the market value of the premises on the date of the review is found to be at a lower value, the amount of rent payable to the landlord will be reduced. In the case of the market rent being higher, the rent will increase. However this will only affect new commercial leases signed after this date and not any existing commercial lease that were created prior to this date.
