The Great Rent Review/Lease Debate
The announcement by the Minister for Justice & Law Reform Alan Shatter to introduce legislation to govern the removal of upward only rent reviews in commercial leases created prior to February 2010 has been greeted with a sense of mixed blessings from those involved in the property industry. There is no question that some of the rent being paid by retailers and other such occupiers for commercial property all over the country would appear to be in excess of the market value. The ability of businesses to pay these rents along with other outgoings is depended on trade which has declined in recent years resulting in lower turnover and thus lower profits or in some cases bigger losses. The introduction of this legislation will have some impact for tenants by reducing their outgoing rents; however it will have no impact on the level of rates being paid to local authorities and town councils around the country which are considered to excessive and out touch with reality in most cases.
The government by proposing this legislation have effectively closed the investment market for the foreseeable future and the uncertainty of the legislation will shun investors away from buying property in Ireland which further kicks any chance of recovery further down the road.
From our experience by and large landlords has adopted the commercial approach by reducing rents with their tenants and taking the glass is half full rather than half empty approach. From a landlords perspective where property has been mortgaged the ability to reduce rents is often at the discretion of their lender, where the terms of the repayments on the mortgage then may need to be reviewed in light of the reduction in the passing rent and often this consent is not forthcoming.
The pension funds who invest people’s money in such things as property will not be cheering the Ministers decision either. They have commitments to pensioners and to those who will retire in future years. If the income stream from the investments they have made is reduced this will cause a further problem to pensioners as the pension funds simply may not have the resources to meet their commitments when called upon.
The idea of a 25 year business plan is unheard of, so committing to a property for such a long period of time should be also unheard of, sadly though this is not the case. We need to move away from long leases to more flexible shorter term leases which will benefit both tenants and landlords giving greater flexibility and this should be encouraged by Government.
