Commercial rent must be in line with present market conditions

A High Court ruling in March that will see the rent paid by Bewley’s for its Grafton Street premises fall, could have far-reaching implications for upward only rent reviews in Ireland.

Mr. Justice Peter Charleton said the amount of rent Bewley’s pays Ickendel Limited must fall in line with current market conditions.

Upward only rent reviews, where commercial leases were subject to occasional reviews, and where rent could only rise or remain flat but never fall, have been a contentious issue in recent years with the dramatic decline property prices.

Ickendel, owned by developer Johnny Ronan’s Treasury Holding Group, had taken a case against Bewley’s arguing that it could not reduce rents because its lease agreement only permitted upward only rent reviews.

The High Court had heard that both parties entered into a lease agreement in 1987 with rent reviews every five years since then, and the 2007 review, at the height of the boom, fixed at €1.46 million. Despite this, the same figure was claimed in 2012.

Bewley’s had claimed that the rent review was ambiguous and argued that the lease agreement did have a provision to allow rent to fall as long as it was not below the threshold set in 1987.

Mr. Justice Charleton concurred, saying that:

[t]he parties bargained so as to agree never to fall below that initially agreed rent and I cannot see that they bargained thereafter for anything other than a fair open market rent. That can rise and that can fall.

Mr. Justice Charleton said that it was not in accordance with “business sense” that a rent agreed five years ago “should govern a hospitality market changed for the worse”.

Comment: The objective of section 132(3) of the Land and Conveyancing Law Reform Act 2009  is that any reviewed rent is to reflect the market conditions prevailing at the time of the review. However, this section does not apply where the lease, or an agreement for such a lease, is entered into prior to the commencement of the section. Thus, this section would not have been applicable in the case of Bewley’s. Section 132 came into effect from February 28, 2010 (S.I. 471/2009).  

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The function of legislation is one that cannot be delegated by the Oireachtas to any other body

The Supreme Court has ruled that Registered Employment Agreements which set the pay rates for several employment sectors are unconstitutional.

The Supreme Court found that the provisions of Part III of the Industrial Relations Act 1946 unconstitutional, observing that:

there is a wholesale grant, indeed abdication, of lawmaking power to private persons unidentified and unidentifiable at the time of grant to make law in respect of a broad and important area of human activity and subject only to a limited power of veto by a subordinate body ... Nor did the Oireachtas retain any capacity for review either by the Oireachtas or by a member of the Executive responsible to it, of the agreements actually made.

The Supreme Court found that there was no obligation on the Labour Court or the parties to the agreements to consider the interests of the parties who would be bound by the agreements and those who are not parties to the agreements. Moreover, once the agreement is registered it is binding on everyone, and it may only be varied on the application of the original parties.

The Supreme Court found that the Act allowed the parties to an agreement to make any employment related law on the condition that the Labour Court considers such a law to be "substantially representative" of those working in the sector.

Comment: The McGowan ruling mirrors the John Grace Fried Chicken ruling, where the High Court found the Joint Labour Committee wage settings mechanism unconstitutional.