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).
