Leo Varadkar (Dublin West, Fine Gael)

I thank Deputy Ciarán Lynch for proposing the Bill and for giving us an opportunity to debate this important issue. In coming to a decision on the Bill it is necessary to consider four questions. First is the nature of the problem and whether it requires a new law; second is the question of considering the other sides of the argument; third is a recognition that in debating any such legislation we are also debating the law of unintended consequences; and, fourth, we must debate whether the Bill contains any defects.

I will deal first with the nature of the problem, which derives from the volatility of commercial rates. They increased significantly during the boom and are now decreasing significantly, perhaps by as much as 20% or 30%. The problem relates to institutional investors who are refusing, for various reasons, to reduce the rents they are charging, with the result that businesses are being driven to the wall and jobs lost. We are all aware of the need for the State to restore its competitiveness. However, competitiveness is not just about wages but also about utilities, the cost of services and, in particular, the cost of property. Whereas property prices and commercial rents have declined significantly, it is clear that when it comes to institutional investors and financial institutions, many are resisting market pressures to reduce rents. That is unacceptable.

Nevertheless, the second issue to consider is whether there is another side to the argument. Landlords and institutional investors claim they cannot reduce rents because rental yields are linked to pension returns, investment returns and insurance premia. There is probably some validity to that, but it leads to another question in regard to capitalisation and the capital values held by pension funds and institutional investors. In many cases values are being attached to commercial leases that no longer reflect their real value. The reason institutional investors will not reduce rents is that they are maintaining the pretence that their leases are worth more than they are. That is similar to what the banks did before the banking crisis. It is a cause for concern that these pension funds and insurance companies may be two years away from the same type of crisis and that the values listed on the balance sheets for these leases, properties and linked rental yields are not reflective of reality.

I put down several parliamentary questions on this issue to the Minister for Finance in recent days. In addition, I asked the Minister for Justice, Equality and Law reform whether any banking institution, pension fund or the NTMA had, in the past 18 months, made representations to him in regard to the potential impact that a retrospective end to upward-only reviews would have on commercial prices and, if so, whether he would publish those representations or the minutes of those representations. The Minister confirmed today that he received, in May 2009, a representation from the Irish Association of Pension Funds commenting on the impact that a retrospective abolition of upward-only rent reviews would have on property values. This confirms what I am saying.

The third issue to consider is whether there may be any unintended consequences arising from the Bill. I cannot see any such consequences. The fourth consideration is whether the Bill contains any defects. The answer is that it may do so in that it interferes with existing contracts and there is also the constitutional issue in regard to property rights. However, this is not the first Bill that interferes with existing contracts. The Judicial Separation and Family Law Reform did so, as did the divorce legislation and the legislation introducing financial emergency measures in the public interest. Moreover, when it comes to property rights, that is ultimately a matter for the Supreme Court to decide, where the legislation in question is deferred to the court by a decision of the President, perhaps in consultation with the Council of State. There is no reason we cannot pass this Bill today and allow the President to refer it to the Supreme Court where a judgment could be delivered quickly as to its constitutionality.

In summary, this is a substantial problem that requires intervention. The proposal does not remove the protection that exists for landlords; just because we eliminate this clause does not mean they have to reduce rents but simply that they must negotiate them. If it is the case that financial institutions have bogus capital values attached to certain properties and certain leases, we will have to deal with that problem sooner or later and we may as well do it now. I cannot see any unintended consequences of the proposal. It probably has defects but they are not insurmountable. On balance, therefore, it is a good legislative proposal which addresses an issue of genuine concern. It deserves a Second Reading.

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