Ciarán Lynch (Cork South Central, Labour)

Why is this measure needed? The purpose of this Bill is to recognise the serious burden placed upon businesses throughout the State arising from the current decline in the economy when faced with upwards only commercial rent reviews. Shops are going out of business in virtually every village, town and city in the country.

Last year, this issue was only partially addressed in the Land and Conveyancing Law Reform Act. However, changes with regard to the abolishment of upward only rent reviews applied only to leases which had been agreed in the past week and existing business leases set prior to that date are not affected by that Act.

During the debate last year, the Minister, Deputy Dermot Ahern, stated that it is important the House sends out a strong signal to the market, and particularly those ranked in commercial premises, that it is better to get some rent than no rent at all. He also stated that putting people out on the street is in no one's interest. He further stated that he believed it was right for the Oireachtas to send a signal to exhort landlords to be as reasonable as possible in cases where traders were locked into, for example, a 35 year lease with upwards only rent reviews. He said he wrote to all professional bodies in the property sector to exhort their members to deal reasonably and rationally in such cases.

That was then; this is now. It is clear the signal was not heard, and rents have continued to increase. I read an International Monetary Fund report published at the start of this year that showed that commercial rents in Ireland are among the top three in the world, and higher than cities such as Tokyo. I believe they are even higher than cities such as Milan. Given that rents are at such a level and we are in the midst of possibly the greatest economic recession this country has ever faced, one must ask why rents are so high. Rents are so high because legally it is not possible to reduce them. It is now clear that this measure must be dealt with on a legislative basis given the emergency of the position in which we now find ourselves.

The Bill recognises the crisis we are in and the need for emergency measures. It empowers the Government, in the public interest, by order to grant temporary relief from the operation of existing upwards only rent reviews. In summary, the Bill will establish an emergency period during which it will effectively prohibit the application of upwards only rent review clauses in business leases which will apply to both existing as well as new leases.

The retail sector is the largest private sector employer in the economy. It represents over 24,000 stores and employs almost 280,000 people yet in 2009 there were 30,000 job losses at a cost of €600 million to the State. In January and February of this year, there were 38 insolvencies. Additionally, 120 unlimited retailers have failed in the first two months of this year. Retail sale values for that period were down and we have seen them continue to drop. In the past two years, the accumulative drop in the retail sector was 30% in business terms yet, crucially, rent as a percentage of operating costs has increased beyond 20% for many shopping centre tenants while their sales continue to implode.

In this collapsing market, landlords protected by an upward only rent review measure are seeking increases in rent in shopping centres. In Dundrum shopping centre the increase sought is 60%. In the Pavilions shopping centre in Swords it is 100%. In Monaghan Shopping Centre it is 46%, and in my own constituency of Cork South Central the landlord of the Wiltons Shopping Centre is seeking increases from hard pressed tenants of between 36% and 58%.

This small sample represents an unrealistic world view in which landlords are ignoring economic realities and seeking extraordinary increases in rents. It is also becoming evident that the most exorbitant increases are being sought by property developers and property owners who are headed towards the NAMA process, perhaps hoping that an increase in rental yields will increase their NAMA valuation.

It is now beyond argument that the commercial property market is not a market. In a real market, demand meets supply and a price is derived. In the Irish commercial property market, however, there is an oversupply of retail property and a lack of demand for it yet rent prices continue to increase. As referenced in the IMF report, rents increase when more property becomes available and businesses go to the wall because they cannot pay those rents.

A more appropriate description is that the Irish retail market is a rental bubble similar to its near relative, the property bubble. Sustaining this rent bubble means that the single greatest cost facing businesses in the retail sector, which are greater than energy costs, supplier costs, and most importantly, employment costs, is meeting an unsustainable rent on a quarterly basis.

Like other Members I received an e-mail in recent days from a distressed person who stated that the business is opened every morning to pay their rent even as it is losing money hand over fist. The company is in a financial bind in that it must open to trade in order to lose income. If it does not, under the legalities of its existing lease, the landlord will pursue it for the rent.

An e-mail from the chief executive of Cleary & Co, a Dublin-based company, states:

We are all aware of the very serious situation facing many progressive indigenous businesses, particularly retailers and their staff, who have been caught in a upward only rental system that clearly does not work. Throughout the Tiger years, this community was not one that accumulated wealth, but one that spread it to the far corners of society. The last time we had such a crisis led to the formation of the Land League and the many reforms that ensued.

I received an e-mail from a Ms Kathryn Lynch in Navan, Co. Meath. She is not related to me. The e-mail states:

The application of an upward-only lease clause of my lease has just resulted in me closing my shop with the loss of 6 jobs. We are now working hard to try and re-locate our business to an alternate premises so we can continue to honour our financial commitments. I will probably lose my house as my landlord has now instigated litigation to recover the lease interest.

I received an e-mail from Mr. Colm Sorensen, managing director of Butlers Chocolate Cafés, a recent Irish success story:

We are an Irish manufacturing and retailing company based in North Dublin and employing 250 people. We operate 14 shops throughout the country. Throughout 2009 our management and staff have accepted a wage freeze and many of our suppliers have reduced their prices. The only cost that we have not been able to contain is rent. Rising rents amid falling sales threaten to undo all the good work we have done in growing this business from less than 20 employees to 250 over the last 10 years. Surely something can be done on an emergency basis to suspend unreasonable increases being sought by landlords availing of the patently flawed (and biased towards landlord) [rent] review mechanism?

I also received correspondence from Keith Rogers of ECCO, the shoe company in Cork. It states:

We have been selling shoes in Ireland since 1916, we currently employ over one hundred people. We are making huge efforts to make our business survive through this current downward period but find that current rents and the upward only clause in our leases is the single biggest threat to our business.

It is now beyond argument that the commercial property market is not a market. Each e-mail I quoted asks a single question: do we invest in creating a sustainable labour and business market or instead invest in an unsustainable property rental bubble?

When preparing this legislation and when having other debates with the Minister, there was a lot of toing and froing with regard to legality and constitutionality. In preparing the Bill, the Labour Party considered a number of points. Any adaptations or changes with regard to property law must stand up to legal scrutiny. In preparing the Bill, the Labour Party sought such legal examination. Its legal advice is that the Bill is robust and will stand up to legal challenges, be they in regard to constitutional matters, private property rights or contract law.

What the Bill seeks to address is the emergency that has arisen in regard to upward-only rent reviews and the substantial economic havoc that such provisions are causing, particularly to small and medium-sized enterprises. Rent reviews, which normally occur every five years, are resulting in many such companies having to be wound up, liquidators exercising special statutory powers to disclaim erroneous leases and businesses effectively being abandoned, thus resulting in a substantial loss of employment. This was exemplified in the e-mails to which I referred.

The Government's response to this issue has been twofold. One approach has been to set up a working group and the other has been to claim there are legal obstacles prohibiting the Government from finding a solution. It appears the Government is always one working group away from finding a solution. Whenever a difficulty is presented in the House, we hear a Minister state he is forming a committee or working group and that it will report to the House at some time in the future. The working group in question is to make its first report on 30 June, just before the summer recess. Coincidently, this is almost a year to the day since the Minister first announced he was going to do something about the problem.

It is the view of the Labour Party that the financial stress being placed upon the retail sector by upward-only rent reviews requires an immediate and urgent response. Struggling businesses cannot wait until next week, let alone 30 June.

The second matter regarding legal difficulties was restated by the Taoiseach this afternoon in response to the Labour Party leader, Deputy Gilmore, who raised the matter with him. During the debate, the Deputy called on the Taoiseach to lay the advice of the Attorney General before the House. I reiterate that request. A precedent has already been set with regard to legal advice of the Attorney General being laid before the House. I believe former Attorney General Peter Sutherland did so given the significance and national importance of the matter in question. Given the seriousness and grave consequences of the upward-only rent provision, it is incumbent on the Minister to lay the Attorney General's advice before the House.

In preparing this Bill, the Labour Party sought legal advice. Other notable legal opinions were offered in the media of late. The Labour Party is certainly in a position to lay its legal advice before the House in response to the Minister furnishing us with the Attorney General's report. As I understand it, the Attorney General is an appointee of the Government and a member of the legal profession. He or she is appropriately trained and his or her opinion is valued, thus meriting appointment by the Government. However, the message should not be sent out from this House that the view of the Attorney General on any single matter is infallible. The only way the view of the Attorney General on the matter in question can be tested is by putting it in the public domain and subjecting it to full scrutiny.

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