Willie Penrose (Longford-Westmeath, Labour)

I thank my colleague, Deputy Ciarán Lynch, for bringing this important and timely legislation before the House. It is vital in the context of saving and securing jobs and keeping businesses operating in a difficult environment. It is clear from our discussions with retailers on this issue that exorbitant rent contracts are forcing high street retailers throughout the State out of business. I invited representatives of Retail Excellence Ireland to address the Joint Committee on Enterprise, Trade and Employment in February 2009 and they made their views clear in this regard. Businesses throughout the State which are struggling to keep their doors open in the absence of credit from the banks are eventually finding themselves with no choice but to close their doors. The impact of this is that more and more jobs are being lost and employees are being forced to join the ever lengthening dole queues.

The practice of upward only rent reviews, which is at all times anomalous, is clearly out of synch in current economic circumstances. There should be a pure commercial property market in so far as in the normal course of business, it is the supply and demand for premises that should dictate the ultimate price. In this case, the rent charged appears to have no application in the commercial market. It is incredible that a situation could have been allowed to develop where rents could only ever be increased. While this practice will be banned in respect of all future leases from 1 March 2010, for many well known retail outlets throughout the State the new legal provision will provide little or no solace. They are locked into substantial upper six-figure annual rent agreements with no escape hatch. As their turnover continues to plummet, we see the evidence of the fallout. Many well known outlets have ceased to exist and others are for sale. The casualty list of this crazy practice continues to grow. Surely these clauses are anti-competitive in nature as their sole purpose is to insulate landlords from commercial reality while the unfortunate tenant is pummelled into submission and eventual closure due to prohibitive rent demands.

As legislators we cannot continue to sit on our hands and allow the shutters to fall across our streetscape in the full knowledge of the impact this inertia will have on employment in the retail sector. Notwithstanding the legal niceties and complexities that will undoubtedly be trotted out again this evening in response to this important proposal, we must vigorously pursue a solution that is grounded upon the important constitutional principles which reflect the requirements of the common good. Where there are constitutional issues reflecting a hierarchy of rights, we must resort to what is best for the common good and in accordance with social justice, as permitted in the Constitution under Article 43. A do nothing stance in the current economic climate will see more of our well known companies up sticks. Moreover, in a situation where our business model clearly makes no sense, the spectre will arise of many of the prominent international names following suit.

I am fortified in my argument that it is feasible to draft legislation that will be of help to hard pressed tenants and which will pass muster from a constitutional perspective by a perusal of an important article by Professor David Gwynn Morgan entitled "Do Changes in Landlord and Tenant Legislation Apply to Pre-existing Tenancies?" in the Conveyancing and Property Law Journal 2009. Professor Morgan points out succinctly that in the past 20 years or so, several laws that have modified the landlord and tenant relationship have come into operation and that many of these have applied to existing cases and leases.

The case of Shirley v. O'Gorman is instructive in this regard. Professor Morgan states in his article:

Landlord and tenant law is an area which, because of its origin in the mists of feudalism, in bygone centuries, has frequently been considered to be in need of radical change by legislation. Moreover, in practice, as we shall see, the attitude usually taken by the Legislature (as with such other long-standing arrangements as companies or families) is to apply the new law even to those tenancies which existed before the change of law.

A major policy point, which would support this view, is the simple one that individuals (or companies) have to take their chances with major, unexpected changes to the economic, business, social or personal environment. Why should they be protected from legal changes? Another practical reason for this is that tenancies tend to be long-lived in comparison with, say, torts or crimes or even the time taken to perform most contracts. Accordingly, if the Legislature were to decree that its changes should not apply to "existing tenancies", they would take a long time to come into effect. In addition, the law would be limping on several legs, with different regimes for different generations of tenancies.

The Landlord and Tenant (Ground Rents) Act 1978, with which the Minister will be familiar, came into effect in August 1978 and applied to existing tenancies. Under this legislation a tenant with a large interest in a property was allowed to acquire the fee simple, although the landlord was entitled to some small compensation. On a strictly literal reading, this might be construed as an interference in the landlord's right to cover the fee simple, but it passed muster constitutionally.

Articles 43.2.1 and 43.2.2 of the Constitution are of significant import in this case and are of paramount importance in the construction of this legislation. Article 43.2.1 provides that the State recognises that the exercise of rights in regard to property "ought, in civil society, to be regulated by the principles of social justice." Article 43.2.2 provides:

The State, accordingly, may as occasion requires, delimit by law the exercise of the said rights with a view to reconciling their exercise with the exigencies of the common good.

In the case of Shirley v. O'Gorman there is no doubt that the social justice aspect of the argument prevailed. A proper balance between the property rights and social justice arguments can, to paraphrase Professor Morgan, be best left to the democratically elected Legislature rather than the courts. In this case, the freehold reversal was acquired for the landlord. Mr. Justice Peart remarked in an obiter dictum:

Other factors apart from pure economic factors come into play, to which a Government may have regard in deciding on a social justice policy. There can be other factors or disadvantages affecting the enjoyment of the property, which arise from the status of the tenant. Ownership is not absolute and there still exist the remnants of obligation between landlord and tenant, aside from the payment of a rent, which have led to measures being taken from time to time by the Legislature, and which have effectively emasculated the effect certain covenants (that is against assignment, sub-letting, making alterations and in respect of user, etc.), such that a landlord will not be permitted to unreasonably withhold consent ... A measure which enables a tenant to have these restrictions removed completely can be seen as pursuing a social justice objective, which is apart and distinct from any question of wealth distribution.

Professor Morgan concludes that in most cases changes to the law, often radical changes, apply to existing tenancies. He instances cases where radical pro-tenant changes were introduced in the 1931 Act and extended in the 1980 and later Acts. He opines quite presciently: "It would probably also be the case with any remedy in legislation, which might be enacted, to alter the upwards-only rent review clause."

The Bill addresses the special emergency or exigency which has arisen from the application of upward-only rent review and the horrendous economic impact these clauses have on small and medium-sized enterprises where a rent review, which generally occurs every five years, leads to companies closing down or winding up, with a consequent loss of jobs and business activity. Once the Legislature considers that a measure is reasonable and necessary for the common good, it will not constitute an unjust attack. I know all the cases which the Minister will trot out and I have a fair idea of the advice he has received, from Blake v. Attorney General in the early 1980s onwards. In each case the Supreme Court considers whether the aim or dominant objective of the legislation is for the common good and whether what is proposed amounts to an unjust attack on property. That is the balancing of the rights involved.

Having regard to the exceptional economic circumstance and the significant hardship suffered by existing tenants who are now subject to upward-only review clauses in their leases, and to the exigencies of the common good and the principles of social justice, and where the existing regime is clearly unfair in so far as it locks tenants contractually into exorbitant rent regimes and processes which bear no relation to market realities, the Bill which was prepared so assiduously by Deputy Ciarán Lynch, whom I compliment, should be accepted. If necessary, the Minister can amend or modify it as he sees fit, in accordance with constitutional advice, the advice from the Attorney General or whoever. Delay is no longer an option. Foot dragging must be replaced with action. I exhort the Minister, on behalf of hundreds of individual retailers, some of whom are in the Gallery, who find themselves in that position to accept the Bill and help to secure businesses, sustain current jobs and open up the opportunity for new jobs to be created.

This Bill would pass the test of proportionality, in so far as it does not constitute a disproportionate interference with a landowners' property rights, relative to the objective being sought. It should be pointed out that a landlord will still be entitled to the open market rent, which will be determined at the rent review. In the context of the NAMA Act 2009, the rent generated from the property is highly material to the process and is a necessary element in arriving at a determination of acquisition values under Part 5 of the Act. The rent roll is important in that regard. One wonders if that is the real obstacle to the passage of the Bill.

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