Alan Shatter (Dublin South, Fine Gael)
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Question 41: To ask the Minister for Justice and Law Reform his views that pre-existing commercial leases which prescribe upwards only rent reviews pose a serious threat to the economic viability of many businesses and to the protection of employment and the action he proposes to take; if his attention has been drawn to any reports of landlords incentivising commercial tenants to agree artificially high rent increases in order to provide artificial rent comparators for the purpose of other rent reviews under arbitration; if he proposes to introduce any legislation to criminalise such arrangements; and if he will make a statement on the matter. [43190/10]

Dermot Ahern (Louth, Fianna Fail)
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The issue of upward only rent review clauses, and the difficulties which rigid adherence to such clauses is causing for the retail sector in current economic circumstances, has been raised with me by various retail and tenant groups. I have been very consistent in espousing the view that there is a need for a flexible and pragmatic approach to rent review negotiations arising in the context of existing contractual arrangements. It is self-evident that it is not in anyone's interest that vacancy rates increase to an unacceptable level because of a reluctance to offer sensible concessions to traders who are in difficulty.

The Deputy will be aware that I have legislated to prohibit upward only rent reviews in leases entered into on or after 28 February of this year by way of section 132 of the Land and Conveyancing Law Reform Act 2009. Similar action in relation to existing leases was not possible for legal and constitutional reasons. There are indications that the commencement of that section has had some persuasive effect in relation to those lease arrangements, although I am sure that there is further scope for additional flexibility in this area.

In March of this year I established a working group to look at certain issues around the arbitration process and the adequacy of the information available to all parties in the context of rent reviews. The report of the working group was published on 17 August last. The group recommended the establishment of a public database containing relevant details of letting arrangements and rent reviews in the commercial property market. An appropriate amendment is being developed within my Department for inclusion in the Property Services (Regulation) Bill 2009 which would see the property services regulatory authority being given responsibility for the management of the database. The precise operational details pertaining to the database are in the course of finalisation.

Also among the group's recommendations is the adoption, by landlords and tenants alike, of the rent review arbitration code which was appended to their report and which is intended to achieve a uniform and transparent procedure for the resolution of disputes in the sector. I have publicly endorsed the group's recommendation in this area and have been in contact with bodies which were represented on the group to encourage them to commit to the code.

During the course of its deliberations, the group noted the potentially distorting effect which agreements made between landlords and tenants which are outside the terms of the lease may have on the letting market. These so-called side agreements can include matters such as rent free periods and contributions to fit out costs. In certain cases, such agreements can mean that the true value of the rent agreed may, in reality, be less than that appearing on the face of the lease. The need to ensure that the parties to a rent review have access to all relevant information was a key motivating factor in the recommendation for the establishment of a database, which I am fully committed to implementing.

I am satisfied that concerns in this area are being addressed as far as possible. While I can say that the operation of the law will continue to be reviewed in my Department, I do not think that criminal sanctions of the kind referred to by the Deputy are necessary or feasible.

Alan Shatter (Dublin South, Fine Gael)
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Will the Minister acknowledge that there is a continuing problem in this area, in particular with institutional landlords in the context of retail outlets seeking to address issues of rent reviews? To maintain the capital value of their balance sheets, they are resisting any type of new arrangement, other than one that involves a rent increase, or at the very minimum rents remaining at current levels despite the collapse of commercial rental values.

Will the Minister also accept that it is a substantial difficulty in the context of any arbitration work, where an arbitrator in determining rents has to look at comparators, for example, with an individual shopping centre or town centre? If the only comparators of recent vintage available are those which show substantial rent increases, with secret incentives having been provided to tenants to agree to those rent increases, does he agree that this is distorting the market, putting other tenants in a very unfair position and rendering the arbitration process practically impossible?

I suggest two things to the Minister. The first is that this sort of conduct, an incentivised rent increases so as to artificially inflate rents, should be criminalised. Since the legislation he mentioned was enacted, there is an alternative legal opinion from a very eminent senior counsel indicating that in the current market situation, amendments of current leases by statute to allow for rent reviews downwards, or I should say amendments of leases concluded prior to 28 February last, would be constitutionally permissible. Is the Minister willing to bring forward legislation to facilitate this on the basis that, if necessary it would be a Bill the President might determine should be sent to the Supreme Court for a constitutional decision?

Dermot Ahern (Louth, Fianna Fail)
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I would be loth to criminalise the giving of incentives regarding leases because that, in effect, would be to criminalise contractual discussions and negotiations between two people who have free will and are probably well advised. I suggest that criminalising that type of activity, even though people might not be too happy with it, would be very detrimental to the property market, which is in difficult circumstances as it is. To introduce criminal sanction in that respect would make matters even more difficult.

I have been looking at the property pages over the last while and I know from own area that many landlords renegotiated substantial reductions with tenants, but that did not seem to happen in certain parts of Dublin. Nonetheless, it happened elsewhere in the country. I accept that for whatever reasons landlords were not willing to reduce the rents, but by and large the vast majority of them did because half a loaf is better than none. They are better off getting something from tenants, if not the full rent. However, there may be other issues involved. Bank institutions, in particular, for example, would require the rent as originally intended.

Regarding legislation, the Labour Party introduced a Bill and we looked very carefully at it and at senior counsel opinion produced by one of the organisations involved in this area. I went back, time and again, to the Office of the Attorney General and spoke to him about this on many occasions. It boils down ultimately to the fact that the Oireachtas cannot intervene in a contract previously made between two individuals, who no doubt were independently advised. It would be totally unconstitutional for us to pass an Act on that basis. If that were the case we could re-write every contract made by private individuals right across the country. The Attorney General's office has looked into the minutiae of this and concluded that we could not retrospectively change contracts previously entered into.

Alan Shatter (Dublin South, Fine Gael)
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I am pleased the Minister has indicated he is going to make an amendment in the Bill when it comes before the House on Committee Stage. Will that database prescribe that the address of premises be included, as well as the rent and the date it was fixed, together with other arrangements relating to the organisation of a new rent for an existing lease, including those agreed before February 2010, or where new leases are entered into, the additional arrangements made such as six-months free rental or where a landlord agrees to spend a substantial sum on refurbishing a property in return for an increased rent?

Dermot Ahern (Louth, Fianna Fail)
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The purpose of the database is to ensure as much information as possible is made available publicly thus ensuring a transparent process which will provide individuals with relevant information in regard to the vicinity of the particular location wherein they intend to rent. We believe the property services regulatory authority is the relevant authority to provide this database. The Deputy will be aware that enabling legislation in this regard is passing through the House. Ultimately, as much detail as possible will be made public.

It is indicated in today's newspapers that Abercrombie and Fitch will shortly open a store in Dublin city centre. Last week, there was a clear indication in the property supplement that rents in respect of new leases have decreased because of recent legislative changes made in this House, which is to be welcomed.