Kathleen Lynch (Cork North Central, Labour) | Oireachtas source

I am taking this matter on behalf of the Minister for Justice and Equality who is unable to be here for a myriad of reasons.

I welcome the opportunity to deal with the issue of upward-only rent review clauses in commercial leases. I would like to note the broader context which should inform this debate. That context relates to the ongoing work of Government to bring about the necessary transformational and structural changes to our economy which will assist struggling businesses and help them to grow.

The Government is acutely aware of the pressures felt by the retail sector in particular. However, in December last, the difficult decision was made not to proceed with the commitment in the programme for Government to legislate to end upward-only rent review clauses for leases entered into prior to 28 February 2010. It was a very difficult decision. This is not an area in which I was very involved either before or after.

The approach envisaged by the Government at that time aimed at providing relief for tenants whose businesses might be viable were it not for the adverse impact of paying rent significantly above prevailing market levels. However, the Government's legal advice was to the effect that the approach proposed gave rise to constitutional difficulties. There was a substantial concern that any legislative scheme involving interference in the contractual relationships of private parties would find it extremely difficult to survive a constitutional challenge. Furthermore, the Government was advised that any model proposed would require the payment of compensation to landlords whose rights were infringed, so that the proposal would be compatible with the Constitution and the European Convention on Human Rights. The Government was strongly of the view that compensating landlords in such circumstances could not be justified in the current economic climate.

Although legislative intervention may not be feasible, NAMA is playing a role in dealing with problems caused by upward-only rent reviews applying to NAMA properties. This role applies where tenants of NAMA debtors can show that the rents they are paying are in excess of current market levels and, consequently, the viability of their businesses is threatened. In such circumstances, tenants can seek NAMA's approval for rent reductions. By the end of August, NAMA had received 271 rent abatement applications, of which 206 were approved, four were refused, nine were not eligible because they did not refer to NAMA properties, and the remaining 52 were under review. Since the start of the year, NAMA has approved cumulative rent reductions of over ¤6 million.

By way of general comment, the common practice of including upward-only rent review clauses in commercial leases did not arise because of any legislative requirement. The nature and application of a commercial lease is a matter for the parties to that lease, and parties have always been free to agree that review clauses, other than those based upon the upward only model, be included in their leases. Furthermore, even where upward-only clauses are present, the parties have always been able to agree that a flexible approach should be taken both as to the amount of rent payable, and the way in which that rent is to be paid. In this context, the Government has repeatedly urged that a pragmatic approach be taken by those involved in lease renegotiation.

One of the difficulties in regard to rent reviews is the absence of readily accessible, accurate information in order to determine the market rent payable in respect of comparable commercial properties. The Property Services (Regulation) Act 2011 addresses this issue by providing for the establishment and maintenance of a commercial leases database by the Property Services Regulatory Authority. Work is under way to ensure that the database will be operational at an early date.

The attention of the House is drawn to the existence of a rent review arbitration code, to be found on the Department of Justice and Equality website, which was developed by an expert group whose membership was drawn from all relevant stakeholders and which provides a mechanism to deal with the resolution of rent review disputes in the commercial property sector. The code contains detailed provisions concerning the production of comparative evidence relating to property transactions. It also places a firm duty on all parties to disclose all relevant information in their possession. As matters stand, parties are free to specify that this code should apply to rent review arbitrations and all parties are encouraged to make use of its provisions. I hope that addresses some of the Senator's concerns.