Caít Keane (Fine Gael) | Oireachtas source

I welcome the Minister of State to the House and am glad to have an opportunity to speak about this important piece of legislation. Hopefully, we can do more than speak about it and if the Minister of State and his colleagues cannot do anything about it today, perhaps they will give a commitment to act shortly.

The subject of upward only rent reviews has been on the political agenda for many years. It has become a major issue since the onset of the economic recession in 2008 when businesses began to struggle. Huge rents that had previously been manageable became destructive and beyond the capacity of a lot of businesses to pay. Unfortunately, we have had a system in Ireland whereby upward only rent reviews were common features of business leases or rental contracts until 28 February 2010. We are one of only two EU countries with such a system, the other being the United Kingdom.

Senator Martin Conway complimented the previous Government on introducing legislation the Land and Conveyancing Law Reform Act 2009, which, in section 132, banned upward only rent reviews in new contracts agreed subsequent to 28 February 2010. Why did the previous Government not go the whole hog at the time and ban upward only rent reviews in all rental contracts? Why did it confine it new contracts? I understand the reason given then is the same as the reason being given now, namely, that such a provision could be found to be unconstitutional. The only way to find out if that is the case is to make the ban universal and have it tested in the courts.

While the introduction of section 132 of the 2009 Act was welcome, it only applied to new commercial leases agreed after the enactment of the legislation. I can understand the reason the measure was not applied to contracts agreed previously. Between 2000 and 2007, retail rents increased by 240% whereas the consumer price index increased by only 30%. These figures demonstrates how skewed rents became in the period in question. Some people believe rents should decline over time as businesses failures and job losses would force landlords to reduce rents. Recent statistics support this view as they show that Dublin retail rents suffered the second sharpest fall in Europe in the past 12 months. The capital was only one of five major European cities to record falls in high street rents, while 19 others notched up retail rent increases. Despite a 15% decline, Dublin high street rents, which average €2,389 per sq. m., remain 18th highest out of 37 European countries. Given how badly the Irish economy is performing, we need to examine the reasons rents in Dublin remain so high.

Naturally landlords are entitled to make a profit but they are not entitled to make a killing or kill businesses. It is reasonable, therefore, to do everything in our power to address this issue. Ireland is one of only a few jurisdictions in the world where upward only rent reviews apply and rents cannot fall irrespective of how the market performs.

I refer to the High Court's decision in the Bewley's case to allow the rent to fall to the open market value, albeit not below the initial rent agreed. The important point of the court's ruling was that the rent would be allowed to decline not to the level in place at the time of the expiry of the contract but to that which applied when the initial lease was signed. The "preceding period" referred to in the contract was adjudged by the court to be the initial five years of the lease rather than the period immediately preceding the most recent review date. This is an important distinction for legal experts dealing with leases. The interpretation of the court in the Bewley's case overturns the long understood meaning of the term "upward only rent review". This matter should be teased out further and if this House is good at anything, it is at teasing out issues. I hope we will have an opportunity to further discuss the interpretation of the court in the Bewley's case. We do not want every business in the country to take a court case. The purpose of legislators is to ensure that legislation is considered from every possible angle. The judgment in the Bewley's case may have set a precedent for commercial leases dispute. As a previous speaker noted, the A-Wear company, which has 32 stores in this country, is also trying to negotiate its rents downwards.

I understand the constitutional difficulties that arise and that one cannot leave the Government open to the possibility of being fined. We must, therefore, be careful as private contracts are entered into freely and the country's reputation as a location for investment would be damaged if we were seen to act unconstitutionally. The Minister of State noted that the State could be liable for compensation. As I stated, it is worth testing whether this is the case. I support Senator Zappone's request that we invite the Attorney General to come before the House to give her view on the issue.