Mark Daly (Fianna Fail)
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I welcome the Minister of State to the House and thank her for taking this matter in respect of which I seek clarification on upward-only rent reviews. Fianna Fáil has published a Bill dealing with the issue of upward-only rent reviews, which is within the bounds of the Constitution. As the Minister of State will know, upward-only rent reviews are crippling many businesses. Those tenants are fighting their landlords to try to stay in business and reduce their costs. Rents are falling all around Dublin and throughout the country, yet landlords are enforcing the lease clauses requiring upward-only rent reviews.

We have examined this issue on the basis that we must stay within the bounds of the requirement within the Constitution to protect people's private property and their interests in it. There was a commitment to address this issue in the programme for Government and in the manifestos of the two parties in government. The Fine Gael Party manifesto states that it would commit to end upward-only rent reviews. It also states, "We will pass legislation to give to all tenants the right to have their commercial rents reviewed in 2011 irrespective of any upward only or other review clauses." The programme for Government states, "We will legislate to end upward-only rent reviews for existing leases."

When Deputy Alan Shatter became the Minister for Justice and Equality he said this would take a few months. On 5 May he informed the Dáil that legislation on the issue was being developed and that he was in ongoing consultation with the Attorney General. In July he said that the matter was still with the Attorney General and in the 2012 budget the entire commitment was dropped. Retail Excellence Ireland, an independent group not beholden to any political party, said the Government lied to every retail outlet in the country. If the legislation we put forward is within the bounds of the Constitution, why is the Attorney General stating that this cannot be done?

Kathleen Lynch (Cork North Central, Labour)
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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.

Mark Daly (Fianna Fail)
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I thank the Minister of State for her reply. I know she was not involved in making the promises or drawing up the manifesto. However, I am sure she will agree that it is not surprising that people are extremely cynical of all politicians in all political parties about issues such as this one when a commitment on this is contained in party manifestos and in the programme for Government. One must wonder who was advising all the parties concerned on putting this commitment in party manifestos without stress testing it or examining if it was doable or deliverable. Perhaps the Minister concerned who should have replied to this matter was involved in advising the inclusion of this commitment as part of the programme for Government without checking if it was constitutionally possible or feasible. I note from the reply that there were substantial concerns about this - that is the case with all legislation - that it was considered it would be difficult to achieve - it would be because that is what legislation is about - and that there was an issue regarding the infringement of rights. I know the reply was written by the Department of Justice and Equality.

It is disturbing that it is included in the reply that if one is lucky enough to be in a NAMA property, one might get a rent reduction.

Kathleen Lynch (Cork North Central, Labour)
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It is obvious that they are getting rent reductions.

Mark Daly (Fianna Fail)
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I know. However, one must be destitute, in a commercial sense, to be in NAMA and then one might get a rent reduction. There is no legislative requirement for upward-only rent reviews in leases, as was said in the Minister's reply. However, it was stated in the manifesto that there would be legislation against this.

I thank the Minister for coming to the House to clarify the issue. It is unfortunate for politics that things are included in manifestos that are not researched and if they were researched, it just makes people cynical that the attitude is: "We will put it in even though we know we cannot do it." Perhaps the Minister will convey the message to the Minister for Justice and Equality that despite the fact it was removed from the last budget and deemed to be not doable, he might consider it this time. Commercial retailers are on their knees and they need help from the Government.

Kathleen Lynch (Cork North Central, Labour)
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The Government is aware of the difficulties being experienced in the retail sector. The evidence is before our eyes in the streets where we see the footfall is not the same as it was previously. The commitment in the programme for Government was made in good faith and was based on the recognition of the difficulties faced by the retail trade. However, nobody would dispute the Attorney General's knowledge of the Constitution and the legal position, and her advice is very clear. Equally, nobody would suggest that we should have to pay compensation to landlords as a result of an infringement of their rights. That is the advice being received. That advice has been given not once but several times because the Government was extraordinarily anxious to do something for this sector. It is unfortunate it is not possible to do it in this way. There might be other things that can be done to support it. It is not the retailer who is in NAMA but the property developer or owner, and in that context there is a negotiating position.

The Government made the commitment in the programme for Government in good faith but, unfortunately, it has been unable to do it.