Upward-only rent reviews - have they disappeared along with the Celtic Tiger?
The issue of upward only rent reviews and indeed rent reviews in general have been the focus of much media attention in recent times due to the precarious financial situation that the majority of commercial tenants find themselves in. The phrase upward-only in relation to rent reviews simply mean that although rent will not go down it does not mean that rent has to go up.
Generally a lease will provide for a rent review every five years. The majority of leases contain a clause stating that if the current going rent is lower than the rent passing prior to the review date then rent will continue to be paid at the old rate. Whilst it has become the norm to criticise the landlord in situations where the rent is fixed at what is now a grossly over inflated rate of rent it is important to remember that there is no statutory requirement that a lease contain such a clause. Both parties to a lease will negotiate the various terms of the contract and enter into it freely having been advised of the implications.
New legislation has now been introduced given the current economic climate which prohibits the inclusion of upward-only rent review clauses in leases signed after the 28th of February 2010. However such legislation does not have any effect on leases entered into prior to that date which does not offer much solace to tenants currently paying high rents for commercial properties where the businesses operating from there are struggling to survive. Again whilst it is easy to paint the landlord as the "big bad wolf" in such situations it is more than likely that the landlord has his or her own wolf in the form of the bank that holds the mortgage to the property breathing down their neck.
The principle behind the issue of rent reviews is that neither party are put at a disadvantage. As stated they generally occur every five years and the idea is that the rent fixed at the time of the review is one which the property would command in an open market as between a willing landlord and a willing tenant. It may very well happen that at the time of the rent review that the tenant is able to secure a low fixed rent for the next five years due to a downturn regardless of whether the market suddenly picked up in a year or two. The landlord is then in the position of being unable to take advantage of the change in the market until the time of the next rent review. This is of course on the basis that the lease concerned does not contain an up-ward only rent review clause.
If you wish to obtain further information in relation to any point raised above, then please contact Joe or Daragh at Hassett Considine Solicitors, 9 Carmody Street Business Park, Ennis, Co. Clare (065-6865480) or 19 Kilrush Town Centre, Kilrush, Co. Clare (065-9051588).