In 2010, it is likely that most commercial tenants, who are 3 years plus into their current leases, are paying over market value for the lease on their premises. A recent Irish Times article (ref. Barry O’Halloran) highlighted the difficulties faced by cash-strapped businesses, struggling to honour lease commitments entered into during more solvent times. One alarming point in the report, is the fact that rent was the foremost factor in prominent insolvencies in 2009, for example, O’Brien’s Sandwich Bars, and 3G. The upward-only rent review clauses were identified as a root problem as they essentially rule out discounted rent negotiations outside of the legal process. The law in this area is unclear, with inconsistent rulings by the High Court in relation to repudiation of such leases.
In recent months, Buyers Broker Ltd. has been working with commercial tenants in relation to re-negotiating pricey, and in some cases fundamentally unfair, medium and long-term leases. Most leases are very pro-landlord, without any break clauses and upward-only rent reviews provided for, with little or no protection for the tenant. This is a typical example of the standard offering that is issued by landlords but usually the tenant’s solicitor will reject and modify many clauses, which then balance the lease to a less biased and mutually fair agreement. Critically, many tenants never check this out and no advice is taken, they agree to every term and condition as presented. This leads to a number of other issues, other than rent payable. For instance, landlords also have a tendency to ‘approximate’ charges for services and insurance, it might be worth breaking down those figures. Buyers Broker are generally able to re-negotiate several of the terms of the lease, including a price reduction in line with current values and a compensatory rent-free period, without taking any legal action.
Commercial tenants reluctant to “rock the boat” with their landlord should be advised that the market forces have changed and landlords acknowledge this (as do their banks). These changes affect existing as well as new tenancies so now might be a good time to re-visit your current lease, negotiate well and save thousands of euros in 2010 and going forward.
On a positive note, the minister for Justice has recently introduced new legislation, which prohibits upward-only rent review clauses in commercial leases completed after 28th February 2010.
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