Ban on upward only rent reviews

Sometimes lawyers defend the unpopular. Defending the right of a landlord to seek an upward only rent review in a lease may be one such occasion. Sandeep Gopalan of NUI Maynooth makes such a defence on valid grounds.

As of 28 February 2010, upward only rent review clauses in commercial leases will not be possible. Section 132 of the Land and Conveyancing Law Reform Act 2009 provides for this in a round-about way which imposes a certain interpretation on any rent review clause, but it amounts to a ban on upward only reviews. The ban is a populist move, but bear in mind that it relates to contracts negotiated and agreed by commercial parties.

It can validly be argued that, during the boom, tenants were in a weaker bargaining position than landlords and were powerless to resist upward only rent reviews. But this is surely true of a range of contractual provisions in everyday agreements in respect of which the law does not interfere.

Sandeep concludes:

“If the state gets into the business of re-writing private agreements, it won’t have time to do much else.

Put another way, why stop with rent review clauses? Why not legislate to ban the variety of provisions which might be unfair to one party or the other?

One wonders what might be next for State intervention in private contracts. Many private individuals are seeking to escape from fixed rate mortgages entered into when rates were far higher than today. Purchasers freely entered into these arrangements, believing them to be better than variable rate mortgages at the time.

Having granted commercial tenants this special legal protection, why not make a similar intervention on behalf of suffering purchasers? Such a move would be fiercely (and fairly) resisted by financial institutions, but the Government would find it hard to justify its rush to action on behalf of commercial tenants while residential landowners suffer under the deal they struck.

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4 thoughts on “Ban on upward only rent reviews

  1. Is this a fair comparison? Banning upwards only rent reviews does not prevent the rent from rising when appropriate. All it does is allow the negotiating parties a level playing field. Of course, it could be argued that in recessionary times like these, the market would dictate that no-one will enter into such an agreement with the market awash with rental properties. The government by enacting such regulations is not dictating the direction of rents, it’s only making sure that they can vary according to market pressure.
    In contrast, if the government forced the banks to renegotiate fixed term mortgage contracts downwards with their clients, it would be interfering directly in contracts between the parties – a whole other level of intervention I would say.

  2. You are correct in that the two situations are not directly comparable. However, both relate to the contracting party in the weaker bargaining position (the tenant during a boom or the fixed rate mortgagee during a recession). While the change may level the playing field, why act in this area alone? Why not re-write contract law to level the playing field further?

  3. I am slightly late coming to this discussion, but we should note that judicial and/or legislative interference in commercial tenancy agreements is nothing new. Under the original Landlord and Tenant (Amendment) Act 1980 commerical tenants could not ab initio contract out of their right to a new tenancy and in lease/licence distinctions we frequently determine an arrangement to be a lease when it has been negotiated at arms length by commercial entitles with legal advice (I am thinking esp. of Irish Rail v Smith here). So there is something of a pattern in leasehold arrangements. Perhaps the NEED to have a statutory ban on upwards only rent reviews is most interesting because it tells the lie to the ‘myth’ of equal bargaining power in commercial leases?? (We have never had such assumptions in relation to residential leases, for example).

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