Bewley’s rent row still bubbling under

Heard about the cafe on Grafton Street losing about €700,000 a year and blaming it on the onerous terms of its rental agreement? I'm referring to Bewley's, which is run by the Campbell Bewley Group. It's something of a Dublin institution with about 1 million customers passing through its doors each year. The landlord is Ickendel Ltd, a company controlled by Johnny Ronan, one of the more colourful developers of the Celtic tiger era. Ickendel owns a handful of prime properties and had its loans transferred from Bank of Ireland to the National Asset Management Agency in 2010.

Lease renewal
In January 2012, the €1.46 million-a-year lease agreement between Ickendel and Bewley's fell due for renewal. It had an upward-only review clause. Negotiations between the two sides went nowhere and Ickendel initiated legal proceedings.

Bewley’s argued that there was an ambiguity in the agreement as to the reference point of the upward-only increase. It said the lease merely provided that the rent could not drop below the original €213,000 agreed with Ickendel in 1987 and should reflect the prevailing open market value.

The landlord argued that the rent cannot decrease on review. In other words, it can’t fall below the €1.46 million from the last review that took effect in 2007.

In March, Mr Justice Peter Charleton ruled in favour of Bewley’s, though he stopped short of fixing a rent. An arbitrator has since been appointed to establish the open market value of the property. That judgement has yet to be registered although this is expected shortly.

When it is registered, Ickendel will have three weeks to lodge an appeal to the Supreme Court. The expectation is that it will. The Bewley’s case is an interesting one on many levels, not least the involvement of Nama.

It is my understanding that Nama refused an application from Bewley’s for relief on its rent. It appears to support the landlord’s decision to take a legal action against Bewley’s to enforce its rights. This is significant given that the costs of a High Court case would amount to hundreds of thousands of euro and the same again for an appeal.

Latest accounts for Ickendel show that it had total net liabilities of €113,663. Against this backdrop, it would not be able to pursue expensive legal action against Bewley’s without Nama’s support. So taxpayers funds are at stake.

This gives an insight into how Nama does business. It is backing Ickendel and Ronan despite its previous toxic relationship with the developer over Treasury Holdings, which he co-owned with Richard Barrett. Nama called in Treasury's loans in January 2012, which ultimately led to it being wound up. There are still legal disputes in train relating to certain asset transfers undertaken by Treasury.

Bewley's might argue that double standards are being applied by Nama, which has approved 96 per cent of rent abatement applications made to it by tenants, foregoing about €14 million in rent. Bewley's is one of the 4 per cent to have had its application turned down. This is probably because the company is not loss-making. Latest accounts show the group made a profit of €495,000 in 2011. This was after the losses on the Grafton Street cafe had been taken into account.

Subventing losses
Giving Campbell Bewley a break on its Grafton Street rent arguably would enrich the company and its shareholders while depriving Ickendel of income to service its debts to Nama. Would that be in the public interest? Bewley's might argue that it can't go on subventing these losses forever and that it shouldn't have to pay such a frothy rent simply because of its prime location and Ickendel's debts to Nama.

That’s fair enough although there’s no guarantee that the outcome of the arbitration would reduce the rent to a level where the cafe can wash its face financially.

Bewley’s is part of the social fabric of Dublin and it’s hard to imagine Grafton Street without it. Yet that’s not to say another business, even a cafe, couldn’t be run viably from the premises. Bewleys has closed cafes in many other locations over the years.

Given that taxpayers have an interest in this matter, there’s no easy answer. It could yet fall to the European courts to give a definitive judgment, in which case the only winners will be the lawyers.