Upward-only rent review Bill attempts a balancing act

Mon, Mar 31, 2014, 01:00

The passing at the second stage in the Seanad of Senator Feargal Quinn’s Upward-Only (Clauses and Reviews) Bill 2013 puts the issue of retrospectively removing upwards-only rent review clauses in leases entered into prior to February 28th, 2010, firmly back on the table.

Citizens’ property rights are protected by two separate articles under the Constitution.

Article 40.3.2 of the Constitution provides that the State shall vindicate and by its laws protect the property rights of every citizen as best it may “from unjust attack”, and Article 43.1 guarantees that the State will not pass any law attempting to abolish the right of private ownership. However, that right is qualified by the proviso that such rights ought to be regulated by the principles of social justice, and that the State may delimit by law the exercise of the said rights “with a view to reconciling their exercise with the exigencies of the common good”.

It has been reported that the Government is not willing to introduce legislation providing for the retrospective removal of upwards-only clauses in the absence of compensation for any losses suffered by a landlord, as it has been advised that such a provision would be unconstitutional.

It is clear that in order to withstand a constitutional challenge, any provision proposing to retrospectively remove upward-only rent review clauses must not be an unjust attack on the property rights of any citizens; must be proportionate, capable of objective justification and must meet a pressing social objective.

In the case known as ‘Re Article 26 and Part V of the Planning and Development Bill 1994’, the Supreme Court considered provisions which proposed that landowners wishing to develop land were obliged to cede 20 per cent of the land (or the equivalent value thereof) to the local authority.

‘Warrant interference’

In determining whether the statutory provisions constituted an “unjust attack” on property rights, Chief Justice Ronan Keane, stated the Bill contained provisions which “are rationally connected to an objective of sufficient importance to warrant interference with a constitutionally protected right and, given the serious social problems which they are designed to meet, they undoubtedly relate to concerns which, in a free and democratic society, should be regarded as pressing and substantial.

At the same time, the court is satisfied that they impair those rights as little as possible and their effects on those rights are proportionate to the objectives sought to be attained.”

In that case, the legislation provided for compensation for the party ceding their land. However, the absence of compensation does not necessarily amount to an unjust attack on private property. In the Financial Emergency Provisions in the Public Interest Act 2009, payments to service providers of the State were reduced without compensation despite the fact that the rate payable were contained in pre-existing contracts.

‘Unusual economic crisis’

In accessing whether there has been a breach of constitutionally protected property rights, the courts have, in a number of cases, referred to the proportionality principle. In Heaney v

Ireland (1994), Judge Costello noted that in order to pass the proportionality test the legislation must: (a) be rationally connected to the objective and not be arbitrary, unfair or based on irrational considerations; (b) impair the right as little as possible, and (c) be such that its effect on rights is proportional to the objective.

In another case, JJ Haire & Co Ltd v the Minister for Health and Children, the court noted the prevailing economic conditions may impact whether an attack is deemed unjust, Judge McMahon stated : “[T]he word ‘unjust’ in ‘unjust attack’ [in Article 40.3.2], must be read in the light of the unusual economic crisis that necessitated the introduction of the 2009 Act. All the evidence before the court was to the effect that the State is facing an unprecedented economic crisis, whereby the State is forced to introduce drastic economies and cuts across the board. These economic realities must inform the interpretation of the constitutional phrases in assessing what the State can do and what distributive measures it must take to ensure not only the stability of the economy, but the stability of the State itself.”

There is no doubt the retrospective removal of upward-only clauses raises issues as to whether such a measure is proportionate and necessary for the exigencies of the common good. As noted by Judge McMahon, the prevailing economic realities must inform the interpretation of constitutional phrases and due consideration must be given to the economic effect of such a provision in determining whether such a measure would be proportional to the objective.

It is highly unlikely the 2013 Bill will be supported by the Government, and thus it will have no prospect of passing through the Dáil. This is unfortunate, as in the event the Bill passed through both houses of the Oireachtas it is probable the Bill would have been referred to the Supreme Court by the president in order to test its constitutionality prior to enactment. This would allow the most finely tuned legal minds in the country to examine this issue and decide prior to enactment, thus ensuring certainty in the market, whether such provisions are constitutional.

Mema Byrne, a barrister, is the author of Landlord and Tenant – The Commercial Sector , published by Round Hall

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