Bewley’s ruling divides property players

Supreme Court decision clarifies clause but final impact is disputed

Bewley’s Cafe on Grafton street, Dublin. Photograph: Eric Luke

Bewley’s Cafe on Grafton street, Dublin. Photograph: Eric Luke

 

Opinion was divided yesterday over whether the Supreme Court ruling in the Bewley’s case was going make a ripple or a splash in the Republic’s commercial property market.

Following an appeal by Bewley’s Grafton Street landlord, the Johnny Ronan-controlled Ickendell Ltd, the Supreme Court threw out last year’s High Court ruling, which held that a term in the café’s lease allowed its rent to be cut when it came up for review every five years.

The clause declared that, following the review date, the payment would be the “higher of rent for the preceding five-year period and the then open market rent”.

The High Court found that the words “preceding five-year period” referred to the initial five-year period of the lease, dating to the late 1980s. That allowed Bewley’s to cut its rent last year to €728,000 from €1.46 million. However, the Supreme Court yesterday upheld Ickendell’s argument that the clause meant the rent could not be cut.

Solicitor Andrew Muckian, head of law firm William Fry’s property department, agrees that the case turned on a specific clause in the agreement between Bewley’s and its landlord, but says similar provisions are likely to be found in other such leases too.

“They are reasonably common,” he says, adding that the clause was popular in leases drawn up in the 1908s to mid-1990s, but its use diminished after that.

Before the High Court ruling, landlords, tenants and investors believed these clauses meant rents could not fall following a review.

Mr Muckian explains that the original judgement created a lot of uncertainty in the market. Investors had to factor the likelihood that the Supreme Court would uphold it into their calculations. “The decision removes that significant uncertainty,” he says.

However, while others in the property industry agree the Supreme Court has cleared this uncertainty, they are less sure of its significance for the market as a whole. Some suggested that fewer than one in 50 leases could feature similar terms.

Larry Brennan, chairman of estate agent Savills and head of its commercial property division, argues they are rare. The impact of the Bewley’s case, he says, was never going to be felt across the market, but only by a specific, small number of tenants and landlords. “It’s a clarification of a possible negative as opposed to a significant positive,” he adds.

While there is debate about its immediate impact, the ruling is likely to have less relevance as time goes on, as the Oireachtas outlawed upward-only rent reviews in March 2010.

The first commercial property leases drawn up since the law changed are likely to come up for review next year, giving the market an indication as to how the new legislation will work in practice.

One thing that nobody was willing to rule out yesterday was the possibility of further litigation over the “old fashioned” upward-only reviews. There was speculation that a favourable ruling for Bewley’s would have sparked similar claims. That will not materialise, but property market players suspect there may yet be other tenants who believe they have even better grounds than Bewley’s for challenging upward-only rent clauses.