GOVERNMENT “INTERFERENCE” in commercial real estate leases could give rise to legal difficulties, the Society of Chartered Surveyors (SCS) has warned.
The SCS was responding to Minister for Justice Dermot Ahern’s warning that he may bring in legislation providing for downward rent reviews for the first time in the retail sector unless landlords take “a flexible and pragmatic approach”.
In its submission to the Minister, the SCS said: “Given the legal context of a commercial lease, any interference in existing contracts could give rise to legal difficulties.
“The ultimate arbiter of the enforcement of any provision of a lease, including the rent review clause, can only be decided by a court.”
The SCS also insisted most landlords were already adopting a flexible approach to assist tenants in financial difficulty. “Our members have advised that in the majority of cases landlords are agreeing some form of concession notwithstanding the terms of the lease, to assist the tenant in getting through the current economic difficulties.”
The SCS said landlords were reaching agreement with tenants seeking rent reductions and deferrals, “where difficulties are substantiated and such flexibilities are warranted”. It said the negotiations were private and normally included a confidentiality clause.
The Minister wrote to the SCS and other organisations in March urging them to look at alternatives to existing practice. Retail Excellence Ireland said it would welcome a change in the law, “to outlaw upward-only rent reviews”.
However, the SCS said the views of Retail Excellence “give rise to legitimate concerns but represent only one perspective on the matter”. It said that while tenants faced difficulties, landlords had a different set of challenges. These included fluctuating capital values and interest rates.
“The majority of commercial property is owned by a variety of institutions and/or funds who have acquired the properties in order to generate rental income to pay pensions or dividends towards policies or shareholders.”
The SCS recommended that the Minister review practice in commercial real estate leasing in conjunction with the professional bodies involved in property, financial institutions, pension funds, private investors and tenants.
It said the group should also consider the experience in other European Union countries.
The SCS intends to carry out a survey of its members to establish the extent of landlord flexibility in accommodating tenants in the context of rent reviews.