With discussions gathering pace around a proposed ban on upwards only rent reviews in the UK, the Republic of Ireland’s experience offers a valuable case study. This article reflects on the introduction of the Land and Conveyancing Law Reform Act 2009 (the ''2009 Act''), the workarounds that emerged in its aftermath, and the broader effects on the commercial property market in Ireland.
Background
In the aftermath of the 2008-2009 financial crisis, many businesses were struggling and could not afford sky-high, boom era rents. Under leases with "upwards-only" rent review clauses tenants agitated for all leases to be able to have market rent reviews and for the rents to be capable of decreasing in line with market trends.
The 2009 Act
The government did act but could not do so retrospectively. Section 132 of the 2009 Act was introduced for new business leases created after 28 February 2010. The provision in essence states that in respect of leases with rent review clauses, these clauses will now be construed as meaning the rent payable following such review may be fixed at an amount which is less than, greater than or the same as the amount of rent payable immediately prior to the date on which the rent falls to be reviewed. This is regardless of any other provision in the lease and so it was not possible to contract out of the provision.
Market adaptions and workarounds
Ireland saw landlords respond to section 132 of the 2009 Act by inserting provisions in commercial leases which acted as workarounds or attempted to mitigate the effect of section 132, such as:
- Stepped rent increases – instead of rent review clauses
- Consumer Price Index (CPI) review – landlords, instead of going for market rent reviews, opted for the relative certainty and stability of a review in line with CPI
- Cap and collar clauses – a clause containing a cap that rent would not rise above, and a collar that it would not fall below
- Rent review language to the effect that only a landlord could trigger the review which they were unlikely to do if the market wasn't favourable and the rent was likely to fall
All of the above provisions are compliant with section 132 of the 2009 Act and they were designed to create a degree of predictability for landlords in the absence of an upwards only mechanism. The attempts by landlords to mitigate the effect of section 132 mirrored the practical reality that while legislation removed the ability to fix rent in an upwards only direction, it did not remove the commercial pressure on landlords to secure stable income streams, particularly in the aftermath of an economic crisis.
Reception
The reality of the introduction of section 132 of the 2009 Act was that there was little choice but to get on with it. As the measure was introduced when the market was at a very low point, there was a perception that rents weren't going to go any lower and so the impact would not be immediately felt, especially for landlords looking to preserve value.
For tenants they had the comfort of knowing there could be a market rent review. The introduction of the Commercial Lease register in Ireland in 2012, meant basic commercial information on every letting (albeit without the nuances around each deal) was now publicly available, so people could keep track of rents and lease terms for premises similar to their own in the context of planning for rent review.
Ireland’s experience suggests that the proposed ban on upwards‑only rent reviews in England and Wales would reshape the landlord and tenant relationship. Landlords might be expected to adapt to the changes through alternative mechanisms and it will remain to be seen whether this will follow the Irish model, using stepped rents, index‑linked reviews and caps and collars to preserve income stability. Tenants may gain greater confidence that rents can move in line with market conditions.
