A new public database which will record details of all future letting arrangements in the Irish commercial property market and rent reviews under those leases is expected to have a significant impact upon future negotiation of leases and rent reviews.
Property Services (Regulation) Act 2011
The Property Services (Regulation) Act 2011 (the “Act”) provides for the establishment and maintenance of a public database containing details of letting arrangements and rent reviews in the commercial property market in Ireland (the “Commercial Leases Database”). In its inception, the key purpose of the Act was to set up a new statutory body (known as the Property Services Regulatory Authority (the “Authority”)), which will regulate auctioneers, estate agents and property management agents. But at a late stage in the legislative process new provisions were added to the legislation also making the Authority responsible for publication of residential property sales prices and the Commercial Leases Database.
The Authority was established on 4 April 2012 and is expected to establish the Commercial Leases Database and to publish information on residential property sales prices in Ireland within the next few months. This information is intended to provide transparency and restore confidence in the property market.
In relation to residential property sales, details such as the address of the property, the price at which it was sold and the date of the sale are to be made freely available to the public on the Authority’s website. At the Authority’s discretion this may include information relating to sales of residential property prior to commencement of the legislation.
The Commercial Leases Database
What leases are affected?
The Commercial Leases Database will contain considerable detail relating to every commercial lease entered into on or after 3 April 2012. The Authority also has discretion to include more limited details (lease date, property address and description, term and rent) relating to leases granted in the five years prior to 3 April 2012. If the Authority does so, it will obtain this information from the Revenue’s e-stamping system, so there will be no requirement for a tenant of a lease granted prior to 3 April 2012 to provide the relevant information.
What information must be submitted?
The information to be submitted to the Authority includes:
- The address and description of the property;
- The date of the lease;
- The term of the lease;
- The rent payable in respect of the property;
- The commencement date of the lease;
- The capital consideration (if any) paid by the tenant or landlord;
- The frequency of the rent reviews;
- Particulars of who is liable in respect of the rates, insurance, service charges and repairs in respect of the property;
- The net floor area of each floor of the property;
- The particulars (if any) relating to rent-free periods, fitting out time allowed, fit out allowances and capital contributions in respect of the property;
- The particulars of any break clause in the lease;
- The stamp duty certificate identification number;
- The particulars of the reviewed rent;
- The particulars of any variations made to the lease during, or for the purposes of, the rent review;
- Particulars of the assignment or termination of the tenant’s interest in the property, including the date on which it takes effect.
The Authority may specify other particulars to be submitted.
Who must submit the information?
The tenant under a commercial lease granted on or after 3 April 2012, or a person authorised in writing by the tenant, is the party required to submit information to the Authority at three separate points in the life of the lease: (a) on creation of the lease, (b) on rent review and (c) when the tenant ceases to have an interest in the lease, in other words, on assignment, termination or expiry of the lease. There is no obligation on the landlord to provide such information to the Authority.
What if the information is not submitted?
Failure to comply with the obligation to provide the information will be a criminal offence punishable by a fine of up to €5,000. There is a further provision, not yet in force, which makes it an offence to provide false information, punishable by a fine of up to €5,000, imprisonment for up to 12 months or both.
Will the information be publicly available?
Yes. Not only must the information be disclosed to the Authority, but the Commercial Leases Database will be available to the public for inspection at the Authority’s principal office and on its website, subject only to payment of a fee. No details are available yet as to the level of fees and whether payment of the fee will allow access to all the information or if separate fees will be required when seeking information on more than one commercial lease.
What if the terms of the deal are confidential?
The Act provides that the obligation to disclose this information to the Authority overrides any agreements relating to confidentiality of commercial terms. As such confidentiality agreements do not negate the obligation to provide the information.
How will the market react?
While there has been considerable media attention given to the disclosure of residential property sales prices, the reaction to the establishment of the Commercial Leases Database has so far been surprisingly muted given that the existence of the database is likely to have a significant impact on the market and the manner in which lease and rent review negotiations are carried out.
In future, by using the Commercial Leases Database, a prospective tenant will be able to enter into negotiations armed with details of the most recent lettings completed by the landlord in the property the tenant is considering, or in other similar buildings which the tenant is aware are owned by that landlord, and will be able to compare these with the commercial terms being offered to the prospective tenant.
Landlords may then have to negotiate hard to distinguish between the commercial terms offered to particular tenants for similar space. The details of a particular letting on the Commercial Leases Database may suggest that either the landlord or tenant secured particularly strong terms for their respective side of the market, but the database will not identify either party or to what degree the particular terms were influenced by the tenant’s covenant strength, business necessity and other commercial pressures.
The full effect of the Commercial Leases Database is only likely to become apparent once a critical mass of information is available. It will most certainly lead to greater transparency in the market, but ultimately it will still be for both parties to negotiate a deal which best suits their respective business needs as well as the requirements of any lender to the landlord.