A new public database which will record details of all future commercial letting arrangements in the Irish real estate market and rent reviews under those leases is expected to have a significant impact upon negotiation of leases and rent reviews. The Property Services Regulatory Authority (the “Authority”) was established as a statutory body on 4 April 2012. Its functions include the establishment and maintenance of a database containing details of commercial leases and rent reviews (the “Commercial Leases Database”). The Commercial Leases Database will be available for public inspection at the Authority’s principal office and on its website (subject only to payment of a fee), bringing transparency to the commercial real estate market in Ireland.
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 Irish Revenue’s e-stamping system.
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.
What information must be submitted?
The key commercial terms of the lease are to be disclosed to the Authority, including:
- the rent payable in respect of the property, frequency of rent reviews, reviewed rent and particulars of any variations made to the lease during, or for the purposes of, the rent review;
- the capital consideration (if any) paid by the tenant or landlord;
- particulars of who is liable in respect of the rates, insurance, service charges and repairs;
- particulars (if any) of rent-free periods, fitting out time allowed, fit out allowances and capital contributions;
- particulars of any break clause in the lease; and
- particulars of the assignment or termination of the tenant’s interest in the lease, including the date on which it takes effect.
The tenant’s obligation to disclose detailed particulars of the lease overrides any agreements relating to confidentiality of commercial terms.
For further details, see the form of notice to be submitted to the Authority on creation of a lease.
What if the information is not submitted?
Failure to comply with the obligation to provide the information is a criminal offence punishable by a fine of up to €5,000. It is also an offence to provide false or misleading information, punishable by a fine of up to €5,000, imprisonment for up to 12 months or both.
How will the market react?
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.
The Commercial Leases Database will enable a prospective tenant to enter into negotiations armed with details of recent lettings to compare with the commercial terms being offered to him. Landlords may have to negotiate hard to distinguish between the commercial terms offered to particular tenants for similar space. The database will not identify to what degree the particular terms of any lease were influenced by the tenant’s covenant strength, business necessity or other commercial pressures.
The full effect of the Commercial Leases Database is only likely to become apparent once a critical mass of information becomes 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.