On 25 March 2013, the High Court delivered its ruling in a dispute over the rent payable by the company behind Bewley’s Café for the lease of its well-known premises on Dublin’s Grafton Street.
When the parties first entered the lease in 1987, the rent for the building was set at €213,000 (£168,000). At the time of the last rent review, at the height of the property boom in 2007, the rent was fixed at €1,463,964. In proceedings issued in 2012, the landlord, Ickendel Ltd, claimed that pursuant to the express terms of the lease, the rent could not fall below the 2007 figure. The Court heard evidence that current market rents on Grafton Street have fallen by 52% on rents payable in 2007.
Charleton J in the High Court reviewed the relevant provisions of the lease. He emphasised that he was bound by what had been agreed by the parties when they entered the lease in 1987 and that he could not take account of the marked reduction in rents in the five years since the last rent review.
The lease provided for a rent review every five years. Clause 6.1 of the lease stated that the first revised rent was equal to the greater of (A) the rent payable during the preceding period or (B) such revised rent as may be ascertained in accordance with the provisions of Clause 6 (whichever was the greater).
Charleton J stated that it was clear from this provision that the rent could never drop below the rent payable for “the preceding period", i.e. below the first rent reserved by the lease.
Clause 6.2 provided that on a revision, the rent to be paid was:
“the full open market yearly rent for the interior building as a whole without fine or premium… on the basis of a letting with vacant possession thereof to a willing lessee for a tem equal to that granted by the within written Lease and subject to the provisions therein set forth (other than as to the amount of the initial rent thereby reserved)….”
References to subsequent reviews also referred back to “the first revised rent”.
Charleton J interpreted the reference to “initial rent” as a baseline below which the rent could not fall. However, he concluded that each rent fixed subsequently had to be fixed by reference to the open market rent. He stated:
“The parties bargained so as to agree never to fall below that initially agreed rent and I cannot see that they bargained thereafter for anything other than a fair open market rent. That can rise and that can fall.”
Charleton J commented that had the parties intended that every five years the rent payable was to increase, they would have used clear wording to this effect.
The market rent for the premises will now be fixed by an arbitrator.
Rent payments being out of line with current market levels has been the driver behind a number of high profile examinership petitions in the last year, notably Atlantic Homecare, B&Q, Monsoon and others. While the High Court decision is specific to Bewley’s and turns on the particular terms of the lease, it may nevertheless have application for insolvency practice. Where leases contain similar terms to that in the Bewley’s case, if the application of upward only rent reviews can be avoided in those cases, it may provide an opportunity to resolve such cases without resort to examinership.