In brief: real estate acquisitions and leases in Ireland

Acquisitions and leases

Describe the various categories of legal ownership, leasehold or other occupancy interests in real estate customarily used and recognised in your jurisdiction.

The two most common legal interests for the purpose of ‘good marketable title’ in Ireland are freehold and leasehold (with an unexpired term of at least 70 years). Both interests are capable of registration in the Land Registry.

Occupational leasehold interests may only be registered as a burden (and not a unique interest or ‘folio’ in their own right) in the Land Registry where a term of 20 years or more remains.

Rights over real estate, such as rights of way for access, may be created by deed of easement.

What are the typical pre-contractual steps?

Real estate brokers usually prepare non-binding heads of agreement. Depending on the terms agreed, the heads of agreement may provide for an exclusivity period during which the vendor may not engage with other parties. The sale contract puts legal structure on the heads of agreement.

What are typical provisions in a contract of sale?

Real estate transactions are generally documented using the Law Society of Ireland’s Conditions of Sale (2019 edition). The conditions of sale must, among other things, be signed by both seller and buyer, their signatures witnessed and a deposit (ie, consideration) paid. There is no requirement for the signatures to be notarised.

A sale contract usually includes the following provisions:

• the parties (ie, the seller and buyer);
• the purchase price;
• the closing date (ie, the date the legal and beneficial interest in the property transfers to the buyer);
• the deposit payable (typically 10 per cent of the purchase price);
• the description of the property being sold usually by reference to a map;
• the tenure of the interest held by the seller (eg, freehold or leasehold);
• evidence of the seller’s interest (ie, the seller’s title);
• planning documentation; and
• value-added tax treatment of the sale.

Who takes responsibility for a future environmental clean-up? Are clauses regarding long-term environmental liability and indemnity that survive the term of a contract common? What are typical general covenants? What remedies do the seller and buyer have for breach?

The European Communities (Environmental Liability) Regulations 2008 (SI 547/2008) govern environmental liability based on the ‘polluter pays’ principle. An operator whose activity causes the imminent threat of or causes environmental damage is therefore liable for any preventative or remediation measures. The Irish Environmental Protection Agency is the authority responsible for all aspects of the regulations.

A seller is required to make full disclosure of any issue (including environmental issues) that may adversely affect the asset. In addition, a seller is required to reply to standard buyer requisitions (which include specific environmental requisitions) relating to whether the property is a ‘European site’ (ie, a site affected by the European Communities (Natural Habitats) Regulations 1997) and whether any notice, certificate, order, permit, licence or consent under any environmental laws affect the property. Where a seller does not disclose a liability that subsequently results in a loss to a buyer, the buyer may sue a seller for breach of contract.

What are typical representations made by sellers of property regarding existing leases? What are typical covenants made by sellers of property concerning leases between contract date and closing date? Do they cover brokerage agreements and do they survive after property sale is completed? Are estoppel certificates from tenants customarily required as a condition to the obligation of the buyer to close under a contract of sale?

A seller will typically provide all information with respect to existing leases and warrant (or disclose as the case may be) that there are no disputes, material breaches or rental arrears and that the seller will not vary or waive any terms of a lease without purchaser consent.

A purchaser may seek damages from the seller for any losses incurred as a consequence of relying on a seller warranty.

Is a lease generally subordinate to a security instrument pursuant to the provisions of the lease? What are the legal consequences of a lease being superior in priority to a security instrument upon foreclosure? Do lenders typically require subordination and non-disturbance agreements from tenants? Are ground (or head) leases treated differently from other commercial leases?

Lenders may take security over the leasehold interests held by a borrower, but lease agreements do not typically contain subordination provisions. Lenders do not typically require subordination and non-disturbance agreements from tenants.

What steps are taken to ensure delivery of tenant security deposits to a buyer? How common are security deposits under a lease? Do leases customarily have periodic rent resets or reviews?

The terms of a Security Deposit Deed should set out the treatment of a tenant deposit in the event of the landlord selling its interest to a third party. Typically, this will permit the landlord to assign the benefit of the deposit to a buyer who will be obliged to continue to observe the terms of the Security Deposit Deed. Both residential and commercial tenancies can commonly require payment of a security deposit.

Commercial leases granted for a term in excess of five years would typically provide for periodic rent reviews linked to open market rents or the Consumer Price Index.

What due diligence should be conducted before executing a contract? Is any due diligence customarily permitted or conducted after contract but before closing? What is the typical method of title searches and are they customary? How and to what extent may acquirers protect themselves against bad title? Discuss the priority among the various interests in the estate. Is it customary to obtain government confirmation, a zoning report or legal opinion regarding legal use and occupancy?

Due diligence must be completed in full pre-contract. Additional queries may only be raised in very limited circumstances between contract and completion. Depending on the nature of the property, due diligence may include:

• the validity of the seller’s ownership of its interest in the property;
• pre-contract searches in respect of the property and the seller;
• structural, boundary (including access and necessary services), environmental and planning surveys;
• taxation analysis; and
• performance of any tenants.

Title insurance policies are becoming more frequent in the Irish market to cover risks such as missing original title documents, non-compliance with planning permission or building regulations or possessory interests in land (which are not considered good marketable title).

Priority is established on the basis of the date of registration of the relevant right, encumbrance or other interest in the Property Registration Authority.

Is it customary to arrange an engineering or environmental review? What are the typical requirements of such reviews? Is it customary to get representations or an indemnity? Is environmental insurance available?

A prudent purchaser will carry out a structural survey of any property prior to entering into a binding contract. Depending on the nature of the property, an environmental survey may also be carried out pre-contract.

It is uncommon for a seller to provide an indemnity in the case of structural and environmental issues. Generally, the principle of caveat emptor applies. Environmental insurance is available.

Do lawyers usually review leases or are they reviewed on the business side? What are the lease issues you point out to your clients?

Lawyers are responsible for the drafting of leases and advise clients on the content to include the term (ie, duration) of the lease, annual rent (and any other payments such as service charge) payable by the tenant during the term, rent review mechanisms, permitted use (and any prohibited uses), repairing obligations, alterations, alienation and insurance provisions.

What other agreements does a lawyer customarily review?

Lawyers customarily review agreements creating or otherwise dealing with any interest in real property. These include, but are not limited to, contracts for sale, development agreements, option agreements, overage agreements, agreements for lease, leases, licences, deeds of easement, and deeds of conveyance or transfer.

How does a lawyer customarily prepare for a closing of an acquisition, leasing or financing?

Negotiating and settling the terms of the sales contract to the point where it may be signed by the seller and buyer typically takes eight to 10 weeks, depending on the complexity of the transaction.

There is usually a further two to four weeks until the title is transferred from the seller to the buyer. A list of completion deliverables will detail the documents required on completion to close out the transaction.

In acquisition or leasing transactions, this will include the original executed deed of conveyance, transfer or lease, original title documents, and supporting declarations and undertakings.

In a financing transaction, a certificate of title will also usually be delivered to the lender along with the relevant security documents for registration.

Is the closing of the transfer, leasing or financing done in person with all parties present? Is it necessary for any agency or representative of the government or specially licensed agent to be in attendance to approve or verify and confirm the transaction?

Completion of a transfer, leasing or financing transaction can occur in person with all parties present (typically in the solicitor’s office of the vendor, lessor or lender), or by courier or post.

It is not necessary for any agency or representative of the government or specially licensed agent to be in attendance to approve or verify and confirm the transaction. However, a number of typical completion deliverables, such as declarations, must be sworn in front of an independent solicitor or commissioner for oaths.

What are the remedies for breach of a contract to sell or finance real estate?

Remedies for breach of contract include:

• damages (monetary compensation for breaches);
• specific performance (an equitable remedy requiring the party in breach to perform his or her part of the contract);
• an injunction (a court order requiring a party to do or refrain from doing a certain act); and
• rescission (a court order setting the contract aside where both parties can be restored to the position they would have been in had the contract not been entered into).

The Law Society of Ireland General Conditions of Sale (2019 edition) provides that where a purchaser fails in any material respect to comply with the contract for sale, the seller is entitled to forfeit the deposit. However, where the seller fails to comply with the contract for sale or the contract is rescinded, the General Conditions provide that the purchaser is entitled to the return of their deposit.

What remedies are available to tenants and landlords for breach of the terms of the lease? Is there a customary procedure to evict a defaulting tenant and can a tenant claim damages from a landlord? Do general contract or special real estate rules apply? Are the remedies available to landlords different for commercial and residential leases?

In general terms, residential tenants benefit from greater statutory protections than commercial tenants. This means that it is often more difficult for a landlord to evict a residential tenant.

In the event the landlord is in breach of its obligations, a tenant may, among other things, apply to a court for a specific performance order, or seek damages for loss suffered.

In the event of the tenant being in breach of its obligations, a landlord may, among other things, forfeit the lease and retake possession of the property or apply to a court for a specific performance order.