A recent High Court case makes uncertain the status of certain “upward only” rent review clauses in historic leases granted prior to 28 February 2010.
Legislation has prohibited upward only rent review clauses in all leases granted from 28 February 2010. The Government did not introduce similar legislation for historic leases granted prior to 28 February 2010 for legal and constitutional reasons. However, a recent High Court case, which concerned 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, has cast doubt on the “upward only” effect of certain rent review clauses in historic leases granted prior to 28 February 2010.
In the Bewley’s rent review case, the Court decided that the “upward only” rent review clause in the lease did in fact allow the rent to fall to open market level as long as it did not fall below the initial rent agreed under the lease when it was entered into in 1987. The rent review clause provided that, at each rent review date, the rent was to be the greater of (a) the rent payable during the preceding period or (b) such yearly rent as would be achieved in the open market. The rent review dates were to be every fifth anniversary of the commencement of the term of the lease. The judge held that the reference to “the preceding period” was to the initial five year period of the lease rather than the period immediately preceding the most recent review date.
The Court’s interpretation overturns the long understood meaning of the wording used in “upward only” rent review clauses (which is that the rent can never fall at any rent review date) and, at the time of writing, the decision is highly likely to be appealed. The rent review wording used in the Bewley’s lease is more commonly found in leases granted in the 1980’s and 1990’s than those in this century but a significant number of leases with similar wording still exist. Pending an appeal of the Bewley’s decision, even greater scrutiny will be needed in investment property transactions to ensure that the leases of such properties are not affected or, where they may be, that the effect is factored into the price to be offered for such properties.
To view a full article on the case, please click here.