Upward Only Rent Reviews

Section 132 of the Land and Conveyancing Law reform Act 2009 became effective on 28 February 2010 and it prohibits landlords including upward only provisions in leases.  This has created 2 tiers of leases:

  1. Those created pre 28 February 2010 which will continue to have enforceable upward only clauses until the expiration of the lease, and
  2. Leases created post 28 February 2010, whereby any lease review clauses will be deemed to be upwards and downwards.

Since the introduction of the 2009 Act, both tenants and landlords have adopted different mechanisms to deal with rent reviews.

Rent Review Triggered by Landlord

It may be agreed that a rent review is only triggered by a landlord.  This in effect protects the landlord when market rents are falling.

Turnover Rents

The rent is a percentage of the tenant’s turnover and may include a base level of the rent.  These are common in the retail industry and protect the tenant thereby turning their rent into a variable cost as opposed to a fixed cost.  The advantage to the landlord is they prosper when the tenant is trading well and also the landlord is aware if the tenant is trading poorly and can take early action.  The disadvantage to the landlord is lack of clarity of the rental income inflow and this can cause difficulties from a banking point of view which can be mitigated to a degree by using a base rent.

Caps and Collar Provisions

The parties agree that rent may never fall beyond a certain amount nor exceed a certain amount.

Pre-agreed Rent Increases

The landlord and tenant may agree at the outset to a pre-determined upward stepped rent at certain intervals.

Indexed Based Rents

The leases sets out that rent will change in line with a pre-agreed index e.g. Consumer Price Index.

Shorter Leases

Once the lease is shorter than five years, there is no need for a rent review clause.

Final Note

The 2009 Act stipulates against the use of upward only clauses but does not prevent the above mechanisms once agreed between the landlord and tenant.

What questions do you have?

We are happy to help. Please post your comment below or call Paul Leonard, Partner at Cooney Carey, on 01 677 9000. Alternatively, send him an email: pleonard@cooneycarey.ie

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