Bewleys win ‘no help’ to strugglers

Bewley’s victory in the High Court is unlikely to help tenants struggling with upward-only rent reviews, says NUI Galway lecturer in land law, Padraic Kenna.

Dr Kenna said the key to the judgment by Mr Justice Peter Charleton had been the fact that there was not an upward-only clause in Bewleys’ contract with their landlord, Ickendel Ltd, owned by Johnny Ronan’s Treasury Holdings Group.

“The difference is that there was no upward-only clause in the contract and the court was not willing to construct one,” he said.

“There are companies going into examinership to renegotiate upward-only rent review clauses, but that is not what this case is about. The standard upward-only clause is not there. It is pretty simple.”

The head of Retail Excellence Ireland, Steven Lynam, urged retailers to examine their leases to see if Justice Charleton’s judgment applies to them.

In the court yesterday, Judge Charleton said to proceed towards ever-increasing sums in rent every five years was to substitute an unreal figure for the rent.

He said the lease between Bewleys and Ickendel clea-rly stipulated that the rent was never to fall below the initial agreement of 1987.

However, an open-market clause in the agreement could only reasonably be construed so as to allow for a fall in rent, which had increased to €1.5m because of upwards reviews since 1987.

The Bewleys rent agreement had a built-in five-year review and the case was regarded as a test of upward rent review leases.

Gavin Ralston SC, for Bewleys, had claimed the issue could not be of more vital importance to the company’s financial survival and said the lease allowed rents to fall as well as rise.

Ickendel Ltd, part of Treasury Holdings (currently in Nama), had argued the rent could not fall under the terms of the decades-old agreement. The case hinged on the interpretation of a key clause in the lease.

Mr Ralston said the court was entitled to ask if the 1987 agreement intended to trap the restaurant owner in such a serious position.

Judge Charleton said a 2007 review of the 1987 agreement had fixed a rent of €1,463,964, and at least this figure was being claimed by the landlord for the 2012 rent review.

“This is on the basis that the lease expressly provides that the rent cannot decrease on review,” the judge said. “That sum would not now be obtained for these premises on the open market. There has been a marked decrease in the rents obtainable for retail premises and food outlets.”

He said the parties had agreed in 1987 to never go below the initially agreed rent but he could not see from the lease that they had bargained thereafter for anything other than a fair open-market rent. He said the review clause could only reasonably be construed as allowing for a fall in rent, but never below the rent initially agreed in 1987.

After the case, there were warnings that any ruling leading to the end of upward-only rent reviews could cost millions of euro across the economy. A partner at a commercial property firm said an across-the-board renegotiation of commercial rents down to market value would breach covenants on bank loans and trigger a wave of losses across the banking sector, while pension funds with investments in office blocks and retail centres would see huge losses.

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