Onwards Not Upwards


90295102That landmark Grafton Street, Dublin, rental judgement.

What’s it all about?

What does it all mean?

We sat down with a legal person specialising in the area of property law (who wishes to remain anonymous) for a cup of Bewley’s well-grounded and a list of questions.

What is this decision about?
It is about a dispute between a landlord (Ickendel) and a tenant (Bewley’s Grafton Street). The dispute related to an upwards-only rent review clause in a commercial lease.

What’s an upward only rent review clause?
A clause which stops the rent being reduced on review in line with market rents.
Since 2010 you can’t insert upwards-only clauses in new leases. But they are still valid in pre-2010 leases. The Bewley’s lease was from 1987.

What was the dispute about so?
The meaning of the clause and whether it should be given a broad or a narrow interpretation. The clause in this case said that the rent was to be reviewed after every period of five years, with the rent on review being the greater of (a) the market rent or (b) the rent for ‘the preceding period’.
Bewley’s said that ‘the preceding period’ meant the initial period of five years at the beginning of the lease, so that the rent could not fall below the initial rent set in 1987 but could fall below the rent set on subsequent reviews.
The landlord, Ickendel Limited (now in NAMA) argued that ‘the preceding period’ meant any of the preceding periods of five years and that because of this the reviewed rent could not fall below that set on any previous review, even when this was considerably higher than market rent.

And the result?
The High Court judge hearing the case, Charleton J, agreed with Bewley’s. He said that the words ‘preceding period’ meant the intial period of five years under the lease only. This meant that the rent could be reduced on review below the previously reviewed rent, though not below the initial rent set under the lease.
This will have huge implications for commercial property in Ireland. Most upwards only rent review clauses are in the same form as the Bewley’s one. Such clauses can now only be relied on by landlords in a limited way. Where the market rent on review is lower than the rent set on previous reviews, the landlord cannot force the tenant to keep paying the rent set on previous reviews. The landlord is entitled to stop the rent falling below the initial rent, but that is all.

Was Charleton right?
I am not sure that his interpretation of the words ‘preceding period’ was correct. The clause specifically refers to ‘periods of five years’ and as such the term ‘preceding period’ would appear to refer to any preceding period of five years and not just, as Charleton J held, the initial five years of the lease.
However the decision makes sense as in practice upwards only rent review clauses are a commercial disaster, a windfall to a landlord (assuming the tenant has money to pay) but a commercial disaster for a tenant.

Can the decision be appealed?
Yes, to the Supreme Court. It will be interesting to see what happens here. However the backlog of cases in the Supreme Court is such that it could take up to two years for an appeal to be heard.

Are you getting a bitter after-taste from this coffee?

Ok, thanks. 

Judgement here

(Graham Hughes/Photocall Ireland)