Basic Legal Provisions in Ireland for Lease of Business Premises
Legal Regulations in Ireland (excluding Northern Ireland)
In relation to the basic legal provisions in Ireland for lease of business premises, in general terms the law of landlord and tenant is governed by common law and by statute law.
The latter operates to impede the freedom of both landlord and tenant to contract as they might wish in certain circumstances, e.g. statute provides that a lease which contains an absolute prohibition against alienation and the carrying out of improvements are subject to the proviso that a landlord cannot unreasonably withhold consent to a request by a tenant to do so.
Form of the Lease
Statute requires leases to be in writing if they are to create the legal relationship of landlord and tenant. In addition, implied and oral tenancies are also recognised.
Object of the Lease
The object of the lease is to reflect in writing the commercial terms of the letting negotiated between a landlord and tenant, subject to compliance with statute law. Under Irish Law a lease is founded on contract rather than tenure. The tenant has an interest in property which entitles it to exclusive possession for the period of its tenancy, a right it may assert against third parties as well as the landlord. Also, a tenant may dispose of or deal with its interest for example by assignment or a subletting subject to the terms of the lease.
Different forms of lease are used for residential and business premises.
Duration of the Lease
Under statute, a lease must have a definite duration either in years, months or weeks. A business tenant is entitled to a new tenancy commencing on the termination of its previous tenancy provided it can prove business equity or long possession equity or improvements equity. Business equity is established after five years of continuous occupation of the property for the purpose of carrying on a business. The tenant can contract out of its right to a new tenancy by executing a renunciation of its entitlement to a new tenancy and by obtaining independent legal advice in relation to the renunciation.
In general, when a landlord grants a business lease of between five to ten years it requires a tenant to renounce its right to a new tenancy.
- With a single letting of an entire building, the tenant is liable for all repairs and outgoings, unless the parties agree otherwise. Parties sometimes agreed to append a Schedule of Condition to the lease which records the condition of the property at the date of the granting of the lease which limits the tenant’s repairing obligations to the condition of the property as detailed in the Schedule of Condition;
- In the case of a letting of part of a building, the landlord usually covenants to maintain the structure and common areas but passes on the cost to the tenant through a service charge. The tenant is responsible for all internal repairs;
- In the case of a short term letting of an entire building, i.e. one for less than five years, the repairing obligation will normally apply to the interior only with the landlord being responsible for the exterior including the structure.
The rent of a business lease is negotiated between the parties.
The normal business lease in Ireland contains a rent review clause which provides that the rent payable under the lease will be reviewed every five years on the basis of the market rent which might reasonably be expected to be achieved for the property at the time of the review.
Prior to 28 February 2010, a rent review clause provided that the rent could never fall below the rent payable immediately before the review. These clauses were referred to as “upwards only” rent review clauses.
As a result of legislation, in any business lease entered into after 28 February 2010, any rent review clause must provide that the rent payable following a review will be fixed at an amount that is less than, greater than, or the same as the amount of rent payable immediately prior to the date on which the rent falls to be reviewed. This, in effect, prevents the operation of an “upwards only” rent review clause. The objective is that any reviewed rent must reflect the market conditions prevailing at the time of the review.
New Ownership of a Lease – Transferring or Assigning a Business Lease
A tenant can, subject to obtaining landlord’s consent (not to be unreasonably withheld) transfer/assign its lease to a new “owner”. The tenant must, under the terms of the lease, obtain the landlord’s consent to such transfer/assignment and provide the landlord with details of the new “owner” together with evidence of its financial standing. The new “owner” will be bound by the obligations on the part of the tenant contained in the lease.
Termination of the Lease
The terms of the lease will contain the basis on which a lease can be terminated e.g. breach by a tenant of the covenants and conditions such as non-payment of rent.
The parties can negotiate a “break date” by either party during the term of the lease and the notice period for such intended “break”.
In general, a landlord has no right to forfeit a lease unless the tenant has been in breach of one or more of its terms.
Statutory Reliefs – Compensation
There are various statutory reliefs which entitle a tenant to compensation e.g. for carrying out improvements, for disturbance and where a tenant is entitled to a new tenancy and the landlord refuses to grant same on the basis of redevelopment of the property.
Very often, a landlord can be entitled to compensation from a tenant for failure by the tenant to repair the property in accordance with the terms of its lease. Compensation payable to the Landlord cannot exceed the value of the property.
VAT on a Lease
VAT may be payable on rental income where a landlord opts to charge VAT.
The Irish Courts have jurisdiction over all matters relating to Irish property.
AUTHOR: SHEENA BEALE, PARTNER