Trends and prospects

What are the current trends in and future prospects for the real estate market (both commercial and residential) in your jurisdiction?

2019 saw substantial activity in almost all sectors of the Irish real estate market, particularly in the private rented sector and in the Dublin office market with a strong development pipeline providing increased options to potential investors in the Irish market.

The office sector emerged as the best performing sector for 2019 accounting for 43% of total turnover.

Residential investments increased by 128% in 2019. Accounting for 36% of total turnover, the residential sector was again the second best performing sector. The retail sector saw an increase in investment of 31% in 2019 accounting for 9% of total turnover and the industrial and logistics sector accounted for a further 4%.

The commercial real estate sector enjoyed a strong 2019 performance and continued momentum is expected in 2020 with over €1billion worth of commercial property on the market at the outset of 2020.

The emergence of a number of proposed co living schemes in Dublin made headlines in the media, a relatively new concept in Ireland which would represent a significant departure from the traditional preference for low-density housing. Continued strong government activity in the social housing sector has meant that the social housing market has continued to grow in prominence.

An increase in more mixed-use developments is expected in 2020, comprising office, retail, residential and leisure elements, and an increased focus on sustainability. This ties in with the shift towards “place-making”, seeking to enhance the attractiveness of developments both during the day and at night.

Rights and registration

Rights

What types of holding right over real estate are acknowledged by law in your jurisdiction?

The two primary legal interests for the purpose of ‘good marketable title’ in Ireland are freehold and leasehold (with an unexpired term of at least 70 years).

Are rights to land and buildings on the land legally separable?

Yes. For example, a developer of a multi-unit development will typically retain ownership of the freehold interest in the land on which the building is erected and grant long leasehold interests to buyers of the individual units within the building.

Which parties may hold and exercise rights over real estate? Are there restrictions on foreign ownership of property?

Private individuals, incorporated entities and statutory bodies may hold and exercise rights over real estate.

Subject to satisfactory anti-money laundering documentation being provided and UN and EU sanctions lists, there is no restriction on foreign ownership.

How are rights, encumbrances and other interests over real estate prioritised?

Priority is established on the basis of the date of registration of the relevant right, encumbrance or other interest in the Irish Property Registration Authority.

Registration

Must real estate rights, interests and transactions be registered in your jurisdiction? What are the legal effects of registration?

Where rights are capable of registration they must be registered with the Irish Property Registration Authority (PRA). The PRA comprises two systems of registration: the Registry of Deeds and the Land Registry. The Registry of Deeds simply registers the existence of the relevant document; while the Land Registry system is more modern and its accuracy is guaranteed by the state. Any real estate sold for value must now be lodged for registration in the Land Registry.

The effect of registration is to give the holder of the interest priority to any subsequently registered interests.

Both systems of registration are uniform across Ireland and the same rules apply to all registrations in Ireland.

What are the procedural and documentary requirements for entry into the national real estate register(s)? Can registration be completed electronically?

Documentation must be lodged with the PRA and must at least meet the following criteria:

• Submitted (generally) in a prescribed form
• Validly executed, and
• Contain a ‘stamp certificate’ evidencing that stamp duty has been paid to the Irish Revenue Commissioners

Hard copies of documentation must be lodged with the PRA together with a fee and the relevant Property Registration Authority form (which is publicly available). Electronic registration is currently limited to discharges of some encumbrances.

What information is recorded in the national real estate register(s) and to what extent is such information publicly available?

The Registry of Deeds records:

• The name of the parties to the relevant document, and
• The legal description of the property

A ‘memorial’ providing a summary of the terms of a registered deed is publicly available for a fee of €20.

The Land Registry records:

• The description of the property;
• The owner of the interest in the property;
• The nature of the interest held (eg, freehold or leasehold);
• Any encumbrances (or ‘burdens’), and
• A map identifying the property

A folio providing these details is available online for a fee of €5.

Is there a state guarantee of title?

Not for the Registry of Deeds. A state guarantee of title is available for the Land Registry, but the accuracy of the boundaries on the registry map is not guaranteed.

Sale and purchase

Brokerage

How are real estate brokers regulated in your jurisdiction, e.g. through caps on commission or disclosure obligations?

A broker must obtain a licence from the Property Services Regulatory Authority, a statutory authority responsible for, among other things, regulation of real estate brokers.

Due diligence

What due diligence should be conducted before conclusion of a real estate sale contract?

Depending on the nature of the property:

• The validity of the seller’s ownership of its interest in the property
• A structural survey
• A boundary survey, including access and necessary services
• An environmental survey
• Taxation analysis
• A planning survey, and
• Performance of any tenants

Preliminary agreements

Are any preliminary agreements typically entered into before conclusion of a sale contract?

Real estate brokers usually prepare non-binding ‘heads of agreement’ or ‘heads of terms’. The sale contract incorporates the heads of agreement / terms.

Contracts

Must sale contracts be concluded in writing? If so, must they be notarised?

Real estate transactions are generally documented using the Law Society of Ireland’s Conditions of Sale (2019 edition). The conditions of sale must, among other things, be signed by both seller and buyer and their signatures witnessed and a deposit (ie, consideration) paid. There is no requirement for the signatures to be notarised.

Following a change in the conditions of sale in 2019, all due diligence (with limited exceptions) must be carried out prior to the contract being exchanged.

Can sale contracts be concluded electronically?

A buyer and seller may agree to exchange sale contracts on the basis of signed soft copies. However, the more established practice is to exchange signed hard copies.

What provisions are usually included in a sale contract?

A sale contract usually includes the following provisions:

• The parties i.e. the seller and buyer
• The purchase price
• The closing date, i.e. the date the legal and beneficial interest in the property transfers to the buyer
• The deposit payable, typically 10% of the purchase price
• The description of the property being sold usually by reference to a map
• The tenure of the interest held by the seller, e.g. freehold or leasehold
• Eevidence of the seller’s interest, i.e. the seller’s title
• Planning documentation, and
• Value-added tax (VAT) treatment of the sale

Obligations and liabilities

What are the seller’s disclosure obligations and other liabilities, and what are the consequences of breach?

A seller is required to make full disclosure of any issue which may adversely affect the property

Where a seller does not disclose a liability which subsequently results in a loss to a buyer, the buyer may sue a seller for breach of contract.

What contractual warranties are usually given by the seller?

To the extent they are not varied or deleted by a seller, the conditions of sale (referred to above) require a seller to, among other things, warrant:

• The VAT treatment of the transaction
• Its title or interest in the property
• That it will discharge all existing charges and mortgages affecting the property
• That the property is not subject to any third party rights, e.g. easements, or claims
• That vacant possession will be provided to a buyer, and
• The planning status of the property since the date the seller acquired it

Are there any other obligations on the buyer, aside from paying the purchase price?

A buyer will sometimes be required to provide a warranty in relation to its VAT status.

There is a statutory obligation on a buyer to:

• Pay any stamp duty arising on the purchase price to the Irish Revenue Commissioners, and
• Lodge its title in the Land Registry for registration

Taxes

What taxes are payable on the sale and purchase of real estate? Are any exemptions available?

The taxes which are payable on the sale and purchase of real estate are as follows:

• Stamp duty – payable by the buyer and calculated in the following cases:
• Residential property at the rate of 1% of the purchase price on the first €1 million and 2% on the excess over €1 million
• Non-residential property at the rate of 7.5% of the purchase price
• VAT – may be payable by the seller or buyer depending on the nature of the transactionand the property
• Capital gains tax – payable by seller on any gains arising from the disposal which is currently at the rate of 33% of the gain made
• Capital acquisitions tax – payable by a party that acquires a property by gift or inheritance at the rate of 33% above the relevant threshold
• Local property tax – an annual tax payable on residential properties and calculated accordingly:
  • Properties valued up to €1 million at 0.18%
  • Properties whose value exceeds €1 million at 0.25%
• Commercial rates – payable in the case of non-residential property and dependent on the ‘rateable valuation’ of the property which is determined by the relevant local authority
• Water charges – payable in the case of non-residential properties and dependent on water usage

Transfer of title

When does title in the property transfer?

When the seller executes a deed in favour of the buyer and delivers it to the buyer. Typically, this is two to four weeks after the seller and buyer sign a sales contract.

Timeframe

What is the typical duration of a sale transaction?

Negotiating and settling the terms of the sales contract to the point where it may be signed by seller and buyer typically takes eight to 10 weeks.

There is usually a further two to four weeks until the title is transferred from the seller to the buyer.

Leases – Commercial Properties

Contracts

Must a lease agreement be concluded in writing?

No. In addition to written leases, implied and oral tenancies are also recognised.

Are there any regulations setting out mandatory or prohibited provisions in lease agreements?

Yes. The primary legislation dealing with commercial leases is the Landlord and Tenant (Amendment) Act 1980. The act provides that provisions in a lease which absolutely prohibit alienation, the user and carrying out improvements are all subject to the proviso that a landlord shall not unreasonably withhold its consent to applications by a tenant in connection with these three items.

What provisions are typically included in lease agreements?

The following provisions are typically included in lease agreements:

• Name and address of the landlord and tenant
• Description of the premises demised to the tenant by reference to a map
• The term or duration of the lease
• Annual rent, and any other payments such as service charge, payable by the tenant during the term and a rent review mechanism
• Permitted use
• Repairing obligations
• Alterations
• Alienation, and
• Insurance

What are the standard forms of lease agreement used in your jurisdiction?

There is no standard form of lease in Ireland. Different landlords will require different forms of leases but most will follow a relatively market standard form.

Length of term

Are there any regulations on minimum and maximum terms of leases?

No.

Are long-term tenants accorded any special rights as to extension or renewal of leases?

Yes:

• A tenant who is in continuous occupation of a premises for an uninterrupted period of five years for the purpose of carrying on a business acquires a statutory entitlement to a new tenancy
• A tenant who is in continuous occupation of a premises for an uninterrupted period of twenty years acquires a statutory right to a new tenancy

Rent

What regulations (if any) govern rent increases?

There is a statutory prohibition on upward only rent review clauses in Ireland by virtue of Section 132 of the Land and Conveyancing Law Reform Act 2009.

What regulations (if any) govern rent security deposits?

None.

Can the tenant withhold rent payments on any legal grounds?

If the landlord acts in breach of the terms of a lease, a tenant may, depending on the terms of the lease and other circumstances, withhold rent payments.

Sub-letting

Under what circumstances is sub-letting typically allowed?

A landlord will typically consent to sub-letting subject to:

• a tenant providing confirmation that the strength of the sub-tenant’s covenant is no less than the tenant’s, and
• A sub-tenant entering into a direct covenant with the landlord to perform the obligations on the part of the tenant in the lease

Obligations and liabilities

What are the general obligations and liabilities of the landlord in respect of the property and what are the consequences of breach?

The landlord is generally responsible for:

• Ensuring that the tenant is given ‘quiet enjoyment’ of the premises, i.e. not to interfere with the tenant’s use and enjoyment of the premises
• Insuring the premises, and
• Repairing and maintaining the external and structural parts of the premises

In the event of the landlord being in breach of its obligations, a tenant may:

• Apply to court for a specific performance order, or
• Seek damages for loss suffered

What are the general obligations and liabilities of the tenant in respect of the property and what are the consequences of breach?

The tenant is generally responsible, among other things, for paying the rent and maintaining and repairing the internal non-structural parts of the property.

In the event of the tenant being in breach of its obligations, a landlord may:

• Forfeit the lease
• Apply to court for a specific performance order
• Seek damages for loss suffered, or
• Seek an order for possession of the property

Taxes

Are any on-going taxes payable on rental income? If so, are any exemptions available?

Value added tax (VAT) may be payable in respect of rent payable on a commercial letting where a landlord opts to charge VAT or, in certain circumstances, where both parties so elect. Residential lettings are exempt from VAT. Tenants paying rent to a non-resident landlord may be obliged to withhold tax at 20% and pay this tax over to the Revenue Commissioners, unless the rent is collected by an Irish agent.

Are the landlord and tenant bound by any insurance requirements?

There are no statutory insurance requirements. However, a lease will generally provide that the landlord insures the property and recovers the cost from the tenant.

Termination and eviction

What rules and procedures govern termination of the lease by the landlord and the tenant’s eviction from the property?

The terms of a lease will generally describe the basis on which the landlord may evict the tenant. Ultimately, a landlord may have to apply to court to obtain an order for possession.

Investment

Investment climate

What is the general climate of real estate investment in your jurisdiction?

Ireland remains a highly sought after location for real estate investment with 2019 investment in real estate exceeding €7 billion for the first time – a record high for the Irish market. This represents an increase of 97% - a near doubling of turnover relative to 2018.

The number of €100m+ “mega-deals” increased in 2019 boosting investment volumes, with 18 such deals accounting for 64% of turnover. This increase has been driven by competition for prime office and private rental sector assets in particular, from both Irish and international investors from a variety of regions including an increased presence of Asian investors.

Interest rates fell last year in line with monetary policy easing, boosting real estate’s attractiveness and resulting in a notable increase in capital targeting real estate investment opportunities.

The need for more housing continued to attract headlines in 2019.

The student accommodation market in Ireland continues to perform strongly for investors seeking a long-term investment option given existing and future demand.

Many government initiatives are focused on the above. For example, in an effort to increase supply, a fast-track planning process for large-scale housing developments of 100 houses or more and student accommodation developments of 200 or more bed spaces was introduced.

This will create opportunities for developers, builders, funders and investors.

Investors

Who are the most common investors in real estate?

Recent years have seen an increased professionalisation and internationalisation of the Irish real estate market. Private equity funds continue to reduce their presence and are being replaced by more long-term holders of real estate assets such as real estate investment trusts and pension funds, both national and international.

Investment structures

What structures are typically used to invest in real estate and what are the advantages and disadvantages of each (including tax implications)?

A number of structures can be used to invest in Irish real estate and the type of structure used depends on the investor base, objective of the investment and exit strategy of the investor (eg, whether the asset is held to generate rental income or to appreciate in value).

An Irish company engaged in property development can benefit from a low rate of tax (12.5%) on the profits derived from the sale of fully developed land. Otherwise, the applicable rate of corporation tax is 25%.

Non-Irish resident companies are often used to invest and hold Irish real estate and are liable to income tax at a rate of 20% on rental profits, compared with a 25% for Irish resident companies.

Regulated funds established in Ireland are a popular vehicle for international investment in property, equity and loan portfolios. Where such a fund or sub-fund, derives (directly or indirectly) less than 25% of its market value from Irish real estate and related assets (e.g. Irish shares/loans), no Irish tax is payable in respect of income and gains earned at the fund level and distributions to non-resident shareholders are generally free from Irish withholding tax. In contrast, Irish Real Estate Funds (IREFs) (i.e. funds which derive 25% or more of their market value from Irish real estate and related assets) are subject to a different tax regime. Following the Finance Act 2019, such funds may or may not be subject to tax at the fund level depending on their leverage levels and the amount of interest and other expenses. Distributions to unit holders (and a number of other events) generally give rise to a 20% withholding tax.

Ireland also operates a special regime for publicly quoted “Real Estate Investment Companies” (REITs). REITs are generally exempt from tax at the company level. However, the REIT must distribute 85% of its income and gains annually to its shareholders which are generally subject to Irish withholding tax at a rate of 25% for 2020. Also, new rules have been introduced eliminating the exemption from CGT for REITs on a cessation, unless it has been in existence for 15 years.

The activity to be conducted, the size of the investment and the location of the shareholder will dictate the most appropriate structures.

If you would like to discuss the issues set out in this article and how they may affect your existing or contemplated development, contact a member of our Real Estate team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.