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Rent Reviews in Ireland – the Bewley’s Case and the €7.36m Question

01 July 2014

Clarity

Today the Supreme Court confirmed that an upward only rent review clause in a 35 year lease dating from 1987 meant that the lease rent would never reduce, regardless of what happened with market rents.  While each such matter of interpretation has to be based on its particular facts, this decision will be warmly welcomed by landlords, investors and their funders.  Conversely, tenants and their funders will be very disappointed.

The true meaning of a lease is determined by the courts if the parties cannot reach an agreed position or a settlement of their disagreement.  The Supreme Court is Ireland’s final court of appeal and therefore its judgments are particularly important. The case arose out of a dispute between the tenant, the iconic Bewley’s Café on Grafton Street in Dublin and its landlord, Ickendel Limited. 

Context

Traditionally, most long term commercial leases in Ireland were for 25 years or 35 years, with full repairing and insuring obligations on the tenant and a rent which was reviewed every five years but on an upward only basis.  Real estate values in Ireland had increased substantially in the years leading up to 2009 and then fell precipitously.   When the Bewley’s rent was reviewed in 2007 it was set at €1,463,964.  By 2012, the market rent was €728,187.50, a reduction of 50.3% on the 2007 rent.  The difference between those two rent levels for the 10 years from 2012 to the end of the lease in 2022 is €7.36m, a substantial sum both for the tenant and for the landlord.  This calculation assumes that the market rent does not exceed the 2007 lease rent of €1,463,964 by the final review date in 2017.

Dispute

The case turned on the precise construction of the words used in the rent review clause. Bewley’s argued that the terms of its rent review clause meant that the floor on a rent review was the original 1987 rent.  The landlord countered that the correct interpretation was that the floor should be the rent payable before the review.  In March 2013 in the High Court, Bewley’s was successful and the result was a rent reset at market levels in 2012 (as the original rent had been €232,410).  Ickendel appealed and the Supreme Court issued its unanimous judgment this morning (July 1, 2014). 

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