The commercial lease was one of the documents that Covid tested hardest. Tenants who were ordered to close discovered what their leases did and did not say about rent when the doors were shut. Landlords discovered how little the law would do for them if the tenant was a small company that could not pay, and how much it would do if the tenant was a large one that would not. Five years on, the market has moved, the law has moved a little, and the leases themselves, many of them signed before 2010, have not moved at all. This article sets out what has changed, what has not, and why the lease on the file needs to be read in real time rather than on the day a problem arrives.
The law that Covid tested
Ireland gave commercial tenants no statutory moratorium during the pandemic. The Government published a voluntary code of conduct in October 2020 which asked landlords and tenants to negotiate in good faith, and the Covid Restrictions Support Scheme put money into the hands of closed businesses, but the lease itself was left to the courts.1 They answered the question quickly and in the landlord’s favour. In Oysters Shuckers Ltd v Architecture Manufacture Support (EU) Ltd a Dublin restaurant that had paid no rent since March 2020 sought an injunction to stop its landlord retaking possession. The High Court refused it. The rent suspension clause in the lease applied to insured risks and said nothing about a pandemic, the obligation to pay rent was an integral and fundamental part of the lease, and the court would not read a suspension into the document that the parties had not put there.2
A year later, in Foot Locker Retail Ireland Ltd v Percy Nominees Ltd, the tenant of a Grafton Street shop argued that its lease had been partially frustrated while the law required it to close, so that it kept the premises but owed no rent for the closed periods. O’Moore J held that there was no such thing as partial frustration, that the argument did violence to the fundamentals of the doctrine, and that a lease which provided for the rent to be suspended if the premises were damaged or destroyed, but not if they were closed, meant what it said. The landlord recovered more than a million euro in arrears, with its costs.3 Between them the two cases settled the point for every lease on the market. Rent stops only when the lease says it stops.
The practical consequence has been a change in what tenants ask for and what landlords will give. Leases granted since 2021 frequently contain a forced closure clause, under which rent is abated or deferred if a public authority orders the premises to close, and the negotiation is about how long the abatement lasts and whether service charge and insurance continue. Turnover rents, under which the tenant pays a base rent and a percentage of sales, are more common in retail than they were. Terms are shorter, break options are more frequent, and landlords of offices have had to come to terms with tenants who need half the space they needed in 2019. None of that helps a tenant whose lease was signed in 2015, and most of the leases in the country were.
What else has changed
Three developments since 2020 matter for anyone holding or granting a commercial lease. The first is the rescue process for small and micro companies, which came into force in December 2021 and sits alongside examinership. A company that qualifies can appoint a process adviser and, with the approval of the court, repudiate a lease that it cannot afford, leaving the landlord with an unsecured claim for its loss in a rescue plan that the landlord may be outvoted on.4 Examinership has always allowed a court to approve the repudiation of a lease, but it was a remedy for companies of a size that could afford it. The rescue process brings the same outcome within reach of a tenant with a turnover of a few million euro. A landlord choosing between two tenants should now ask not only whether the tenant can pay the rent but what happens to the lease if it decides that it would rather not.
The second is commercial rates. From 1 January 2024 the Local Government Rates and Other Matters Act 2019 has been in force in substance. Rates are now a single annual charge, unpaid rates are a charge on the property, a person who becomes or ceases to be the person liable for rates on a property must tell the local authority within ten working days, and failure to do so without reasonable excuse is an offence.5 The grant of a lease, an assignment and a surrender each move the liability from one person to another, so each is now an event with a statutory deadline attached to it for both parties. A landlord who takes back vacant premises also takes back the liability for rates on them, which makes a tenant’s break option more expensive for the landlord than it used to be.
The third is energy. A building energy rating certificate has been required when a commercial building is offered for letting for more than fifteen years and must be quoted in any advertisement of it, and the recast Energy Performance of Buildings Directive adopted in 2024 requires Member States to set minimum energy performance standards for non-residential buildings over the coming decade.6 In a full repairing and insuring lease the question of who pays for the works that bring a building up to the required standard is answered by the repairing covenant, and the answer is often the tenant. Green lease clauses, under which the parties share data and agree who carries the cost of improvements, have moved from the institutional end of the market towards the ordinary one, and a tenant taking an older building on a long lease should know what it is signing up to.
Behind all of this stands the division that Covid did not create but has made more important. Leases made on or after 28 February 2010 may provide for rent to be reviewed upwards or downwards, and any clause that says otherwise is read as if it allowed both.7 Leases made before that date are upward only, and the Government decided in 2011, on advice as to the constitutional protection of property rights, not to interfere with them. The first thing to establish about any lease is which side of that line it falls on, because everything that follows about rent reviews depends on it.
The concerns a landlord should have
For a landlord the first concern is the strength of the tenant’s covenant and the structure behind it. A lease to a company with no assets other than the business it carries on from the premises is only as good as the guarantee or the rent deposit that sits beside it, and the rescue process has made that truer than it was. The second is the repairing obligation and what will happen at the end of the term. A lease that was granted without a schedule of condition will produce a dilapidations claim, and a lease that was granted with one will produce an argument about what the schedule shows. The third is the statutory right to a new tenancy. A tenant who has been in business occupation for five years is entitled to a new lease on expiry unless it has renounced that right in writing after independent legal advice, which since 2008 it may do at any time, and a landlord who has not obtained a renunciation has no answer to the claim when it arrives.8 The fourth is the break option. A tenant’s break drafted by the tenant’s solicitors will be exercisable on short notice and few conditions, and the landlord will carry the rates and the service charge on the empty unit from the break date.
The concerns a tenant should have
For a tenant the concerns are the mirror image. The full repairing and insuring lease puts the cost of the building on the occupier for the term, including the cost of works that an older building will need to meet the energy standards now being set. The service charge is open ended unless it is capped, and the right to challenge the landlord’s certificate is usually confined to a short period after it issues. The keep open covenant, which the Foot Locker case turned on, obliges the tenant to trade whether or not trading pays. The rent suspension clause covers damage and destruction and nothing else unless the lease was negotiated after 2020. Assignment and subletting require the landlord’s consent, which may not be unreasonably withheld,9 but the conditions on which consent is given, and the guarantee that an outgoing tenant is asked to leave behind, are a matter for the lease. The break option is a right that is lost if any condition attached to it is not met in full on the day, and the courts here and in England construe those conditions strictly, whether the condition is that the rent is paid up, that the premises are handed back with vacant possession or that the notice is in a particular form.10 The right to a new tenancy on expiry depends on a notice served within a statutory window, and a tenant who lets the window pass has no claim.11
Reading the lease in real time
Every one of those concerns has a date attached to it. A commercial lease is not a document to be taken out of the safe when a dispute arrives. It is a calendar, and the entries in it have consequences. The rent review dates and the windows for serving a trigger notice and a counter-notice. The break dates, the notice period before them, which is commonly six or twelve months, and the conditions that must be satisfied on the day. The windows for exercising an option to renew. The expiry date and the statutory timetable that runs up to it. The insurance renewal and the reinstatement obligation. The service charge year end and the period in which to query the certificate. The landlord’s redevelopment break, if there is one. The events, such as a change of control or an insolvency step, that entitle the landlord to forfeit. The release of a guarantor on assignment. And now the ten working days within which the local authority must be told of a change in the person liable for rates, and the energy certificate that must be in place before the premises are marketed.
The cost of missing one of those dates is out of all proportion to the cost of keeping them. A break notice served a day late binds the tenant to the premises for the rest of the term. A counter-notice to a landlord’s rent review notice that is served outside the period the lease allows can, under some leases, leave the landlord’s figure deemed to be agreed. A claim to a new tenancy that is not preceded by the statutory notice cannot be maintained at all. These are not points on which a court can help, because the court will enforce the lease as written.
What we recommend is simple. When a lease is granted, assigned or taken over, it should be summarised, every date and trigger in it should be entered in a diary with the consequence of missing it, and somebody in the business should own that diary. The lease should be kept together with every side letter, licence, deed of variation and rent review memorandum that has been signed since, because the lease on its own is often no longer the deal. The summary should be reviewed once a year and whenever the business changes, whether by a sale, a reorganisation, a new lender or a decision to expand or contract. A lease that is read in real time is a lease whose entitlements are exercised and whose traps are avoided. A lease that is read when the problem arrives is usually read too late.
Rent reviews, and who should pull the trigger
A rent review clause typically provides for the rent to be reviewed every five years to the open market rent of the premises on a hypothetical letting, on a set of assumptions and disregards that the lease spells out, and for the review to be begun by a notice from the landlord, answered by a counter-notice from the tenant, and resolved by agreement or by an arbitrator or independent expert if the parties cannot agree. The reviewed rent is usually payable from the review date, with any shortfall paid when the figure is settled, often with interest. The question clients ask most often is what happens when nobody serves the notice on time.
The answer has been settled in Ireland since 1980. In Hynes Ltd v Independent Newspapers Ltd the landlord served its rent review notice six weeks after the date the lease required, and the tenant claimed that the review was lost. The Supreme Court, following the House of Lords in United Scientific Holdings Ltd v Burnley Borough Council, held that time is not of the essence of a rent review clause unless the lease says so expressly or the circumstances show that the parties intended it, and that the late notice was effective.12 A landlord who misses the review date can usually trigger the review later, and when it does the reviewed rent runs from the review date just the same. The tenant who thought the review had gone away then receives a demand for the uplift on every month since, with interest if the lease provides for it.
That is the general rule, and it answers the question clients most want answered. Sitting quietly in the hope that the other side forgets to serve its notice rarely produces a windfall. It postpones the review, it does not extinguish it, and the postponement is usually paid for by the party that was hoping to benefit from it. But the general rule has exceptions, and the exceptions are in the lease. Where the lease states that time is of the essence of the review, a missed trigger is lost. Where the lease provides that if the landlord does not serve its notice within a stated window the rent remains unchanged until the next review date, the review is lost. Where the lease provides that the landlord’s proposed rent is deemed to be agreed unless the tenant serves a counter-notice within a stated period, the courts have been ready to treat that period as strict, and the tenant’s silence costs it the review. And where a tenant’s break option is tied to the review, so that the tenant must know the new rent before it decides whether to leave, the courts have treated the review timetable as one the parties meant to be kept. Nothing can be said about whether to serve, or when, until the clause has been read.
Within those rules the strategy depends on which side of 2010 the lease falls. Under a pre-2010 upward only lease the tenant has nothing to gain from a review and should never trigger one, and a landlord should trigger promptly rather than late. Rent that is reviewed on time is collected on time, the evidence of comparable lettings is freshest at the review date, the tenant’s covenant is as strong as it is ever going to be, and a review triggered three years late produces a lump sum that the tenant has not budgeted for and a dispute, or an insolvency, that the landlord did not want. The tenant under such a lease should assume the review is coming, accrue for it, and check the lease for the deeming provisions that could turn its silence into agreement.
Under a lease made since 2010 the review can go either way, and the position since Covid is that in some sectors and locations the market rent is below the passing rent while in others it is above it. The party in whose favour the market has moved should serve, and should serve on time. For a tenant that is a new discipline. The valuation date is fixed by the lease, so delay does not move it, but many post-2010 leases were drafted with upward reviews in mind and say nothing about repaying rent that has been overpaid between the review date and the agreement of a lower figure. A tenant that waits may find that the reduction runs only from the date it finally asks for it. A landlord facing a downward review has no duty to remind the tenant, and may lawfully say nothing, but should take advice before the review date rather than after, because an unresolved review complicates a sale of the investment, a refinancing and any assignment of the lease, since a purchaser, a lender and an assignee will each want to know what the rent is.
Whatever is decided, the outcome should be recorded in a memorandum signed by both parties and kept with the lease, and that includes a review that produced no change. The absence of a memorandum is the commonest reason a review has to be reopened years later, usually at the worst possible moment.
How we can help
Our office provides a comprehensive review of commercial leases for landlords and tenants, whether of a single premises or a portfolio. We read the lease and every document that sits with it, produce a plain summary of the obligations on each side, prepare a schedule of every date and trigger in the lease with the consequence of missing it, and advise on the strategy for the next review, break or renewal before the date arrives. We then check the schedule with the client once a year. The cost is modest. The cost of a missed break date, a deemed rent review or a lost renewal is not.
This article is for general information only and does not constitute legal advice. The terms of commercial leases vary widely and the consequences described depend on the wording of the particular lease. Advice should be taken on the lease itself before any notice is served or any date is allowed to pass.
Notes
- Code of Conduct between Landlords and Tenants for Commercial Rents, Department of Business, Enterprise and Innovation, October 2020. ↩
- Oysters Shuckers Ltd t/a Klaw v Architecture Manufacture Support (EU) Ltd [2020] IEHC 527. ↩
- Foot Locker Retail Ireland Ltd v Percy Nominees Ltd [2021] IEHC 749 (High Court, O’Moore J). ↩
- Companies Act 2014, section 537 (examinership) and Part 10A, inserted by the Companies (Rescue Process for Small and Micro Companies) Act 2021, commenced 8 December 2021. ↩
- Local Government Rates and Other Matters Act 2019, sections 4, 11 and 13, as amended by the Historic and Archaeological Heritage and Miscellaneous Provisions Act 2023 and commenced with effect from 1 January 2024. ↩
- European Union (Energy Performance of Buildings) Regulations 2012 (S.I. No. 243 of 2012); Directive (EU) 2024/1275 of the European Parliament and of the Council of 24 April 2024 on the energy performance of buildings (recast). ↩
- Land and Conveyancing Law Reform Act 2009, section 132. ↩
- Landlord and Tenant (Amendment) Act 1980, section 17, as amended by section 47 of the Civil Law (Miscellaneous Provisions) Act 2008. ↩
- Landlord and Tenant (Amendment) Act 1980, section 66. ↩
- Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749; Siemens Hearing Instruments Ltd v Friends Life Ltd [2014] EWCA Civ 382. ↩
- Landlord and Tenant (Amendment) Act 1980, section 20. ↩
- Hynes Ltd v Independent Newspapers Ltd [1980] IR 204 (Supreme Court, 19 November 1980), following United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904. ↩