An Irish court has ruled that the rent for a Dublin café should be reduced to reflect the depressed property market, rejecting a landlord’s claim that there was an upwards-only review clause in the lease.
In a decision which could have significant impact on landlords seeking to rely on upwards-only rent review clauses in Ireland, Charleton J, in the Irish High Court, said that to proceed towards ever-increasing sums on each five-year review would lead to an “unreal” figure for the rent for Bewley’s Oriental Café in Grafton Street, Dublin, which he described as an “inviting establishment… known to generations of Dubliners”.
The judge said: “It is not in accordance with business sense that a rent appropriate to five years previously should govern a hospitality market markedly changed for the worse.”
He said that, had the parties agreed to an ever-increasing rent upon review, many clauses in various plain wordings were available to give effect to such a purpose. But he said that any such clause was absent from the lease.
Landlord Ickendel Ltd, controlled by developer Johnny Ronan, had argued that it had the benefit of an upwards-only rent review clause, and that, in a time of deflation, that meant the rent would stay the same.
But Bewley’s, which has paid €1,463,964 a year since the last review in 2007, argued that open market rents for comparable premises had fallen by as much as almost half since then, and that the 2012 review should take this into account.
The judge said that that sum would not now be obtained for these premises on the open market, adding: “There has been a marked decrease in the rents obtainable for retail premises and food outlets.”
Giving his ruling on the true construction of the lease, he said that the rent review clause clearly stipulated that the rent was not to fall below the initial figure set in 1987, but that beyond that it was intended to reflect a “fair open market rent”.
He said: “It is the bargain of the parties that matters. In that context, it is hard to imagine that one or other may ever have foreseen rapid deflation in property prices; instead both are likely to have contemplated the opposite.”
He said that a rent which no willing lessee would offer, because it would be impossible to trade profitably in the economic climate prevailing at the time, “cannot be a market rent”.
He continued: “That, ultimately, is what the construction urged so eloquently by counsel for the landlord posits and I cannot see it as sustainable in the context of the lease fixing a market rent on each revision. The parties bargained so as to agree never to fall below that initially agreed and I cannot see that they bargained thereafter for anything other than a fair open market rent. That can rise and that can fall.”
Ickendel Limited v Bewley’s Cafe Grafton Street Limited Irish High Court (Charleton J) 25 March 2013
