Martin Colman and Tom O’Malley explain key differences in the real estate laws of the Republic of Ireland which practitioners in England and Wales need to be aware of
There are many similarities between the real estate laws of England and Wales and Ireland. Much Irish property law finds its historic origins in English common law and statute law prior to 1922, and English case law remains persuasive in certain areas. There has, however, been significant divergence in the past 90 years. The Land and Conveyancing Law Reform Act 2009 has repealed, amended and updated conveyancing practice in Ireland and includes a number of noteworthy departures for those dealing with property there.
It should be noted that Northern Ireland has a similar, but separate legal system to both Ireland and England and Wales.
Contract and requisitions
Unlike in England and Wales, where there is no standard form of sale contact, the form of contract used in the vast majority of sales in the Republic of Ireland is the Law Society of Ireland Contract for Sale (2009 (Revised) Edition).
Following exchange of contracts a buyer in the Republic of Ireland will raise requisitions on title for the seller to respond to. These comprise a substantial list of enquiries under 44 headings including VAT, occupation, rates, and licences. This is a key difference with the manner in which due diligence is conducted in England and Wales where enquiries will be raised by a buyer before contracts are exchanged.
Further requisitions will be raised by an English buyer post-exchange but their primary function is to confirm that replies already given remain valid and to agree the practicalities of completion. It is becoming increasingly common for title investigations to be undertaken pre-contract in Ireland, particularly in commercial transactions.
Title registration
There are two systems of registration in Ireland. Title recorded through registration of documents in the Registry of Deeds is known as “unregistered” title, and “registered” title is dealt with by the Land Registry. Both systems are under the control and management of the Property Registration Authority (PRA).
Importantly, in Ireland registration of a buyer’s title to unregistered land at the Registry of Deeds is not conclusive evidence of that party’s title and title to unregistered property is not guaranteed by the state. All acquisitions of unregistered property after 1 June 2011 are subject to compulsory first registration under the registered title system.
Under the registered title system, the deed to the buyer is lodged with the PRA and retained by the PRA with the other title documents, which are recorded on a “folio”. This is a difference with the procedure in England and Wales, where the Land Registry does not retain original documents. The folio is conclusive evidence of title except for certain burdens incapable of registration including public rights and certain easements. Registered title is guaranteed by the state.
Ninety-three per cent of the total land mass of the Republic of Ireland and almost 90% of the legal titles are now registered in the PRA. Dublin, with over 59% coverage and Cork, with over 86% coverage, lag behind, being the last two counties to become compulsorily registrable in 2011.
Leases
Upwards-only rent review
Prior to 28 February 2010, upwards-only rent reviews were standard in Irish commercial leases. The Land and Conveyancing Law Reform Act 2009 now prohibits upwards-only rent review clauses for leases entered into after 28 February 2010.
The practical effect of this prohibition on the Irish commercial property market has been to create a two-tier system whereby almost all leases prior to 28 February 2010 are subject to upwards-only rent reviews and all subsequent leases are not. This prohibition is an important distinction with England and Wales, where upwards-only rent reviews remain not only permissible but also very common.
Security of tenure
A tenant of commercial property in Ireland has the right to a new lease of business premises (of between five and 20 years), should it (and its predecessors) remain in continuous occupation and use the property for business purposes, for at least five years.
The Landlord and Tenant (Amendment) Act 1980 (the “1980 Act”) provides that any provisions of a lease contracting out of this right are void. However it is now possible, subject to the tenant receiving independent legal advice, to renounce renewal rights in respect of business premises.
The position is different in England and Wales, where security of tenure will apply to any tenancy where the property comprised in the tenancy is or includes premises that are occupied by the tenant and are so occupied for the purposes of a business carried on by him. Tenancies for six months or less are excluded from this protection. Contracting out of the right to security of tenure is a straightforward matter in England and Wales.
Alienation of commercial leases
Section 16 of the Landlord and Tenant Law Amendment Act (Ireland) 1860 (commonly known as Deasy’s Act) is still in force in Ireland and provides that, as far as a tenant-assignor is concerned, an assignment of his interest under a lease with the landlord’s consent releases and discharges that tenant from all future liability under the lease.
It should be noted however that Deasy’s Act provides that the tenant-assignor will still remain liable for any breaches occurring under the lease prior to the date of assignment. Notwithstanding the statutory provision, it is common for a deed of assignment to contain a provision whereby the assignee covenants with the assignor to observe the terms and conditions on the part of the tenant in the lease and to indemnify the assignor against any breaches of such terms and conditions.
In England and Wales the situation differs for pre-1996 and post-1996 leases. For pre-1996 leases, the assignor remains on the hook to the landlord. For post-1996 leases, the assignor is released but will usually be required to enter into an authorised guarantee agreement whereby it guarantees the performance of the assignee.
The 1980 Act provides that (notwithstanding any express provision to the contrary) the consent of a landlord shall not be unreasonably withheld to an assignment or subletting of typical business premises. There is no definition of unreasonable and the reasonableness or otherwise of a landlord’s refusal to grant consent is a question of fact, not of law, and depends entirely on the particular facts and circumstances of each case.
In England and Wales leases may contain an absolute prohibition on alienation.
Registration of leases
Section 58 of the Registration of Deeds and Title Act 2006 provides for compulsory registration of leases for terms in excess of 21 years. In England and Wales leases of more than seven years are compulsorily registrable.
Property tax
In Ireland, stamp duty on commercial property transactions is charged at 2% of the purchase price. Stamp duty on leases is charged at 1% of the average annual rent. In addition, VAT may arise on the purchase of Irish property depending on the circumstances. Mortgages executed on or after 7 December 2006 are not liable to stamp duty and need not be presented to the Revenue Commissioners.
Why this matters
There are a number of traps for the unwary when dealing with property in Ireland.
For example, there are some important differences regarding the security of tenure rights available to tenants. Although a landlord can deny a tenant its right to a new lease in certain circumstances, payment of compensation (being the pecuniary loss, damage or expense that the tenant will sustain or incur by reason of his quitting the tenement) would be triggered.
The execution of a deed of renunciation, by which the tenant renounces its right to a new lease, is therefore of vital importance, as any investor acquiring the property will be unable to deal with it in terms of development or occupation without the expense of paying the tenant to leave or paying the tenant compensation.
A second example relates to the alienation provisions in leases for more than 40 years. The 1980 Act provides that where a lease is granted for a term over 40 years and is made in consideration wholly or partially of the “erection or substantial addition to or improvement or alteration of buildings”, any restriction on alienation contained in it is suspended (so no landlord’s consent is required) save for assignments during the last seven years of the term.
Landlords need to be alert to the possibility of unintentionally falling within the 1980 Act, particularly in relation to rack rent leases. If a tenant seeks to extend the term (for example, to procure finance) of an existing lease so that the combined term is more than 40 years, where the tenant has also undertaken to carry out a fit out of the premises, then the tenant may “fall into” an entitlement to assign the lease to a third party without the landlord’s consent at any time before the last seven years of the term. Theoretically, this could allow the tenant to assign the lease to a “man of straw” thereby destroying the value of the investment previously held.
Given the similar systems of law in operation in both jurisdictions, it would be easy to assume that the same rules apply to dealings with property in Ireland as in England and Wales. While there are similarities, it pays to be aware of the differences and to take professional advice in a timely fashion.
Further reading
Property and Trust Law in Ireland, Woods U, Kluwer Law International, 2011
Martin Colman is an associate at Arthur Cox and Tom O’Malley is an associate at Farrer & Co LLP
