‘Momentum behind English bill on rent reviews’
Lawyers at McCann FitzGerald (MF) say that there appears to be “real momentum” behind a bill that would ban upward-only rent-review clauses in new commercial leases in England and Wales.
They add that the bill is “not without controversy”, with such measures previously facing resistance on the grounds that they would make development more difficult and expensive.
In a note on the firm’s website, the MF lawyers point out that Irish law has contained a similar prohibition since 2010.
Tenant's review right
“If the bill is enacted, investors holding assets in both jurisdictions will be subject to broadly similar, but not identical, regimes,” the firm’s lawyers state.
Under the English Devolution and Community Empowerment Bill:
- Rent-review clauses that can only move the rent upwards will be unenforceable,
- Where a lease allows only the landlord to initiate a review, the tenant will now have an implied right to do so,
- The bill applies to business tenancies,
- Existing leases and agreements for lease signed before commencement are unaffected, and
- Any side arrangement that seeks to claw back a prohibited uplift will be void.
Comparing the British bill with the Irish legislation, the MF lawyers note that there is no statutory right in Ireland for a tenant to trigger a review.
Side arrangements
They add that the issue of side arrangements is not expressly addressed in the Irish act, and that market “perceives certain work-arounds".
If the bill is enacted, the MF lawyers say that lenders with security over British assets may revisit covenants and valuation methodologies, as Irish lenders did post-2010.
“Landlords may see tenants of Irish property seeking a contractually agreed right for a tenant-triggered rent review to align with what will likely be the statutory position in the UK,” they add.