Upward and Downward Rent Review Clauses in a Lease

The High Court on 26 July 2012 made a very important decision on the correct interpretation of section 132 of the Land and Conveyancing Law Reform Act 2009, (“the 2009 Act”) which prohibits upward only rent review clauses in leases created on or after 28 February 2010 being the date of commencement of this section of the 2009 Act.

A brief outline of the case, namely Reox Holdings PLC and David Cullen and Simon Davidson is as follows:-

A landlord granted a lease of an industrial unit in Carlow to a tenant company in 2007.  The tenant company subsequently went into receivership and liquidation.  The lease contained a guarantee in the standard form which required the guarantors to enter into a new lease of the premises if the company should go into liquidation.  The liquidator had disclaimed the lease.

The guarantor agreed to take a new lease of the premises but the issue which concerned the court was whether or not when entering into a new lease the provisions of section 132 of the 2009 Act should apply or not.  Section 132 provides for rent review clauses to be construed as providing that rent may be reviewed upwards or downwards or remain the same.

In the case the landlord argued, that as the guarantee which was entered into in 2007 pre-dated the introduction of the 2009 Act, that section 132 did not apply as the guarantee provisions were in the nature of an agreement for lease.

The High Court however rejected this argument and decided that the guarantor was entitled to a declaration that section 132 of the 2009 Act applied to any new lease entered into after 28 February 2010.  In the new lease which the landlord called upon the guarantor to enter into, the court held that it should include a provision that the rent review can be upwards or downwards.

This is a very significant case and it shows that the court will certainly interpret quite strictly the provisions of section 132 of the 2009 Act and will uphold the intention of the legislature when introducing the 2009 Act in prohibiting upward only rent review clauses in leases created after 28 February 2010.

If you require further advice or wish to discuss the implications of this case, then do not hesitate to contact Thomas Marren (tmarren@reddycharlton.ie), Roisin Bennett (rbennett@reddycharlton.ie) or Brendan Sharkey (bsharkey@reddycharlton.ie).