Business Renewal Rights

Overview

The Landlord and Tenant Acts provide important statutory rights for tenants. Many important rights apply where the lease relates to a building or buildings and land where the land is ancillary and subsidiary to the building (defined as a tenement). Other landlord and tenant rights apply to all leases and tenancies, whether in writing or verbal.

A tenement is defined very widely to include many structures on, in or under land. This may include filling stations, some types of plant and machinery, storage tanks or similar structures.  Even a self-assembled shed holding tank has been held to be sufficient to compromise a tenement, notwithstanding that it was prefabricated and removable.

The right to a new lease on expiry of a lease confers security of tenure. The tenant must, of course, pay his rent and perform the terms of his lease. There are three grounds on which a tenant may qualify for a new lease.

• business equity;
• long possession equity;
• improvement equity.

Business Equity

In practice, the business equity is the most important basis. The important right to a new lease applies once a business property has been let continuously for more than five years for business purposes “Business” is defined very widely as including any trade, profession, business, whether or not carried on for gain or reward, cultural, charitable, educational, social or sporting services, public services carried on by certain authorities.

In order to qualify for renewal rights, the tenements must be used for the purpose of a business by the tenant. Use by a sub-tenant is not sufficient, although that sub-tenant may have rights of renewal. If a tenement is sub-let to a group company or certain other connected companies which occupy it for business use, the right applies, notwithstanding that the tenant is not in occupation.

The premises must be used for business purposes for five continuous years.  Where a tenancy expires and is renewed, there will usually be continuity with the expired lease or tenancy.  Therefore it is not, for example, enough to avoid the tenant’s rights, that one lease ends “on paper” and a new lease is granted in its place.

Renewal rights may apply notwithstanding that the tenant vacates the premises for a short time and later recommence occupation. There may even be continuity with the tenant’s immediate predecessor, where a tenant takes over directly from the predecessor.  However, if the previous tenancy has ended,  the landlord has taken the premises back and re-let it to a new tenant, this would usually constitute a sufficient break in continuity.

Contracting Out of Rights

The legislation as it applied until late 2008, provided that any attempt to avoid tenants’ rights was void.  Therefore, for example, a provision by which the rents would increase dramatically at year five was and is likely to be deemed void if it is interpreted as an attempt to disincentivise the tenant from exercising its rights. If a letting ends and the tenant temporarily vacates before resuming in the same or even another nearby unit, the arrangement may be deemed an artificial attempt to avoid the legislation.

Many attempts were made to avoid the legislation by labelling arrangements as “licences”.  A genuine licence does not qualify for Landlord and Tenant Act rights as there is no lease or tenancy. See our chapter on licences. However, the courts re-categorise some such arrangement as leases,  where the relationship is such in reality and substance. The Courts look at the reality of the relationship.

The inability of tenants to agree to waive their rights of renewal had the result that certain tenant’s enjoyed less security in practice, contrary to the overall intention of the legislation. This is because a landlord might require tenants to leave before the five year qualification period expired, notwithstanding that he might otherwise be satisfied with them as tenants.

In 1994, provision was introduced allowing for a renunciation of rights in respect of offices. This renunciation was required to be made prior to the commencement of the tenancy or letting.

Since 2008, the Landlord and Tenant Act right of renewal can be “contracted out” in any case. Certain requirements apply to a valid renunciation of rights. The renunciation must be in writing. There must be proof that legal advice was given in relation to the effect of the contracting out.  The effect of this provision combined with the prohibition on upwards only rent effective from late 2009 was to change the terms structure of commercial leases in Ireland.

Other Basis for Renewal Right

The long possession equity gives at tenant an entitlement to a new lease, where the premises has for 20 years been in the occupation of the tenant or his predecessors in title. This applies to leases of tenements which are not used for business purposes. It used to apply to residential tenants, but it was phased out for residential tenants in 2009, who qualify for rights under the Residential Tenancies Act 2004.

The improvement equity arises where the tenant has done works which qualify as an  “improvement” of not less than half of the letting value of the premises.  An improvement comprises a permanent capital upgrading of the structure. It does not include repairing, painting and decorating. In practice, this ground is rarely encountered.

Exceptions to the Right

There are exceptions to the right to a new tenancy.  The right also does not apply if the lease is terminated for non-payment of rent or breach of the tenancy terms or lease.  It does not apply if the tenant voluntarily surrenders the property or the property.

The right of renewal does not apply if the tenancy is terminated by notice to quit or renewal is refused for good and sufficient reason.  This must result from some action or conduct of the tenant which having regard to the circumstances is, in the opinion of the court, good sufficient reason for terminating and refusing the new tenancy.

There is an exception to the right to renewal  where

• the landlord has planning permission to redevelop the property and intends or has agreed to pull down and rebuild or to reconstruct the buildings or any part of the buildings included in the tenement and has planning permission for the work, or
• the landlord requires vacant possession for the purpose of carrying out a scheme of development of property which includes the tenement and has planning permission for the scheme, or
• the landlord being a planning authority, the tenement or any part thereof is situated in an area in respect of which the development plan indicates objectives for its development or renewal as being an obsolete area, or
• the landlord, being a local authority, will require possession, within a period of five years after the termination of the existing tenancy, for any purpose for which the local authority is entitled to acquire property compulsorily, or
• for any reason, the creation of a new tenancy would not be consistent with good estate management.“Good estate management” requires that the premises concerned are required as part of a larger and wider scheme of developments.

An Application must be made to the Court to show that the relevant ground applies.

Even where the requirements are shown to the Court’s satisfaction, the tenancy may be continued temporarily. The Court may, if the tenant so requests, continue the existing tenancy until terminated by the landlord for those purposes by the service of six months’ previous notice in writing, but subject to the condition that the continuation of the tenancy shall be without prejudice to the right of the tenant to relief under this Act on the termination of the continued tenancy.

Where, in a case in which an application for a new tenancy has been refused on the redevelopment grounds, it appears to the Court that the landlord has not, within a reasonable time, carried out the intention, agreement or purpose, as the case may be, on account of which such application was refused, the Court may order the landlord to pay to the tenant such sum as it considers proper by way of punitive damages.

If the application succeeds, the tenant’s right of renewal will not apply. However, the tenant is entitled to compensation for disturbance. This may be significant in amount.

State Authority and Various Exceptions

Where the State or a State authority has an interest in the property,  the right does not apply. This can occur even where the State or state authority is not the immediate landlord. It may be the landlord’s landlord or so on. This may not be readily apparent. There is also another exemption applicable where certain other governmental bodies have an interest in the property.

Where a State authority acquires the interest of the lessor or immediate lessor of any premises and neither that nor any other State authority had any previous interest in the premises as lessor or immediate lessor, the restriction applies from that time  and  tenant of the State authority whose tenancy of the premises is renewed shall not be entitled to a further renewal of his tenancy.

There are various exemptions from renewal rights in miscellaneous legislation of limited application such as certain property secured to NAMA and certain lettings within the Financial Services Centre in Dublin.