On 28 February 2010 Section 132 of the Land and Conveyancing Law Reform Act 2009 which prohibits upwards only rent reviews came into operation. The legislation provides that any rent review clause in a lease post 28 February 2010 will be deemed to provide that the rent payable following a rent review can be an amount lower than, higher than, or equal to, the rent payable immediately prior to the rent review  i.e. open market.

The introduction of Section 132 has effectively created a two –tier system in the Irish Landlord and Tenant market:

  • Leases created on or after 28 February 2010, which, from a tenant’s perspective, benefit from the ban on upward-only rent reviews, and

  •  Leases created prior to 28 February 2010 which, in most cases, contain an upward-only rent review provision.

Ironically, it is those very leases that apparently benefit from the ban on upward-only rent review provisions which are most likely to see increases on review from 2015 and beyond as a result of the recent hive of activity in the commercial property market. The letting activity in the Irish commercial property market prior to the introduction of Section 132 was in a state of utter calm. The low take-up levels across all sectors in 2010 had the effect of swinging the power in the tenants’ favour when negotiating terms for a new lease. Historically low rents, flexible lease terms with break options, increased rent-free periods, as well as a shift to turnover rents in the retail sector, became the norm. Against this backdrop, the improvement in the property market and wider economy has resulted in an increase in activity. This results in competition for space, which in turn places upward pressure on rents. Nowhere is this more evident than in the office sector where more than 40% of Dublin office space has changed hands over the past four months.

As a result of this growth in the market it is becoming increasingly common that rent reviews are referred to an arbitrator for a decision. Arbitration is a process whereby two parties in dispute agree to be bound by the decision of an independent third party acting as an Arbitrator. An Arbitrator is similar to that of a judge, though the process is less formal. They hear the evidence and arguments submitted by the parties and reach a final decision which is called an Award. This process, from appointment of the Arbitrator through to the making of the award usually takes around six weeks.

Under the Arbitration Act 2010 Arbitrators must explain their decisions. This improves the transparency of the decision making process. This is contrary to an Expert who is not required to give reasons for their decision.

There are a number of benefits to using Arbitration as a form of dispute resolution for rent reviews:

  • Transparent process
  • Informal process
  • Expedient method
  • Cost effective
  • No requirement for court
  • Fair process

Whilst agreeing the open market rent between the parties is the ideal method the option to refer the matter to Arbitration should the parties not agree should not be overlooked.