Earlier this week it was reported that Dunnes Stores has acquired the freehold interest in one of its busiest Dublin Supermarkets on South Great George’s Street. This process is often referred to as “buying out ground rent” and a tenant with a long lease has a statutory right, where certain criteria are satisfied, to enlarge its interest by acquiring the freehold.
In Ireland, leasehold title is considered good marketable title if it has an unexpired term of at least 70 years. Accordingly, a tenant under a long lease will generally seek to acquire the freehold if the term left to run is nearing this mark.
Another reason why an application to acquire the freehold may be instituted is where the long lease contains a restrictive covenant. In such cases, where the application is successful and the freehold acquired, the restriction is effectively cancelled.
The procedure for acquiring the freehold interest in a commercial property is set out in statute (Landlord & Tenant (Ground Rents) Act 1967) and requires the tenant to first serve a Notice of Intention to Claim Relief on the superior landlord. Where the superior landlord agrees with the tenant’s proposal to acquire the freehold, the matter will proceed in the same manner as an arm’s length transaction. Where the tenant’s proposal is contested or where the superior landlord no longer exists or cannot be located, the matter will be referred to the County Registrar with a right of appeal to the Circuit Court.
The statutory requirements which must be proved are set out in the Landlord & Tenant (Ground Rents) (No. 2) Act 1978 (the “1978 Act”). Firstly, the applicant must hold land under a lease and must prove the following “essential conditions”: -
- that there are permanent buildings on the land;
- that any land not covered by buildings is subsidiary and ancillary to the permanent buildings;
- that the permanent buildings are not an “improvement” (i.e. additions or alterations to a building which includes structures which are subsidiary and ancillary to the building); and
- that the permanent building has not been built in contravention of a covenant contained in the lease.
In addition to the essential conditions, the tenant will need to prove one of the seven “alternative conditions” set out in detail in the 1978 Act.
If the tenant is successful in proving the essential conditions and one of the alternative conditions, the court will set the consideration to be paid by the tenant for the freehold. The consideration will be calculated in accordance with the statutory formulae and is required to be paid to the superior landlord or lodged with the Court where the superior landlord no longer exists or cannot be located.