A recent Circuit Court judgment has cast some light on the rules that apply when a commercial tenant claims statutory renewal rights, and then withdraws that claim.
In Howard and Ors v Crown Paints Ireland Limited1, the tenant's ten-year lease expired in August 2018. It served the usual notice of intention to claim a statutory renewal. The parties could not agree the terms of the renewal, and the landlord issued proceedings in June 2019 to have the terms of the new tenancy determined by the Circuit Court. The tenant remained in possession of the property, as it was entitled to do under the relevant legislation, and under the same legislation it continued to pay the rent under the expired lease.
The proceedings had not yet been determined by the Circuit Court when, in November 2022, the tenant advised the landlord that it was withdrawing its claim to a new tenancy, and then vacated the property on New Years Eve 2022.
The question then arose as to what payments should be made by the tenant for the period from the expiry of the old lease until the tenant vacated – let's call this the 'gap period'.
The landlord argued that the market rent should apply during the gap period, and it appears implicit from the landlord's arguments that it felt a significant increase would have been warranted. If the expired lease had a standard rent review cycle, then it is likely that the rent paid during the gap period was fixed in 2013.
The tenant maintained that the rent under the expired lease should continue to apply to the end of the gap period.
The Court held in favour of the tenant, ruling that the only statutory basis to allow a court to impose the market rent during the gap period would be if the Court were fixing the terms of a new tenancy – as that application had been withdrawn, that could not be done.
Comment
One of the more interesting aspects of the judgment is that the parties and the Court appear to have accepted that the renewal claim could be validly withdrawn by the tenant, and the Court referred to the fact that the only adverse impact on the tenant on withdrawal of an application would be as regards court costs.
One can see the moral hazard that the case presents – the relevant legislation provides that a tenant cannot claim a new lease for a term of less than five years without the landlord's agreement. However, an unscrupulous tenant, who perhaps might not want a five-year term, might be tempted to claim its renewal rights, remain in possession at the old rent, allow the court process to take its course to the point where the tenant is ready to vacate, and then withdraw its claim.
The Court did warn that it would be wary of tenants using this device to circumvent the five-year minimum renewal period and suggested that this would be treated as an abuse of court process. There was no evidence that this was the case in the proceedings before the Court.
Unfortunately, there is no legislation governing how such bad behaviour might be established or punished.
This case might serve to remind landlords that a tenant who claims a statutory renewal and remains in possession does so on potentially fluid terms. Landlords should not be shy about progressing proceedings to have the terms of the tenancy settled by the Court so that certainly is achieved. Mind the gap!
Footnote
1. 2024 IECC 10.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.