Introduction
Although the commercial office market is finding its feet again post Covid-19 restrictions, it certainly has not reached the buoyancy it had enjoyed previously. There are a number of factors feeding into the current scenario. Employers have acknowledged that the provision of the flexibility to work some of the week from home is as important for employees as the traditional incentives on offer. This has resulted in employers having more square footage than they may ever possibly fill. The other major contributing factor is the rise and the importance that is being placed on ESG responsibilities and reporting, by both indigenous and international companies. There is plenty of office stock available in Ireland, however it is the new BREEAM /LEED rated buildings which are in demand.
The below case highlights the importance for landlords to be aware of not only lease renewal rights, but caution may also be advised when dealing with any rent review which may arise in a lease.
The Circuit Court case of Howard and others v Crown Paints Ireland Limited [2024] IECC 10 examined the Landlord and Tenant (Amendment) Act 1980 (the "1980 Act"), specifically the statutory right for a Commercial Tenant to claim a lease renewal. Part II of the 1980 Act grants tenants the right to new tenancy on satisfaction of certain conditions, however the 1980 Act also outlines various provisions relating to the calculation of the duration, rent and allowance for improvements. In this case Crown Paints Ireland Limited (the "Defendant") held a premises at Malahide Road, Coolock (the "Premises") as tenant of members of the Howard Family (the "Plaintiffs") for a period of 10 years under a Lease dated 12th of August 2008 (the "Lease").
Background
Upon the expiry of the Lease, on the 12th of August 2018, the Defendant remained in occupation of the Premises. On the 7th of August 2018, the Defendant served on the Plaintiffs a 'Notice of Intention to Claim Relief', claiming the right to a new tenancy of the Premises under the 1980 Act. The parties failed to agree on terms of new tenancy. Consequently, on the 5th of June 2019, the Plaintiffs sought declarations in relation to the entitlement of the Defendant and if the Court found the Defendant was entitled to a new tenancy, an order fixing the term of the tenancy and the rent payable under the new tenancy.
In November 2022, the Defendant withdrew its claim to a new tenancy before subsequently vacating the Premises on the 31st of December 2022. Throughout the period from the expiry of the Lease on the 12th of August 2018 up to the date of vacating the Premises on 31st of December 2022, the Defendant continued to pay rent at the previous rate, which was significantly below market value. In the Circuit Court, the Plaintiffs sought the costs of the proceedings, as well as the difference between the rent under the expired lease and market rent for the period of the Defendant's post-lease occupation.
Section 16 of the 1980 Act provides that where a tenant is entitled to a new tenancy beginning on termination of the previous tenancy, the terms of the new tenancy shall be agreed upon between the parties and in default of an agreement, they will be fixed by the Court. The 1980 Act goes on, in section 28, to set out that where an application for a new tenancy is pending, the tenant may continue occupation of the tenement until the application is determined by the Court. This section adds that the tenant shall remain subject to the terms of the original tenancy but provides for necessary recoupments and readjustments in the event of a new tenancy being granted to commence from such termination.
Circuit Court Judgment
Judge O'Connor in the Dublin Circuit Court was not of the view that the Defendant had deliberately delayed in this case but emphasized that a tenant cannot use section 28 to create a new lease where it is not required. If a tenant is seen to deliberately delay the Court process, they will not be able to exercise their right to withdraw their application. Judge O'Connor further explained that a tenant's withdrawal has consequences, including liability for legal costs and responsibility for the existing rent up to the date they vacated the premises in question.
The Plaintiffs raised a number of arguments including estoppel, relying on the argument that the conduct of the Defendant would give rise to an unconscionable situation whereby the Defendant received a tenancy at allegedly below market rent. In the view of Judge O'Connor, there was no promise or conduct which would give rise to estoppel by imposing an obligation on a tenant as there was "so much uncertainty between the parties". The Court further noted that there is no provision in the 1980 Act which imposes an obligation for a tenant to take an implied lease for less than 5 years when the tenant does not require it.
The Plaintiffs claimed that the Defendant was liable to pay market rent throughout the period from the 12th of August 2018 to the 31st of December 2022 contending that it would be unfair for the Court to hold otherwise. Notwithstanding this, the Court felt the proposition put forward by the Plaintiffs, requesting the Court to fix terms for the period of continued occupation, was something the Oireachtas did not provide for. Judge O'Connor referred to the 93 years of legislative guidance provided by the 1980 Act and its predecessor the Landlord and Tenant Act 1931, which has not previously been successfully questioned. The Court held that it is for the Oireachtas, if they see fit to do so, to make a provision allowing the Court to fix terms in order to make a tenant liable to pay market rent for a period of continued occupation of the tenement after a previous tenancy has terminated.
A further influence on the Court's decision not to fix the market rent rate during the overholding period was the lack of evidence supporting the Plaintiffs' assertion that the Defendant's claim for a new tenancy was an abuse of process. While Judge O'Connor acknowledged that a court could interfere in circumstances where an abusive element arises, there was nothing to indicate that this was the case here.
Conclusion
Ultimately, the Plaintiffs' claim for recovery of the market rent for the overholding period failed for a number of reasons, most notably the lack of evidence that the Defendant's claim for a new tenancy was an abuse of process and the 93 years of legislative guidance. The Court found that a tenant's decision to withdraw its application for a new tenancy prior to the Court deciding that matter could expose it to the costs of such proceedings. However the Court could not require any payment beyond the old rent from the expiration date of the previous lease. This result could have significant knock-on effects as landlords will be more cautious about the legitimacy of a tenant's lease renewal claims and may need to seek to expedite proceedings in order to avoid a tenant paying below market rent rates.
This article was written with the assistance of Elliot Allen, Trainee.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.