When faced with a commercial tenant claiming that they have a statutory right to renew their tenancy, what options are available to a landlord?
Irish legislation gives certain commercial tenants the right to claim a new tenancy when the term of their current tenancy is about to expire or has recently expired. The impact of a claim to a new tenancy can potentially be very significant for a landlord.
Pending the resolution of the claim, the tenant can remain in occupation of the premises at the rent payable under the old tenancy, which may be less than the market rent at the time. Even if the tenant is ultimately unsuccessful in the claim, the landlord cannot later recover the difference in the rent paid by the tenant and the rent the landlord could have obtained on the open market. A tenant who is successful in claiming a right to a new tenancy can continue in occupation of the premises at a market rent payable from the date the old tenancy ended.
There are, however, steps that a landlord can take to defeat a statutory tenancy claim or to seek to prevent a statutory tenancy claim arising in the first place.
PREVENTING A CLAIM
Landlords can avoid the creation of a statutory tenancy if a tenant or prospective tenant renounces their right to a new tenancy by deed of renunciation.
To be enforceable, the deed of renunciation must be in writing and must be clear and precise. The tenant must also have received independent legal advice specifically on the renunciation (as opposed to the lease generally) before signing the deed. Deeds of renunciation can be entered into before or after the commencement of the tenancy. However, it is preferable from the landlord's perspective for the deed of renunciation to be executed before the tenancy begins.
DEFEATING A CLAIM: ACTIONS BY THE TENANT
Statutory tenancies can be defeated without the need to pay compensation to the tenant where:
- the tenancy has been terminated because of non-payment of rent or breach of covenant by the tenant;
- the tenant has terminated the tenancy by notice of surrender or otherwise; or »» the landlord has "good and sufficient reason" for refusing to renew the tenancy (the reason must relate to the actions or conduct of the tenant).
DEFEATING A CLAIM: REDEVELOPMENT OR REBUILDING
A landlord may also be able to defeat a claim to a statutory tenancy if he or she:
- intends to rebuild or reconstruct the building(s) or part of the building(s) comprising the premises, and has planning permission to do so; or
- requires vacant possession of the premises for the purpose of carrying out a scheme of development, and has the necessary planning permission.
However, the landlord must pay compensation to the tenant for disturbance. The purpose of the compensation is to put the tenant in the same position he or she would have been in had the redevelopment or rebuilding not taken place. This may extend to covering the cost of removal and relocation, advertising and legal costs. The landlord may also be liable for any increase in the rent payable by the tenant on a new tenancy. However, it may be possible to offset the compensation payable by the landlord against any liability on the tenant's part for dilapidations, although a claim for dilapidations is likely to be resisted by a tenant where the landlord intends to redevelop or rebuild the property.
If the landlord's intended works are relied upto to defeat a claim to a statutory tenancy but are not carried out within a reasonable time, the landlord may be liable for punitive damages.
A landlord may also be able to defeat a claim to a statutory tenancy where the creation of a new tenancy would not be consistent with good estate management. This ground is not often relied on in practice, but may be relevant where, for example, the landlord of a shopping centre wants a new tenant so as to ensure a good mix of businesses in the centre.
KEY TAKEAWAYS FOR LANDLORDS
- Statutory tenancies can be avoided by entering into a deed of renunciation with the tenant. It is best practice to do so before entering into a lease.
- Certain actions by a tenant such as non-payment of rent or breach of covenant can provide a basis to defeat the tenant's claim to a new tenancy without the need to pay out any compensation.
- A tenant's claim for a new tenancy can be defeated where the landlord intends to redevelop or rebuild the premises and has planning permission. However, the tenant may be entitled to compensation for the disturbance, as well as damages if the landlord's works are not carried out within a reasonable time.
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.