The Master of the High Court Edmond Holohan commented on the validity of ‘upward-only’ rent reviews in the present economic climate: “Fair rents have been a public policy objective since the days of the Land League. While the current Irish recession is not in the same league as the Great Depression, the public policy to secure early recovery is surely identical. The losses and burdens must be shared fairly.” Where he said that a legal decision on the actual case is a matter for the courts he argued that the economic downturn should be taken into consideration when ‘upward-only’ clauses governing commercial buildings are considered. The interpretation of rent agreements by the courts in the context of the recession will be ‘informed by public policy’.
Mr Holohan noted that there tend to be two types of upward only review clauses. Threshold clauses state the rent may fluctuate according to changes in market value, but never fall below the rent agreed at the outset. Ratchet clauses state the rent must never fall below the rent that applies at the time of the review. The case that prompted the comments, involving the Apollo Galery at 51 Dawson St, Dublin, contains a clause referring the “rent previously payable” as the base line, but this may not refer only to the rent payable immediately prior to review, Mr Holohan said.
He said that as a general principle, the bargain between lessor and lessee is one of long-term mutuality, and rent review clauses must be viewed in that light. There is no presumption in favour of constructing a clause so as to make it upwards only. A court will not be easily persuaded to accept an interpretation which will give the lessor a windfall in a time of recession. And the courts will surely never rubber-stamp any interpretation which clearly has the effect of unjustly enriching either party.
