The entering into a commercial lease is an important contractual obligation for both a landlord and a tenant and it is very important that appropriate legal advice is taken.
The legislation which governs the granting of leases is the Landlord and Tenant (Amendment) Act 1980. In essence, tenants can acquire three different types of rights under business leases:
- Long possession equity- this is where a tenant has been in continuous occupation (including their predecessors on title) for a period of 20 years or more. In this case the tenant may be entitled to seek a new 35 year lease.
- Improvements equity- this is where the tenant can point to making significant improvements to the property such as to increase the rental value of the premises by at least 50% by the time the improvements notice is issued. If proven this may give the tenant the right to call for a 35 year lease.
- Business equity- this is where a tenant has been in occupation on a continuous basis for at least 5 years and in these circumstances the tenant would be entitled to a 20 year lease.
It is the business equity claim that tends to occupy the minds of most landlords and tenants.
In order to ensure that a tenant does not acquire any of the three types of rights set out above it is customary for the landlord to ensure that the tenant signs a deed of renunciation. The creation of a deed of renunciation is provided by Section 47 of the Civil Law (Miscellaneous Provisions) Act 2008.
This provides a number of conditions to met for a deed of renunciation to be valid.
- The deed must relate to a tenement i.e. a business premises.
- The deed should relate to the entitlement to a new tenancy i.e. the tenant is acknowledging that they are giving up the right to a new tenancy
- There would usually be some mention of consideration. While valuable consideration is not required usually some form of nominal consideration would apply.
- The tenant must state that it has had independent legal advice.
In relation to the getting of independent legal advice there is an interesting case of Dublin Port Company v Automation Transport Limited where the tenant entered into a deed of renunciation and in the deed stated that he had got independent legal advice but subsequently claimed in the course of the proceedings that he had not in fact got independent legal advice. Mr Justice McDonnell applied the doctrine of estoppel by misrepresentation i.e. directed that he could not rely on his own misrepresentation to get out of the deed of renunciation.
Short term leases- Should a deed of renunciation be entered into for short term leases?
Many landlords think that a deed of renunciation may not be necessary for a short term lease i.e. when the lease expires the tenant will not have acquired statutory rights. However, a situation may arise where the tenant remains in possession/occupation of the premises for longer than intended and if he/she remains in place beyond the period of five years then they will have acquired statutory rights notwithstanding the fact that the original tenancy was for a period of 4 years and 9 months. Accordingly, when entering into a short-term lease a landlord should ensure that the tenant signs a deed of renunciation.
What are the consequences of a tenant acquiring statutory rights?
It may be possible for a landlord to obtain possession of the property if they wish to rebuild or reconstruct the premises or if they are entering into a scheme of development but if this is the case they would have to pay compensation to the tenant for the loss of their ‘business equity’. This would be a matter of negotiation between the parties and could involve a considerable cost to the landlord.
The landlord may be able to avoid the consequences of a claim by the tenant if the landlord is entitled to terminate the lease a result of non-payment of rent or breach of covenant or if the tenant has surrendered the lease.
In conclusion if entered into a lease either as a tenant or a landlord it is vital that you take legal advice to ensue that your rights are fully protected.
If you require any advice in relation to the matter of commercial tenancies, please do not hesitate to contact Pauline Horkan, Brendan Dillon or Sally-Ann McCoy on 01 296 0666.