Global menu

Our global pages

Close

Coronavirus - Landlord and Tenant - Ireland

  • Ireland
  • General

13-05-2020

“What’s another (rent) year….”

Given the unprecedented times that we are currently living through, there has been a lot of discussion in relation to the position of landlords and tenants under commercial leases and their obligations. The Covid-19 legislation introduced by the Irish Government in March 2020 does not specifically refer to commercial tenancies. As a result, it is up to the parties to a lease to come to an agreement in relation to any rent freeze or rent concession that might be put in place on a temporary or potentially longer basis.

In this article we look at how to document any rent variation and some of the processes available to recover rent in the case of default.

How should you go about agreeing a rent variation?

For a tenant who is seeking a rent reduction or rent freeze, the starting point is to communicate promptly with its landlord. The tenant will need to explain the impact of the Covid-19 restrictions on its business. For some businesses this may mean they are not able to trade and for others it may mean they are able to trade subject to specified limitations. The tenant may be asked to provide trading figures and information evidencing the impact of the Covid-19 restrictions on its business.

Whether or not to agree to a rent reduction or freeze is a commercial decision for each landlord. There is no legal obligation on a landlord to agree to a rent concession. Some landlords may be better positioned to agree to a rent concession or keener to retain their tenants in the short to medium term. It may not be open to a landlord to agree any concession where it has borrowed funds and has used the property as security - in these situations, it is very likely that a lender’s consent will be required for any concession. Further concessions on payments like service charges may also have to be considered. 

The parties may also agree to change the manner in which the rent is paid, say quarterly to monthly, and from payment in advance to payment in arrears, or in leases of retail units, to alter the fixed rent to a mix of a turnover based rent with a minimum base rent.

How should a rent variation be documented?

If an agreement is reached between the landlord and tenant it should be documented by way of side letter or deed of variation to the lease. This ensures that in the event of a dispute relating to any rental arrears, the document will be available to evidence what was actually agreed. It will also generally bind any successors in title to the landlord but only benefit the tenant personally.

What happens if a rent variation is not agreed and a tenant falls into arrears?

If a landlord is going to pursue a tenant for arrears, the starting point is a review of the lease and all ancillary lease documents which would include any side letters, guarantees and/or deeds of variation (the “lease documents”).

The first step for the landlord is to issue a demand letter. A demand letter should include the precise details of arrears, refer to the specific clause or provision that is being breached by the tenant, request payment to be made within seven days, and warn that legal proceedings will issue in default of payment. If the demand is not met, the landlord may decide to call in any guarantees or rent deposits held for the lease or to issue proceedings against the tenant.

If it is a corporate tenant, the landlord may seek to issue proceedings to wind up the tenant but this is generally frowned upon by the courts as an initial debt collection measure.   

In certain cases the landlord may seek to forfeit the lease and recover possession of the property. This will always be subject to the tenant’s right to seek relief against forfeiture in court.

What determines how a dispute can be resolved?

In the event of a dispute, proceedings can be initiated by way of summary summons or plenary summons. The summary summons procedure is used in proceedings to recover a debt or liquidated sum. Ordinarily, the summary summons procedure involves no dispute as to the facts and the evidence is provided by way of affidavit. In general, summary judgment can result in a fast-track resolution of the proceedings. Alternatively, it might be more appropriate to issue plenary proceedings, which involve oral testimony and can take significantly longer to resolve before the courts.   

It is worth noting that in light of the current restrictions it will take longer to get a hearing date for a Trial, as the courts across all levels are operating under extremely limited conditions. The Courts Offices remain operational so it is still open to parties to issue and advance proceedings to the Trial stage. The reduced capacity of the courts does not prevent a landlord from issuing a demand letter or issuing proceedings.

What do you do when you get a judgment?

If a judgment is obtained against a tenant by a landlord and is not appealed by the tenant, the landlord may seek to enforce the judgement if the tenant does not comply with it. One such method of enforcement is a Garnishee Order, which may be a practicable option should the landlord be aware of any substantial debts due and owing to the tenant by a third party. A Garnishee Order is a court order whereby monies owed to a debtor by a third party attach to the creditor benefitting from the order. This means that the landlord would effectively collect the sums due to it from a third party who owes monies to the tenant. Timing is important in this instance as a creditor may wish to notify the relevant third party that monies owed to the debtor are to be paid directly to the creditor.

The future……

The only thing certain at this time is the uncertainty of the position of landlords and tenants in the current environment. It is a turbulent time as all parties seek to protect their businesses and investments. However parties to a lease, should not forget that there are options open to them.

Should you need further detailed advice, please contact any of our team members below

Sean Greene, Partner in our Real Estate department – seangreene@eversheds-sutherland.ie

Aidan Kirrane, Associate in our Dispute Resolution and Litigation department – aidankirrane@eversheds-sutherland.ie

Harry Caulfield, Solicitor in our Dispute Resolution and Litigation department – harrycaulfield@eversheds-sutherland.ie

Ann Kirwan, Solicitor in our Real Estate department – annkirwan@eversheds-sutherland.ie

For support on legal issues facing your business in light of the outbreak of Covid-19, please visit our Coronavirus hub to get our latest information and guidance. 

This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

< Go back