Friday, December 11, 2009

More on Upward-only Rent Clauses

Over at Clatter of the Law, Rossa McMahon has a nice post responding to my post on the ban order on upward-only rent clauses. He points out (correctly) that "[h]aving granted commercial tenants this special legal protection, why not make a similar intervention on behalf of suffering purchasers? Such a move would be fiercely (and fairly) resisted by financial institutions, but the Government would find it hard to justify its rush to action on behalf of commercial tenants while residential landowners suffer under the deal they struck."
Read the full post.

In this connection, it is also useful to note the Master of the High Court's decision in the case of Kidney v. Charlton. A&L Goodbody Solicitors have published a comment on it here. The interesting bits from the Master's decision (apparently obiter):

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.

While the Common Law device of the implied term is often the explicit starting point, the courts’ readiness to infer fairness and balance into contracts, and especially into long term contracts, is sometimes justified on the basis of purposive interpretation techniques imported from European Civil Code jurisprudence and there is now a shift towards convergence of the commercial law principles operative in both spheres.

A system in which rent reviews are apparently adjudicated by estate agents whose day job is the marketing of like property usually by reference to selling points such as “strong rental growth potential” is prima facie a system which gives rise to significant and legitimate misgivings.

In the present climate, it would be well to note also that the courts’ decision will be informed by public policy. Even in a case in which the drafted meaning is clear and unambiguous, the device of severance of an offending clause will be employed by the court where performance would be contrary to public policy.

In Ireland, 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.

These remarks are quite sweeping and I'm not sure that the recession is a sufficient justification for courts to rewrite commercial agreements.

Read the full decision!