Key Contact: Eimear Fitzgibbon – Partner
With business now reopened after the disruption of Covid-19 restrictions, the commercial property market is rebuilding itself and commercial premises are now back in demand. Often viewed as an insignificant aspect of a commercial lease, we have set out below the necessity of having a Deed of Renunciation and the practical aspects of ensuring that it is constructed appropriately, together with some key take away points from recent judgments of the High Court.
Commercial leases can come in many varying forms, from informal agreements to full repair and insure leases, the latter of which can be subject to intense detailed negotiations. One constant are the rights afforded to tenants under statute which are not subject to negotiation. They are as prescribed under the Act (defined below) and must be addressed at the time of entering into a lease, and are forgotten at the landlord’s peril.
Under the Landlord and Tenant (Amendment) Act 1980 as amended (the “Act”) there are several reliefs which a tenant under a commercial lease may seek to rely on – these are set out at Section 13 of the Act:
- Long possession equity – where a commercial premises has been in continuous occupation by the tenant (and importantly, their predecessors in title) for a period of 20 years or more.
- Improvements equity – in order to avail of the improvements equity, the tenant must establish that the works undertaken to the property have increased the letting value of the premises by 50% or more at the current market rate at the time of issuing the notice.
- Business equity – allows a tenant, who has been in continuous occupation for the previous five years, to claim an additional long term tenancy at the end of the five year period.
Although, three varying reliefs may be available to a tenant, what is important to note – is that they all have an effect on how the landlord may treat the premises, therefore it is important for both landlords and tenants to be aware of them.
In relation to the level of rent – this will be determined by the Court, which will seek expert evidence, resulting in a rent at or near market rate. Interestingly, the Court does not have the power to provide directly for a rent review provision, however the Act allows for both parties to reapply to the Court every five years in respect to the level or rent.
Having identified what reliefs are available to a tenant, we have now set out below, the primary vehicle to avoid such claims arising, being the execution of a Deed of Renunciation by the tenant.
Deed of Renunciation
Section 47 of the Civil Law (Miscellaneous Provisions) Act 2008 (the “2008 Act”) provides that a Deed of Renunciation can be entered into at the commencement of the tenancy or anytime thereafter and inserted Section 17 (iiia) into the Act as follows:
“(iiia) if section 13(1)(a) applies to the tenement, the tenant has renounced in writing, whether, for or without valuable consideration, his or her entitlement to a new tenancy in the tenement and has received independent legal advice in relation to the renunciation”
What conditions must be met under the 2008 Act?
The conditions which must be met are set out in the Section 17 (iiia) of the Act as recited above and distilled below:
- The premises must be a tenement (i.e. a place of business);
- The tenant must execute a deed renunciation of their entitlement to a new tenancy. Although valuable consideration is not essential, it is commonplace to have a nominal financial consideration recited in the deed of renunciation; and
- Independent legal advice must have been received by the tenant prior to the execution of the deed of renunciation.
To be enforceable the Deed of Renunciation must also be in writing and be clear and precise. Since the introduction of the 2008 Act and its predecessor the Landlord and Tenant (Amendment) Act 1994 the market has developed a standard form of Deed of Renunciation which is commonplace.
Although the 2008 Act allows for such a Deed of Renunciation to be entered in after the granting of a lease, it must be noted – that the tenant is under no obligation to do so. Therefore, a landlord is best placed to raise the issue prior to the lease being in place or will suffer from a reduced bargaining position.
The importance of a correctly formed Deed of Renunciation
The judgment of McDonald J. in Dublin Port Company -v- Automation Transport Limited dealt with the execution of renunciation of the tenant’s legal rights to a new tenancy on expiry of an existing tenancy and highlights the importance of receiving independent legal advice.
McDonald J. held that where a tenant signs a document that states that they received independent legal advice they are bound by that statement even if factually untrue. What arose here was essentially the principle of estoppel by misrepresentation which means that the party to a contract cannot rely on his own misrepresentation to avoid his contractual obligations.
Key take away points from the case are:
- The landlord must be satisfied that the Deed of Renunciation has been executed correctly on behalf of the tenant;
- That the tenant seek independent legal advice – confirmation of the independent legal advice should be included in the Deed of Renunciation itself, while identifying the solicitor who provided same;
- Where there may be some ambiguity to which lease the Deed of Renunciation applies, best practice is to append a draft of the related lease to the Deed of Renunciation; and
- A contractual obligation to execute a Deed of Renunciation contained within the lease itself cannot be relied upon.
Where claims are disputed, the appropriate court to hear them is dependent on the monetary value of the claims or the value of the property. However, there is an inherent right to bring about claims in the High Court, which can wrongly be used in an attempt to frustrate the proceedings of a lower court. Below, we have set out what considerations the High Court will account for prior to intervening.
When will the High Court intervene where a claim for a new tenancy is pending in the Circuit Court?
McDonald J in his judgment in KW Investment Funds ICAV v Lorgan Leisure Limited reviewed relevant authorities in relation to the High Court’s Authority to intervene in cases where Circuit Court Proceedings are pending.
McDonald J concluded that KW had not established that an injustice would be done to it if the High Court declined to accept jurisdiction and that the matter should proceed in the circuit court. He also was not convinced at this early stage that Logan Leisure’s case is likely to fail in the Circuit Court.
Key take away points from this case are as follows:
It is only in exceptional circumstances that the High Court will intervene where a claim to a new tenancy is pending before the Circuit Court and include the following:
- Where it is very clear that a tenant has little or no hope of success in proceedings under Part II of the 1980 act in respect of the grant of a new tenancy;
- Where a plaintiff established that there is a genuine urgency which justifies the maintenance of High Court proceedings. To establish urgency the plaintiff must establish that there are special circumstances that give rise to such urgency and which demonstrate that a plaintiff will suffer real prejudice if the proceedings are allowed to take their course in the Circuit Court; and
- If a plaintiff is not in a position to distinguish its case from the general run of cases, the High Court is likely to conclude that the proceedings should be permitted to run their course in the Circuit Court.
Advice for landlords
As referred to above, it is prudent to seek a Deed of Renunciation at the time of the delivery of the lease. To wait until the lease is in effect removes the negotiating advantage that the landlord naturally has.
Where a tenant is not willing to execute a Deed of Renunciation a short-term lease should be entered into to avoid the statutory right of renewal. These are usually for a period of four years and nine months.
A landlord may also be able to defeat a claim to statutory tenancy if they:
- Intend to rebuild or reconstruct the building and had planning permission to do so; or
- Require vacant possession of the premises for the purpose of carrying out a scheme of development.
However, the landlord must pay compensation to the tenant for disturbance.
Statutory tenancies can however be defeated without the need to pay compensation to the tenant where the following circumstances apply:
- 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 due to the actions of the tenant.
Advice for tenants
When acting for tenants who have been requested to sign a Deed of Renunciation, they should be advised that they will automatically be waiving any statutory right to a renewal of the tenancy at the expiry of the lease.
  IEHC 499
  IEHC 132
For further information in relation to the above article, please contact Eimear Fitzgibbon.