Categories
Property Law

Can A Deed of Variation Be a Deemed Surrender of an Existing Commercial Lease?

Are you a landlord or tenant of a commercial lease? Depending on when you entered into the lease it may provide for ‘upward only’ rent reviews.

Commercial leases from before February 2010 typically contained upward only rent reviews. This meant that the rent could only increase at each rent review date, and that is what the parties had signed up to in the first instance.

However, the Land and Conveyancing Law Reform Act 2009 introduced a significant change iin respect of commercial leases. Section 132 of the Conveyancing and Law Reform Act 2009, which commenced in February 2010, provided as follows:

132.— (1) This section applies to a lease of land to be used wholly or partly for the purpose of carrying on a business.

(2) Subsection (1) shall not apply where—

(a) the lease concerned, or

(b) an agreement for such a lease,

is entered into prior to the commencement of this section.

(3) A provision in a lease to which this section applies which provides for the review of the rent payable under the lease shall be construed as providing that the rent payable following such review may be fixed at an amount which is less than, greater than or the same as the amount of rent payable immediately prior to the date on which the rent falls to be reviewed

(4) Subsection (3) shall apply—

(a) notwithstanding any provision to the contrary contained in the lease or in any agreement for the lease, and

(b) only as respects that part of the land demised by the lease in which business is permitted to be carried on under the terms of the lease.

The vitally important change is contained in subsection (3) which now permits the rent to stay the same or fall at rent review time. This effectively prohibits the use of ‘upward only’ rent review clauses in commercial leases from February 2010.

You will note, therefore, this significant difference between leases which were entered into prior to the Land and Conveyancing Law Reform Act 2009 and those signed after the commencement of this act.

Deed of variation

There is a significant consequence flowing from this act and the granting of a deed of variation between the parties after February 2010. Let me explain.

If the parties agree a deed of variation, which may deal with a reduction in the rent and other terms, it is possible that the granting of this deed will bring about a de facto surrender of the original lease. 

The consequence that flows from this, if it occurs, is that the new lease cannot contain an enforceable upward only rent review clause and the landlord will have a less valuable property interest.

And you need to understand that the intentions of the parties when entering into the deed of variation are immaterial; the fact is that if the lease term is extended you are probably looking at a new interest in the land and you can rest assured you do not have 2 leases as the first one will be a deemed surrender.

Deemed surrender

How could this deemed surrender occur?

One of the ways this can happen is if one of the terms of the old lease which is varied/changed is the term of the lease. If the term is increased, for example, there is decided UK case law which holds that if a term is increased a new legal interest in the land comes into existence and the old one, the original lease, is deemed to have been surrendered.

Conclusion

The law surrounding land and interests in land can be complex and requires professional legal advice. Each case must be looked at on its own particular facts and circumstances.

However, one thing is clear: should you not obtain professional advice you run the risk of making a costly mistake that can greatly affect the value of the interest you hold, either as a landlord or tenant.

Categories
Property Law

Vacant Possession in Property Transactions-What Does it Mean?

It is a condition of the standard Law Society condition that vacant possession of the property in sale will be handed over on closing. General conditions 17 states:

17. Subject to any provision to the contrary in the Particulars or in the Conditions or implied by the nature of the transaction, the Purchaser shall be entitled to vacant possession of the Subject Property on Completion.

Vacant possession disputes

Occasionally disputes can arise on handover, however, about vacant possession. It may appear self-evident and obvious what vacant possession means but situations can arise which cause tension, disputes, and bad feeling between the parties.

For example, it is obvious that a property should be clear of people but what about objects such as furniture, appliances, old beds, tables and chairs, curtains, carpets, temporary partitions?

The new owner does not want the hassle and cost of having to remove broken and worn furniture, for example, and the vendor may be happy just to let the whole lot go with the house and avoid the cost of organising a skip.

One of the problems surrounding vacant possession is that it is not defined anywhere in Irish law and there is no settled decided authority on the point.

In the UK the question has been investigated by the Courts from time to time, but each case will be decided on its own particular facts and circumstances. At its essence, however, is agreement that vacant possession means the property is free of people and chattels (objects) and the purchaser will be able to enjoy the property from day one.

It may be the case that some contents are included in the sale, and these should be agreed between the parties in advance. But anything over and above what is agreed must be removed.

The upshot is that if the vendor is not able to give vacant possession the purchaser may refuse to complete the sale. Or he may complete and bear the cost of removing rubbish, old furniture, and so forth and then sue for damages including the cost of removals.

The vendor can sue for specific performance of the contract, and completion, if the purchaser refuses to complete on the grounds that vacant possession is not being hander over. In a worst-case scenario one of the parties may seek to rescind the contract and collapse the deal.

Conclusion

If you are the seller it does not make much sense to allow the issue of vacant possession to scupper a sale or to cause an avoidable row to develop between you and your purchaser.

Especially if a skip or a man with a van will solve the problem.

Categories
Property Law

The Residential Tenancies (Amendment) Act 2019-Key Changes

The Residential Tenancies (Amendment) Act 2019 has made some significant changes in respect of residential lettings/tenancies. Let’s take a look at them:

Termination of tenancy-notice periods

Duration of tenancy Notice period from 4th June 2019
Less than 6 months 28 days
6 months to 1 year 90 days
1 year to 2 years 120 days
2 years to 3 years 120 days
3 years to 4 years 180 days
4 years to 5 years 180 days
5 years to 6 years 180 days
6 years to 7 years 180 days
7 years to 8 years 196 days
8 or more years 224 days
  • A copy of the termination notice must be sent to the RTB within 28 days after the expiration of the notice period
  • Termination to sell the property: the landlord must enter into a contract to sell the property within 9 months of termination; if this does not happen he must offer the property to a former tenant
  • Termination to allow occupation by a family member: if the family member leaves the property within 1 year it must be offered to the former tenant
  • Termination for substantial refurbishment: the property must be offered back to the tenant when the refurbishment is completed; the landlord must also furnish an architect’s certificate confirming that the tenant must, for health and safety reasons, vacate the property for 3 weeks
  • Termination for change of use: if a property becomes available for letting within 12 months it must be reoffered to the tenant

Rent controls

Existing rent pressure zones have been extended to 2021 with new areas being added as the average rent in the state will be calculated by excluding average rents in Dublin and the greater Dublin area.

Properties that were not let in the previous two years in a RPZ were exempt from the 4% annual cap; this exemption has been removed.

Properties that had a substantial change in the nature of accommodation provided were exempt; now there is a definition of what constitutes substantial change. A change must involve either a permanent extension which increases the floor area of the property by 25% or an improvement of the BER rating by 7 or more ratings or at least 3 of a list of other factors-for example, a permanent increase in the number of rooms or adaptation of the property for access by persons with a disability.

There are also new notification requirements for a landlord seeking to rely on an exemption from the RPZ rent restriction.

The restriction on rent reviews every 2 years which was to expire in 2019 has been extended by 2 more years to 2021.

Offences and penalties

It will be an offence for landlords to be in breach of the provisions dealing with rent restrictions or providing false information to RTB or failing to comply with notice periods or notices from RTB.

The RTB now have extended powers to include the power to carry out investigations, deal with complaints, conduct oral hearings, and impose sanctions on landlords for improper conduct which is defined in the Residential Tenancies (Amendment) Act 2019.

Sanctions can involve the payment of a financial penalty up to €15,000 to RTB and the payment of RTB’s costs up to a maximum of €15,000.

Criminal proceedings can also be taken against landlords and appeals/applications may be brought to the Circuit Court.

Registration fees

There is now a new annual registration fee as well as the original registration fee on the commencement of the tenancy. For a single dwelling this is €40 and €40 annually with a bulk registration facility of €170 of up to 10 tenancies in the same property.

Student accommodation

The act extends the scope of the residential tenancies legislation to student accommodation but this has not come into effect yet. Properties where the landlord lives-for example digs-are excluded from the legislation.

Short term lettings

A short term letting (up to 14 days) will require planning permission as it will be considered a change of use from a planning perspective. This is designed to hit Airbnb type lettings in Rent Protection Zones.

Conclusion

There are some significant changes in this legislation to which landlords should pay close attention, particularly in a climate of a housing/accommodation shortage and a growing awareness of tenants in relation to their rights as tenants.

Categories
Debt Problems | Bankruptcy Property Law

Attorneys of Companies Can Sign Deeds as Individuals

Did you know that an individual can execute (sign) a deed with his signature alone but a company needs a seal to make a deed?

This fact has been the basis of some technical defences put forward by individuals who are being pursued by banks for outstanding loans, in repossession proceedings, for the appointment of receivers on foot of their mortgages and charges, and so forth.

Let’s take a look, first, and see what is a deed. The Land and Conveyancing Law Reform Act 2009, section 64 describes a deed as:

(2) An instrument executed after the commencement of this Chapter is a deed if it is—

(a) described at its head by words such as “Assignment”, “Conveyance”, “Charge”, “Deed”, “Indenture”, “Lease”, “Mortgage”, “Surrender” or other heading appropriate to the deed in question, or it is otherwise made clear on its face that it is intended by the person making it, or the parties to it, to be a deed, by expressing it to be executed or signed as a deed,

(b) executed in the following manner:

(i) if made by an individual—

(I) it is signed by the individual in the presence of a witness who attests the signature, or

(II) it is signed by a person at the individual’s direction given in the presence of a witness who attests the signature, or

(III) the individual’s signature is acknowledged by him or her in the presence of a witness who attests the signature;

(ii) if made by a company registered in the State, it is executed under the seal of the company in accordance with its Articles of Association;

(iii) if made by a body corporate registered in the State other than a company, it is executed in accordance with the legal requirements governing execution of deeds by such a body corporate;

(iv) if made by a foreign body corporate, it is executed in accordance with the legal requirements governing execution of the instrument in question by such a body corporate in the jurisdiction where it is incorporated,

and

(c) delivered as a deed by the person executing it or by a person authorised to do so on that person’s behalf.

You will see that a deed, to be properly executed, must be

  1. Signed by an individual in the presence of a witness
  2. Sealed with the company seal if executed by a company

This question arose in a case McGuinness & Mulligan v Ulster Bank Ireland Limited heard by the Supreme Court.

The argument by the borrowers was that the deed which appointed a receiver to their property was invalid because it was the bank’s deed and was not executed with the company seal, which they claimed was a legal obligation.

What happened was a bank official had appointed the receiver under a power of attorney granted by the bank.

The borrowers argued that it was the bank’s deed and it necessitated the bank’s company seal, which was absent.

The Court agreed that it was the bank’s deed but made on its behalf by an authorised individual who could execute the deed of appointment of receiver without the bank’s seal. The Court recognised that the parties to a deed may be different from those who execute or make the deed between the parties, which occurred in this case.

Read the Supreme Court decision in McGuinness & Anor v Ulster Bank Ltd [2019] IESC 20.

Categories
Property Law Property Purchases and Sales

Vat on Property in Ireland-the Essentials

Vat on property is something that is easy to overlook if you are buying commercial property. It may also apply to residential property, depending on the circumstances, so you need to be careful and obtain expert tax advice if there is any doubt in your mind.

The current situation with regard to VAT and property is the regime in place since 2008.

Since then most property transactions are exempt but there are important exceptions where the option to tax the supply of the property is exercised in certain situations.

When we refer to ‘property’, remember, we are also referring to leasehold property in addition to freehold interests.

Commercial property, new buildings

Vat is chargeable at 13.5% on a new building. A ‘new building’ is

  1. The first supply of a completed property within 5 years of completion
  2. The second and subsequent supply of a property, if the supply is made within five years of completion, and the building has been occupied for less than two years.

Commercial property, second hand buildings

Properties developed after 1st July, 2008 are exempt but the vendor and purchaser can jointly opt to tax.

If this option is not exercised the vendor/developer will face a clawback of a proportion of the vat which he has already reclaimed from Revenue on the acquisition or redevelopment of the property. This clawback will be calculated on the vat life of the property.

Leasehold property

After 1st July, 2008 all lettings are exempt from vat.

The landlord can, however, elect to tax and charge vat on the rent at 21%. If he does not opt to tax he will face a clawback based on the vat he has already claimed on the development and/or acquisition of the property.

This option to tax does not arise if the landlord himself or a person connected to him occupies the building.

Assignments of leases

The assignment of surrender of a long lease will be chargeable to vat if the tenant who is the assignor was entitled to reclaim vat on acquiring the original lease or the development of the property.

Residential property

The first supply of new residential property is liable to vat.

Valuable resource

This page from the Revenue Commissioners is worth reading closely if you are concerned about vat on property. You are strongly advised to obtain tax advice from an accountant or tax consultant if you suspect that the vat position is not clear in either your supply or purchase of property.