This article aims to provide important information for commercial landlords and tenants in relation to a tenant renouncing his statutory right to a new tenancy, including changes in that area of law and issues arising.
The Landlord and Tenant (Amendment) Act 1980 (the “1980 Act”), as amended by the Landlord and Tenant (Amendment) Act 1994 (the “1994 Act”), provides for a number of statutory reliefs for a tenant, including a right to a new lease on termination of his existing lease, subject to compliance with certain conditions. For example, a tenant who has been in continuous occupation of a property under a lease for a minimum period of five years for business purposes is entitled to a new tenancy and the right of renewal is based on the length of time that he has been in continuous occupation and not on the term of the lease. In that event, the term of the new lease will be 20 years or any lesser term that the tenant may nominate, but it will not be fixed for a period of less than five years, without the landlord’s agreement. Contracting out of a tenant’s rights under the 1980 Act was not permitted by virtue of Section 85, which provided that any provision contracting out of the 1980 Act would be void, such as a tenant waiving his right to a new tenancy.
Contracting Out – Legislative Changes
However, Section 4 of the 1994 Act changed that position to a certain extent by allowing a tenant of office premises only to contract out of his right to a new tenancy, subject to certain conditions, including that the tenant must have executed prior to the commencement of that tenancy a valid renunciation of his entitlement to a new tenancy and received independent legal advice in relation to that renunciation. Accordingly, this contracting out provision only applied to office tenants.
That position was altered again by Section 47 of the Civil Law (Miscellaneous Provisions) Act 2008 (the “2008 Act”), which replaced the Section 4 renunciation provision. Section 47 now allows any business tenant (no longer restricted to office tenants) to renounce his entitlement to a new tenancy. By virtue of Section 47, the property need no longer be used wholly and exclusively as an office, the tenant must renounce his right to a new tenancy in writing, usually by a deed of renunciation, and receive independent legal advice in relation to that renunciation. Accordingly, that renunciation option has now been extended to all business tenants and it is no longer necessary for the tenant to execute the renunciation prior to commencement of the tenancy, as it can now be executed during its term if the parties so wish. However, from a landlord’s perspective, it would be advisable to have the renunciation executed by the tenant prior to the tenancy coming into place, as there is no guarantee that the tenant will agree to execute same during the term of the tenancy.
It would appear that Section 47 does not apply to a tenant who would have a right to a new tenancy based on twenty years’ occupation or by virtue of being entitled to compensation for improvements made to the property, which amount to at least half of its letting value and therefore, that tenant cannot contract out of his right to renew.
Section 47 is significant for a landlord as it now allows him to commercially negotiate with a business tenant to waive his right to new tenancy, where previously this would not have been possible and at the same time grant to the tenant a lease for a longer term, which affords the tenant greater security of tenure. Accordingly, these new provisions should have a positive effect on the letting market, giving flexibility to landlords to commit to longer leases without potentially tying up properties for a considerable period of time. However, if the tenant does not agree to execute a renunciation, the landlord will need to ensure that the term of the lease is less than five years and the tenant does not remain in occupation after expiry of that term, to avoid the tenant acquiring a right to a new tenancy, given that the tenant’s right of renewal is based on its period of occupation, as opposed to the term of the lease.
In the case of a tenant contemplating executing a renunciation, he should be aware that as a consequence of executing that renunciation, in addition to renouncing his right to a new tenancy, he will be automatically waiving any right which he might have had to compensation for disturbance (i.e. the cost of relocating) under Section 16 of the 1980 Act on leaving the property, but it would appear that the tenant’s right to compensation for any improvements made to the property under Section 46 of the 1980 Act would not be affected by that renunciation.
A renunciation is not strictly speaking required in the case of a licence or temporary convenience letting (i.e. a letting made for temporary convenience or necessity), but it would be advisable to have a renunciation executed to pre-empt the possibility of that arrangement being held to be ineffective, such as a licence being found to be a tenancy.
In addition, if a break option is granted to a landlord under a lease (i.e. a right to terminate that lease before expiration of its term), in order to ensure the enforceability of that right and that it cannot be challenged by a tenant, a renunciation should be executed by the tenant at the time of granting that right, otherwise the tenant may be entitled to a new tenancy on termination of that lease by the exercise of the break option. It is arguable therefore, that any break option which can be executed by the landlord during the term of the lease when the tenant would have acquired a right to a new tenancy is void unless a renunciation has been executed, as the Irish courts have held that the prohibition on contracting out in Section 85 of the 1980 Act applies equally to indirect attempts to contract out.
If the term of a lease can be extended due to a tenant’s right of renewal or otherwise, the renunciation should refer to a renewal of that lease or a new renunciation will need to be obtained from the tenant in respect of the renewed/new lease. In addition, if the lease is to be varied by a supplemental deed/deed of variation, the renunciation should refer to that lease, as may be amended from time to time or a new renunciation may need to be executed.
The introduction of Section 47 has significantly extended the situations in which a tenant or prospective tenant can renounce his right to a new tenancy, giving landlords greater flexibility and the freedom to commit to longer leases and also allowing them to take control over a tenant’s ability to renew his lease. However, care must be taken to ensure that the requirements of Section 47 are complied with, so that the renunciation will be legally effective and and also that the renunciation addresses adequately other arrangements, where required. Given the issues and complexities arising in this area of law, both landlords and tenants should proceed cautiously and seek expert legal advice before entering into commercial leases and HOMS has the expertise to provide such advice.