Reox Holdings Plc v Cullen and Another

• Jurisdiction: Ireland
• Judge: Mr Justice Charleton
• Judgment Date: 26 July 2012
• Neutral Citation: [2012] IEHC 299
• Court: High Court
• Date: 26 July 2012

[2012] IEHC 299

The High Court

Record No 11562 P/2011

Reox Holdings PLC v Cullen & Davidson

Commercial

Between

Reox Holdings plc

plaintiff

And

David Cullen and Simon Davidson

defendants

LAND & CONVEYANCING LAW REFORM ACT 2009 S132

LAND & CONVEYANCING LAW REFORM ACT 2009 (COMMENCEMENT)(SECTION 132) ORDER SI 471/2009

COMPANIES ACT 1963 S290(1)

KRAMER v ARNOLD 1997 3 IR 43

IRISH BANK RESOLUTION CORPORATION LTD v CAMBOURNE INVESTMENTS INC & ORS UNREP CHARLETON 14.6.2012 2012 IEHC 262

JC SAVAGE SUPERMARKET & BECTON v BORD PLEANALA & ORS UNREP CHARLETON 8.12.2010 2010/31/7737 2010 IEHC 431

INSPECTOR OF TAXES v KIERNAN 1981 IR 117

COSMOLINE TRADING LTD v DH BURKE & SON LTD & DHB HOLDINGS LTD UNREP FINNEGAN 8.2.2006 2006/12/2449 2006 IEHC 38

HALSBURY'S LAWS OF ENGLAND 2006 VOL 27(1) PARA 75

ACTIVE ESTATES LTD v PARNASS & ANOR 2002 3 EGLR 13

BAUSCH v STECKEL 2001 L&TR 1

UNITED SCIENTIFIC HOLDINGS LTD v BURNLEY BOROUGH COUNCIL 1978 AC 904

HAMILTON v HAMILTON 1982 IR 466

JC SAVAGE SUPERMARKET LTD & BECTON v BORD PLEANALA UNREP 22.11.2011 2011/28/7548 2011 IEHC 488

MCDONALD v BORD NA GCON 1965 1 IR 217

YARM ROAD LTD v HEWDEN TOWER CRANES LTD 2004 CON LR 1

WELCH v BOWMAKER (IRELAND) LTD 1980 1 IR 251

Land and Conveyancing Law - Upwards only review - Lease - Liquidator - Guarantor - New legislation - Commencement - Indemnity - Requirement - Land and Conveyancing Reform Act 2009

Facts: Upwards and downwards rent reviews had been enacted into Irish law by means of s. 132 Land and Conveyancing Reform Act 2009. The Court considered whether the section applied to a situation where a lease with a guarantee was entered into before the law commenced, but on the collapse of the business of the tenant after the law commenced, where the guarantee provided that the landlord has the option to require the guarantor to step into the shoes of the tenant on the same terms, especially as to upwards only reviews. The plaintiff as guarantor sought a declaration that the Act of 2009 applied in circumstances where a liquidator had terminated the lease and the first named defendant had required the plaintiff guarantor to accept a new lease which included an upwards only rent clause. The defendant receiver claimed that he was entitled to full indemnity for any loss on a downward rent review, who argued that the Act had to be interpreted so as to avoid any retrospective effect.

Held by Charleton J, that the plaintiff guarantor was entitled to a declaration that s. 132 Land and Conveyancing Reform Act 2009 providing for upwards and downwards rent review applied to any new lease entered into by that guarantee with the landlord upon the exercise of the option to require the guarantee to step into the shoes of the defaulting tenant in the circumstances. The situation of the guarantee was not covered by the Act of 2009 and the Court could not extend the boundaries set by the legislator.

1 Mr Justice Charleton delivered on the 26th day of July 2012

2 1. With the unsupportable inflation in property prices that characterised the decade to 2007, rents for business premises inexorably climbed. Reviews of rent in leases typically occur at five yearly intervals. On leasing premises during those years, landlords insisted that such review covenants were worded so that a review could only allow for an increase in rent; so-called upwards-only review clauses. With the deflation that has beset property prices from 2008, the Oireachtas intervened by providing that any rent review clause in any new lease, or any agreement for such a lease, no matter how such a covenant was worded, would be construed so to allow both an increase and a decrease upon a review. That change was brought about by section 132 of the Land and Conveyancing Law Reform Act 2009. The section was commenced on 28 February 2010 by SI 471 of 2009 and provides as follows:

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

4 (2) Subsection (1) shall not apply where -

5 (a) the lease concerned, or

6 (b) an agreement for such a lease,

7 is entered into prior to the commencement of this section.

8 (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.

9 (4) Subsection (3) shall apply -

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

11 (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.

12 2. The issue that now arises for decision is whether that section applies to a situation whereby a lease with a guarantee was entered into before the law commenced, but on the collapse of the business of the tenant after the law commenced, the guarantee provides that the landlord has the option to require the guarantor to step into the shoes of the tenant on the same terms, especially the term as to upwards-only rent reviews. In other words, when exercised, is such an option under a guarantee "an agreement for … a lease"?

Facts

13 3. The plaintiff is a public limited company having its registered office in Cork city. The first named defendant is a Dublin businessman. He is the owner of the premises, the subject of the dispute between the parties, at Unit 17, Barrow Valley Retail Park, Sleaty Road/North Relief Road, Carlow. He is the landlord. The premises were formerly used as a do-it-yourself retail shop. The second named defendant was appointed as receiver of the premises by Ulster Bank Ireland Limited on 22 July 2011. The lease in question is dated 16 April 2007 and was made between the first named defendant as landlord, 4 Home Wholesale Services Limited as tenant and the plaintiff as the guarantor of the performance of the covenants in the lease by the tenant. The premises were demised to 4 Home Wholesale Services Limited for a term of 25 years from 18 August 2006 for use as a retail unit.

14 4. By clause 4.1 of the lease, 4 Home Wholesale Services Limited covenanted to pay the rents specified in clause 3. This required the payment of a stepped rent for the first five years of the term with a provision for upwards-only rent reviews every five years from the commencement of the term in accordance with the provisions of the fourth schedule to the lease. Clause 2 of the fourth schedule to the lease is headed "Upwards only rent review". This provides:

15 The rent first reserved by this Lease shall be reviewed at each Review Date in accordance with the provisions of this Schedule and, from and including each Review Date, the rent shall equal the higher of either the rent contractually payable immediately before the Relevant Review Date or the open market rent on the Relevant Review Date, as agreed or determined pursuant to the provisions of this Schedule.

16 5. By clause 6.1 of the lease, the plaintiff, as guarantor, covenanted with the first named defendant, as landlord:

17 That the Tenant or the Guarantor shall at all times during the Term (including any continuation or renewal of this Lease) duly perform and observe all the covenants relating to financial obligations on the part of the Tenant contained in this Lease, including the payment of the rents and all other sums payable under this Lease in the manner and at the times herein specified and all sums which may be due to the Landlord for mesne rates or as payment for the use and occupation of the Demised Premises, and the Guarantor hereby indemnifies the Landlord against all claims, demands, losses, damages, liability, costs, fees and expenses whatsoever sustained by the Landlord by reason of or arising in any way directly or indirectly out of any default by the Tenant in the performance and observance of any of its financial obligations or the payment of any rent and other sums arising before or after the expiration or termination of this Lease.

18 6. By clause 6.7 of the lease, the plaintiff as guarantor further covenanted that if:

19 (i) a liquidator or Official Assignee shall disclaim or surrender this Lease; or

20 (ii) this Lease shall be forfeited; or

21 (iii) the Tenant shall cease to exist

22 THEN the Guarantor shall, if the Landlord by notice in writing given to the Guarantor within twelve months after such disclaimer or other event so requires, accept from and execute and deliver to the Landlord a new lease of the Demised Premises subject to and with the benefit of this Lease (if the same shall still be deemed to be extant at such time) for a term commencing on the date of the disclaimer or other event and continuing for the residue then remaining unexpired of the Term, such new lease to be at the cost of the Guarantor and to be at the same rents and subject to the same covenants, conditions and provisions (other than clause 6) as are contained in this Lease;

23 7. By clause 6.7.2 it was further provided that:

24 … if the Landlord does not require the Guarantor to take a new lease, the Guarantor shall nevertheless upon demand pay to the Landlord a sum equal to the rents and other sums that would have been payable under this Lease but for the disclaimer, forfeiture or other event in respect of the period from and including the date of such disclaimer, forfeiture or other event until the expiration of twelve months therefrom or until the Landlord has granted a lease of the Demised Premises to a third party (whichever shall first occur).

25 8. On or about 11 November 2009, the tenant 4 Home...