Supreme Court overturns Bewley's rent ruling

Tuesday 01 July 2014 16.37
Bewley's said it is immensely disappointed at the decision
Bewley's said it is immensely disappointed at the decision

Bewley's has said it is immensely disappointed with a Supreme Court decision, which has overturned a High Court ruling that the rent payable by the company on Grafton Street must be allowed to fall to reflect market levels.

The landlord of the premises, Ickendel Limited, which is controlled by developer Johnny Ronan, had appealed the High Court ruling.

The High Court ruled last year that a clause in the lease between Ickendel and Bewley's allowed for a fall in rent.

The rent had doubled in January 2007 to €1.5 million because of upward only rent reviews since 1987.

Mr Justice Peter Charleton ruled an open market clause in the agreement could only reasonably be construed so as to allow a fall in rent.

He said it was not in accordance with a business sense that a rent appropriate to five years previously should govern a hospitality markedly changed for the worse.  

Ickendel had argued the rent could not fall.

After Mr Justice Charleton's ruling, the market rent was established at €728,000.

Many other landlords and tenants were awaiting the outcome of these proceedings, which were regarded as a test of the issue of upward only rent review lease agreements.

This morning, a five-judge Supreme Court overturned the High Court ruling and allowed Ickendel's appeal.

The case hinged on the interpretation of a clause in the lease between Ickendel and Bewley's, which was drawn up in 1987.

Ickendel argued that when the rent was reviewed every five years it should be whichever was higher - the rent in the preceding five year period, or the market rent determined according to the provisions of the lease.

Bewley's argued the lease allowed for the rent to fall, as long as it never fell below the initial amount agreed in 1987.

But Ms Justice Mary Laffoy ruled, in a judgment agreed by the other four Supreme Court judges, that the lease did provide for an upwards only rent review, notwithstanding that it was not expressed in those terms.

She said the parties had not bargained for a rent revision arrangement based on a market rate that could rise and fall in respect of different periods.   

The judge said the case arose from the specific terms of this lease and did not involve an issue of general application.   

She said the case was concerned with a specific clause in the lease set in its specific context.

She ruled that the rent payable from 1 January 2007 to January 2012 was €1.46m per year and that continued to be payable from January 2012.

The rent had been reduced to €728,000 after the High Court ruling.

Bewley's said it would consider the judgment with its lawyers.  

The Group's Chief Executive, John Cahill, said the €1.46m rent was oppressive and had been set in 2007 at the height of an unsustainable property bubble.

He said all they had sought to achieve was an acknowledgement of economic reality and fair treatment with a rent that reflected market values.

But he said this had been blocked by NAMA and the landlord.   

Ickendel's loans were taken into NAMA and the agency had backed this appeal.

The CEO of Retail Excellence Ireland has said today's Supreme Court decision has far reaching consequences for lots of tenants around the country.

Speaking on RTÉ's News at One, David Fitzsimons said Bewley's was now being forced to pay an untenable rent of €1.5m per annum, and would have to sell several thousand cups of coffee a day simply to pay the rent, which was unsustainable.

He said his organisation was aware of a large number of other retailers who had a very similar clause in their lease to the one that was the subject of today's judgment.

Mr Fitzsimons said the situation was bad for jobs.

He said Retail Excellence Ireland would urge the Government to support a bill put forward by Senator Fergal Quinn, which allows for vulnerable tenants to get temporary relief over five years to the market rent.