A High Court judge has ruled that the rent payable by Bewley's Oriental Café in Grafton Street, Dublin, to its landlord must be allowed to fall in line with the currently depressed open market rate.
The restaurant's landlord, Ickendel Limited, which is controlled by developer Johnny Ronan, had claimed it was entitled to a five-yearly upwards only rent review.
The decision of Mr Justice Peter Charleton will have significant repercussions for landlords who have been claiming upwards only reviews and will be widely welcomed by hard pressed shop tenants.
Judge Charleton said that to proceed towards ever-increasing sums in rent every five years, while deflation had decreased, was to substitute an unreal figure for the rent.
He said the existing lease between Bewley's and Ickendel clearly stipulated that the rent was never to fall below the initial agreement of 1987.
However, an open market clause in the agreement could only reasonably be construed so as to allow for a fall in rent, which had increased to €1.5m because of upwards only reviews since 1987.
The Bewley's rent agreement had a built in five-year review and the case was regarded as a test in the contentious area of upward rent review lease agreements.
Gavin Ralston, SC, counsel for Bewley's, had claimed the issue could not be of more vital importance to the company's financial survival and contended the lease allowed rents to fall as well as fluctuate up.
Ickendel Ltd had argued the rent could not fall under the terms of the decades-old agreement.
The case hinged on the interpretation of a key clause in the lease agreement.
Mr Ralston argued that the court was entitled to ask if the 1987 agreement intended to trap the restaurant owner in such a serious position.
Judge Charleton said a review of the 1987 agreement had in 2007 fixed a rent of €1,463,964 and this figure, at least, was now being claimed by the landlord for the 2012 rent review.
"This is on the basis that the lease expressly provides that the rent cannot decrease on review," the judge said.
"That sum would not now be obtained for these premises on the open market. There has been a marked decrease in the rents obtainable for retail premises and food outlets."
He said the parties had bargained in 1987 so as to agree never to fall below the initially agreed rent but he could not see, from the lease, that they had bargained thereafter for anything other than a fair open market rent.
This could rise and it could fall.
Judge Charleton said the rent review clause could only reasonably be construed so as to allow for a fall in rent, but never below the rent initially agreed in 1987.
An ambiguity in the clause required a commercial construction and it was not in accordance with business sense that a rent appropriate to five years previously should govern a hospitality market markedly changed for the worse.