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The Brief
05.12.2008
Renunciation of a Business Tenant's Right to Renew (Business Equity)
The Civil Law (Miscellaneous Provisions) Act 2008 (“the 2008 Act”) was signed into law by the Minister for Justice, Equality and Law Reform, Mr. Dermot Ahern TD, on the 18th July 2008. Whilst this Act contains wide ranging amendments to fifteen separate areas of the law including Bankruptcy, Juries, Succession, Equal Status, Employment Equality and Family Law, there can be no doubt but that those amendments
The commencement date in respect of both sections 47 and 48 of the 2008 Act is the 20th July 2008 as prescribed by Statutory Instrument No. 274 of 2008 being the applicable Commencement Order in respect of the 2008 Act.
The position at law regarding business tenancies and the acquisition by a tenant of a ‘business equity’ in a demised property is governed by the provisions of the Landlord and Tenant (Amendment) Act 1980, as amended by the Landlord and Tenant (Amendment) Act 1994 (collectively “the 1980 Act”). Essentially in a case where a property qualifies as a ‘tenement’ within the meaning of the 1980 Act and where during the whole of the period of 5 years ending at that time was continuously in the occupation of the person who was the tenant immediately before that time or of his/her predecessors in title and was bona fide used wholly or partly for the purpose of carrying on a business (S13(1)(a) of the 1980 Act as amended by S3 of the Landlord and Tenant (Amendment) Act 1994) then that tenant acquires a statutory right to renewal of his/her lease in the property for up to 20 years as against the landlord of the property, commonly known as acquiring a ‘business equity’ in the property.
Prior to the coming into force of the new provisions on foot of sections 47 and 48 of the 2008 Act there was only one single exception provided for whereby a business tenant’s statutory right of renewal could be renounced. If the terms of the tenancy provided for the use of the tenement wholly and exclusively as an office and, prior to the commencement of the tenancy, the tenant had executed, whether for or without valuable consideration, a valid renunciation of his/her entitlement to a new tenancy in the tenement and had received independent legal advice in relation to the renunciation (S4 of the Landlord and Tenant (Amendment) Act 1994), then that renunciation was capable of being relied upon and ‘defeated’ the 5 year business equity rule so that the tenant who had validly renounced was not then entitled to claim a new tenancy based on business equity under the 5 year rule.
That worked fine provided that the tenement was used wholly and exclusively as an office. No other business premises qualified for ‘valid renunciation’ and even if the parties agreed between themselves to for
Section 47 of the 2008 Act extends the circumstances in which a business tenant’s statutory right of renewal can be renounced. The effect of section 47 is that a business tenant shall not be entitled to a new tenancy under the 1980 Act where the property qualifies as a ‘tenement’ within the meaning of the 1980 Act, the tenant has clocked up 5 years ‘business equity’ in the property which is bona fide used wholly or partly for the purpose of carrying on a business and where the tenant has renounced in writing his/her entitlement to a new tenancy in the tenement with the benefit of having received independent legal advice in relation to such renunciation.
Section 47 substitutes a new sub-paragraph (iiia) into S17(1)(a) of the 1980 Act (which provides the circumstances whereby an allowable renunciation can be made to defeat the 5 year business equity rule). The precise wording of section 47 is –
“Section 17(1)(a) (as amended by section 4 of the Landlord and Tenant (Amendment) Act 1994) of the Landlord and Tenant (Amendment) Act 1980 is amended by substituting the following for subparagraph (iiia):
(iiia) if section 13(1)(a) (as amended by section 3 of the Landlord and Tenant (Amendment) Act 1994) applies to the tenement, the tenant has renounced in writing, whether for or without valuable consideration, his or her entitlement to a new tenancy in the tenement and has received independent legal advice in relation to the renunciation, or”
Clearly the restriction on the availability of the renunciation mechanism to tenancies whereby the terms of the tenancy provide for the use of the tenement ‘wholly and exclusively as an office’ has been entirely removed which means that the renunciation mechanism is now available for all tenements providing S13(1)(a) of the 1980 Act (as amended) applies and the tenement is used wholly or partly for the purpose of carrying on a business.
In addition to this relaxation of the rules, the obligation to enter into a valid renunciation prior to the commencement of the tenancy has been removed. It therefore follows that a renunciation can be entered into retrospectively and at any time during the currency of the tenancy (provided of course that the tenant agrees to so renounce).
The previous reference to there being a ‘valid renunciation’ also disappears and the renunciation need only be in writing and with the benefit of independent legal advice. It will undoubtedly follow therefore that the independence of the tenant’s legal advice will be strictly monitored and strictly interpreted by the courts.
As stated above, section 85 of the 1980 Act specifically provides that the provisions of the 1980 Act cannot be ‘contracted out of’ so that any attempt to vary, modify or restrict same in any way shall be deemed void. Subsection (2) of section 85 sets out a number of listed exceptions to this rule whereby renunciations are possible in certain limited circumstances, heretofore being the ‘office’ exception (S4 of the Landlord and Tenant (Amendment) Act 1994) and the ‘dwellinghouse within the meaning of the Residential Tenancies Act 2004’ exception (S191 of the Residential Tenancies Act 2004).
Section 48 of the 2008 Act substitutes a new subsection (2) into section 85 of the 1980 Act. The new subsection provides –
“(2) Subsection (1) does not apply to a renunciation referred to in –
(a) subparagraph (iiia) (inserted by S47 of the Civil Law (Miscellaneous Provisions) Act 2008), or
(b) subparagraph (iiib) (inserted by S191 of the Residential Tenancies Act 2004),
of S17 (1) (a).”
The effect of the new subsection is simply to give legal validity and effect to the new forms of renunciation now allowable on foot of section 47 of the 2008 Act the provisions of which are set out above and avoid a situation whereby same could be deemed void pursuant to section 85 of the 1980 Act.
The changes brought in by the 2008 Act will undoubtedly liberalise the market in business tenancies generally bringing a new and welcome flexibility to the market enabling tenants of all kinds of business premises (in occupation for over 5 years and after taking legal advice) to opt of their statutory entitlement to a new lease of up to 20 years. Many heretofore reluctant landlords will now have the opportunity to consider renewing leases of less than 5 years or granting new leases of greater than 5 years in circumstances whereby their tenants are willing (and now entitled by virtue of section 47 of the 2008 Act) to formally renounce their statutory rights. This change in the law brings a most welcome widening of options to the table to the business community at large and will be most certainly in ease of those operating and involved in the commercial property sector.
For further information please contact: boleary@mjoc.ie
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