Select Committee on Legislation and Security debate -
Tuesday, 11 Jan 1994

SECTION 3.

Mr. O'Dea

I move amendment No. 3:

In page 2, line 21, to delete "five" and substitute "seven".

This amendment proposes a period of seven years before statutory rights of renewal can be acquired as opposed to five years as proposed in the Bill. The recent survey on this matter by the Dublin Chamber of Commerce gave rise to this amendment. Our interpretation of this was that most people who were interviewed wanted a period of between five and ten years. Also, representations were made to us by certain landlords about the difficulties of letting properties on a very short lease of two years and nine months. It was felt that a longer term would be necessary to enable them to let their properties and acquire income in the meantime. They might want their property in the medium term. Having thought about the matter, on more mature reconsideration, to borrow a phrase, I will withdraw my amendment and accept the Bill as drafted.

Mr. Shatter

I welcome the Minister's decision, which is correct. The purpose of this legislation is to find a balance. It is not designed to be landlord driven or tenant driven but to provide a reasonable balance so that people can conduct business in a reasonable way with a degree of security on both sides. Both landlords and tenants were included in the survey by the Dublin Chamber of Commerce. The report shows that 51 per cent of those surveyed favoured a period of five years and 27 per cent favoured a period of between five and ten years. Others expressed a variety of views. Five years is the right balance. It is interesting that the Law Reform Commission, on page 34 of its report on conveyancing law which was published in 1989, also suggests a period of five years. I appreciate the consideration the Minister has given to this and welcome the withdrawal of the amendment.

Mr. Kemmy

How will this affect existing tenants who are operating under three-year tenancy agreements? Will they be allowed to operate such agreements or will they be affected by the change to five years?

Mr. Shatter

I was very conscious when the Bill was introduced that there could be people with leases of less than five years who would be entitled to renewals under the current law. When I made inquiries I was advised that one would have either a two year nine month lease or a much longer one. Deputy McDowell and others raised this on Second Stage. In my response I said I prepared a section to deal with this issue but I was given advice that this was not necessary. This concern of Deputies is genuine and should, perhaps, have been dealt with in the Bill. I propose to deal with this issue in amendment No. 5. The Minister has tabled amendment No. 4 which, in a different way, achieves the same result.

I draw Deputy Kemmy's attention to amendment No. 5 which states:

Where a lease or contract of tenancy entered into before the commencement of this Act is for a term of three years or more but for a term of less than the period specified in subsection (1) [which is less than five years] such lease or contract of tenancy shall be regarded as being for the period specified in subsection (1).

The effect is that, following the coming into force of this legislation, the current tenants of premises, which have been leased for three or four years, will have the right to renew their tenancies and will be entitled to look for new tenancies of 15, 20 or 25 years duration. We have three proposals relating to the duration of tenancy. Amendment No. 5 is designated to provide the protection necessary for existing tenants who would have the right to renewal under the existing law but who otherwise could have lost it as a result of the extension of the period.

Mr. O'Dea

To elaborate on what Deputy Shatter said, our concern is that a business tenant who has occupied a commercial premises for more than three years has, as the law currently stands, a right to acquire a new lease of up to a maximum of 35 years. We did not want to move the goal posts and introduce legislation which would mean that a tenant who had been in occupation for four years would have to wait another year to qualify for their rights. We want to protect such tenants, which is why the next amendments were tabled.

Deputy Shatter referred on Second Stage to the question of a four-year lease. That would be a very rare animal. It must also be taken into account that a tenant can occupy a commercial premises on a monthly basis. If they have been in occupation for more than three years, as the law stands at present they are entitled to a 35-year lease and renewal rights. I can assure Deputy Kemmy and the committee that nothing will be done to interfere with those rights which tenants have under the law as it stands, which is the objective of our next amendment.

Mr. D. Ahern

I welcome the Minister's decision to withdraw his amendment. At present, a short lease is normally two years and nine months to take into account the three month period for notices. That is now being extended to, in effect, four years and nine months. I return to the point which I made originally, and I wonder if the Minister has taken any advice on it, that if the period was extended to seven or even five years there would be a danger that landlords would try to insist on receiving key money from the tenant.

This legislation is being promoted by the chamber of commerce and is landlord driven in that sense and I would like to be assured that tenants would have some redress and protection. It is all very well saying they could go to court later on in relation to a 35-year lease, but the fact is that tenants will have no choice but to enter into a lease for four years and nine months.

I encountered a couple of situations recently where landlords were trying to insist on receiving key money for relatively short leases. The more the period is extended, the more danger there is for tenants and potential tenants. While this Bill is perhaps designed to help people setting up in business, there is a danger for tenants, particularly those starting at the bottom rung who would rather have a shorter term lease without making a substantial payment to the landlord on top of whatever rent is agreed.

Ms O'Donnell

I wish formally to welcome the fact that the qualifying period before occupying tenants require lease renewal rights is now extended from three years to five years. It is good that we have all agreed on that fundamental point of this Bill, although we are disappointed that the situation which arose over the Mespil flats controversy is not being dealt with. It is worthy of note that the Governemnt is fundamentally agreeing with Deputy Shatter's Bill and the generally recognised need for a more flexible regime of leasing arrangements for commercial property. I welcome the fact that the Minister has taken on board Deputy Shatter's original amendment.

Mr. E. Ryan

In response to Deputy Dermot Ahern, the retail situation in Louth must be booming if tenants are still paying key money because it went out in Dublin a long time ago. When I first got into the retail business in Dublin people paid key money but it does not happen now which is, perhaps, a reflection of how the retail business in Dublin has changed.

Mr. D. Ahern

Is the Deputy saying that it would not start up again?

Mr. E. Ryan

I hope it would not.

Mr. D. Ahern

In my experience, there is nothing to stop it from happening again.

Mr. E. Ryan

It is a good reflection that business is so healthy that people will pay key money to go into a retail business. It has not happened in Dublin for a long time.

Mr. O'Donoghue

One never knows.

Mr. E. Ryan

One never knows, perhaps it will come back. I also welcome the extension of the period to five years as three years and nine months was a very short period. Such short leases made it difficult to borrow money from banks. There was suspicion of people with leases of two years and nine months. A five-year lease gives people time to build up a business and to take a longer lease if necessary.

Mr. Shatter

Deputy Dermot Ahern suggested that the Dublin Chamber of Commerce is landlord driven. For his information, in the survey conducted by the chamber, 64 per cent of landlords and 83 per cent of tenants surveyed favoured change. Therefore, far more tenants favoured change. Some landlords saw it as reducing the possibilities of using leases of two years and nine months as a type of lever to create problems for tenants whose businesses were successful.

I would not want to come between Deputies Dermot Ahern and Eoin Ryan and say anything which might be contentious in any way, but the Government must obviously be going more for Louth than for Dublin. According to feedback which I am receiving, most landlords in Dublin, rather than being reluctant to give five year leases, would welcome with open arms a tenant with a resonably good record looking for a five, ten or 15 year lease and shout hallelujah. Rather than looking for any key money, they would give a moratorium on rent for the first three months to enable the tenant get established. To some extent, the market is dealing with all of this and this Bill is designed to get over some of the barriers which the current law creates for people starting up in business.

This Bill, for Deputy Dermot Ahern's information, was not designed simply to implement what was said by the Dublin Chamber of Commerce. It was being prepared when the chamber's report was published. It was a happy coincidence that the chamber had carried out the survey which indicated that the position was what we thought it to be and the need for change was as great as we understood.

One of the initial reasons for implementing this change was the recommendations of the Law Reform Commission and what the Fine Gael Party saw as a problem in the area of business which could be addressed without creating great legislative difficulties. The Bill is designed to strike a balance between landlords and tenants. It is not intended to wrong-foot either side but is designed to ensure that there is a degree of reasonable security for tenants who embark on businesses and whose rights should be protected.

Amendment, by leave, withdrawn.

Acting Chairman

Amendments Nos. 4 and 5 are related and may be discussed together. Is that agreed? Agreed.

Mr. O'Dea

I move amendment No. 4:

In page 2, between lines 21 and 22, to insert the following subsection:

"(2) Subsection (1) shall have effect only in relation to a lease or other contract of tenancy the term of which commences after the commencement of this Act.".

This amendment and that of Deputy Shatter are attempting to achieve the same objective. There was some discussion on Second Stage about the possible retrospective effect of the change in the period provided for in section 3. There seemed to be general agreement on all sides that it would not be desirable to affect rights under existing tenancies in this regard, which is the point Deputy Kemmy was querying earlier. For example, it would not be fair if a person who had been in occupation for three years just before this Bill became law found, suddenly, that the goal posts had been moved and a further number of years tenancy was necessary before the right to a new tenancy would arise.

I accept, as was mentioned on Second Stage, that given existing commercial practices in relation to two year and nine month leases or very long leases, such cases as I have referred to would be rare, if they exist at all. However, I conclude that they do exist because somebody can be in occupation as a monthly tenant for a period of more than three years. Nevertheless, it seems safest specifically to provide that section 3 shall have effect only in relation to leases the terms of which commence after the passing of this Bill. It is in that context that this amendment is being proposed.

Mr. Shatter

I am not sure there is any difference between the section I am proposing and that which the Minister is proposing. I query whether the Minister's interpretation of either section is necessarily right in one respect. It is the intention that anyone with an existing lease for a term of three years or more will have a right of renewal under the legislation so no one can, at the end of the day, find themselves not entitled to a right of renewal. Both the Minister's amendment and my amendment have that effect, but thereafter rights of renewal will be as provided for under section 5 of the Act or any amendment to that section. That is in effect how it will work.

On the basis that the only difference between the two amendments is the manner in which they are drafted, I am happy not to press my amendment and accept the Minister's amendment. They both achieve exactly the same result. The Minister might advise me if he thinks otherwise.

Mr. D. McDowell

I am a little confused. For example, what is the position of somebody who has been in occupation for two years? It seems under the Minister's amendment that this person's position is not affected since the contract of tenancy already exists. Under Deputy Shatter's amendment I think that person would be entitled, after being in occupation for three years, to have that regarded as five years. In other words, after another year that person would be entitled to a renewal. Is that correct?

Mr. Shatter

Yes, unless I misunderstand the intention of the Minister's amendment. Our amendments have exactly the same effect. One can take the example of a tenant with a three-year lease that has run for two years. Let us assume that the Act becomes operative and at the end of the third year this tenant claims a right of renewal. As I understand it, the effect of both my amendment and the Minister's amendment would be to give the tenant a right of renewal even though they have a three-year and not a five-year lease.

Mr. D. McDowell

Is that the effect of the Minister's amendment?

Mr. Shatter

I am sure the Minister is able to explain his own amendment. It states that subsection (1), which is the change from three to five years, shall have effect only in relation to a lease the term of which commences after the commencement of this Act. It would equally apply in the context of my own amendment because it is an existing lease for a term of three years or mroe but less than five years.

The Minister and I are approaching the same issue with different terminology. Anyone currently party to a lease for a period of three years or more will have a right of renewal even if the lease is not as long as five years. However, if, for example, the Bill is passed by the Oireachtas and becomes operative on 1 May and I enter into a new lease on 3 May for a premises in which I had never previously worked or operated a business and that lease is for three of four years, it is less than the five year period and I will not have a right of renewal.

Mr. M. McDowell

I have a difficulty with this and it should be thought through very carefully. If somebody who now has a lease is offered a new lease by a landlord, his second contract will operate as of today. It is not fair to distinguish between, for instance, montly tenants and others on the basis of when their tenancy commenced when determining, three or five years after the commencement of this Act, whether or not they are entitled to a new lease.

It would be more to the point to say that it applied to all existing tenancies and to have a commencement date for this specific provision in order to clarify the position of any tenant who, six months after the passing of the Act, has been in occupation for three or five years. I am just making some suggestions because I have not had enough time to consider the exact implications. We could alternatively provide that people with existing rights to a new tenancy should have their rights preserved as of a specific date.

The issue does not seem to be as easy as it is made out. It is fraught with difficulty because one will find landlords saying that they offered their tenant a new lease on a certain date and a new contract came into existence on that day which did not succeed an old contract of tenancy——

Mr. Shatter

As I understand it, one would still have fulfilled the continuous business user requirement.

Mr. M. McDowell

I appreciate that.

Mr. Shatter

This qualification only applies to the time period. If a tenant has been a continuous business user of the premises or has occupied the premises in the terms of the legislation, as I understand it his right to renewal would be intact.

Mr. M. McDowell

That is true.

Mr. Shatter

I do not think this is a problem. The effect is that the five-year period does not apply to existing arrangements. Let us not talk about tenancies or written leases at the moment. If I was a continuous business user of the premises for three of four years——

Mr. M. McDowell

Why should it not apply to an existing arrangement? Why should it not apply to somebody who has done two years of a term now? Why should they be dealt with differently from somebody who has done four years of a term?

Mr. Shatter

Perhaps I am getting confused at this stage. The Minister might clarify his amendment. The intention of the section is that if someone has been operating as a continuous business user for three or more years or has a lease of three or more years, they do not lose their continuity because the Act is passed. They will still have a right of renewal.

All I can say to Deputy McDowell is that we could examine this further on Report Stage. Our intention is clear. Perhaps we need to go back and have a further look at it because of the term "contract of tenancy".

Mr. M. McDowell

I am worried that two successive leases might be dealt with differently. I may be wrong and, as Deputy Shatter said, a tenant may have business equity regardless of how his previous record was constituted. However, I am worried that it shall only have effect in relation to a contract of tenancy starting after the commencement of the Act.

Mr. Browne

(Carlow-Kilkenny): I am reluctant to get involved in what I see as legal arguments but reading the text of both amendments I cannot see how they are accepted as being the same. My reading of the first amendment is that if someone has completed two years of a two years and nine months contract, they are not covered by this Bill. Where does this leave them?

The Minister's amendment says that only leases commenced after the commencement of this Act are affected. These leases are in existence before that, so what rights do the tenants have? Deputy Shatter's amendment is acceptable because it says three years will be regarded as five years. Is that not basically the situation?

Mr. M. McDowell

Can I put it this way? While we do not want to confuse the situation, my problem is that if the Act is going to come into operation on a day which is one month after its passing and if some unfortunate landlord gives a three-year tenancy to a person the day before the Act comes into operation, they will be skewered by this. The Act should have a big health warning attached to it. Somebody will say that the law has changed and give a three or four-year tenancy thinking they will be safe and then realise they are not because the tenancy started before the commencement of the Act.

Mr. Shatter

That is the danger of the one month lead-in period.

Mr. M. McDowell

People will make an improvident deal and give a four and a half year lease before the commencement date, thereby allowing for a right of renewal where they thought they were avoiding it because they did not look at this proviso. A person who gives a four and a half year lease before the commencement day thinking that the law has now changed to permit it has no protection.

Mr. O'Donoghue

My understanding of the position — I do not know whether I have served to further confuse the situation —is that people who enter or have entered into a lease prior to the passing of this Bill or who enter into a lease after today but before the coming into force of its provisions do so on the understanding that a three-year lease for a business user will mean that the lease will automatically be renewed at the discretion of the tenant. Accordingly anybody entering into a lease after today but before the coming into operation of this Bill would also know that the law is as I stated, and anybody entering into a lease subsequently would know that the time limit was extended to five years. It would serve no purpose to introduce a provision to change the goalposts after the agreement has been reached and say that the three years has now been extended to five years. If my understanding of the amendment is correct I find both amendments to be similar. I am not saying that I am not capable of confusion but I hope that helps to clarify the situation, if I am correct.

Mr. Kemmy

The question I asked earlier was not meant to cause this disruption because I am a layman looking in on this. Members, like me have a certain amount of experience and knowledge of dealing with landlords and tenants over the years although that knowledge could be tested in the courts and found to be flawed. In this case I was trying to get concrete cases from Deputies McDowell and Shatter so that I could understand how this would operate.

In my experience people in Limerick keep to short term tenancy agreements and sometimes have to vacate the premises, either a public house or a shop, after two years and 11 months to break the tenancy. If somebody is caught in this kind of agreement now and, as Deputy Shatter said, has served two years of that agreement, how would this legislation affect that person or somebody who, for example, has had his tenancy broken for a number of years and has negotiated a new agreement with the landlord? I understood from the Minister and Deputy Shatter that that three-year agreement would run out and that tenant would then have the option of negotiating a new rental agreement under the legislation. Is my reading of the Bill correct?

Mr. O'Dea

Yes.

Mr. Kemmy

Therefore, his tenancy at present will not be interfered with by this legislation and he will have the same rights as everybody else from then on when that agreement expires. That is a summary of what I heard.

Mr. O'Dea

Yes.

Mr. D. McDowell

On the primary point that we are discussing I agree with the principle in the amendments of the Minister and Deputy Shatter, that we should not be moving the goal posts. At the risk of muddying the waters and confusing myself even further I wish to ask a question of the Minister or his advisers in relation to the Minister's amendment which states that subsection (1) shall have effect only in relation to a lease or other contract of tenancy the term of which commences after the commencement of this Act. Is it correct that subsection (1) now states that the term is five years? I assume the intention of the Minister's amendment is that the old provision, now deleted, would continue to apply.

Mr. O'Dea

For existing leases, yes.

Mr. D. McDowell

Yes, but does the Bill state that? Have we not just deleted the old provision?

Mr. O'Dea

The legislation states that the 1980 Act applies to leases which have commenced before the commencement of the Act——

Mr. D. McDowell

Is not subsection (1) part of the 1980 Act?

Mr. Shatter

The confusion here is because we are dealing with an amendment and a section. We are talking about section 4 of the 1993 Bill which has one subsection at the moment. The proposed amendment, the Minister's or mine, will be subsection (2) of that section and what is now subsection (4) will be subsection (1) of section 4. The proposed subsection (2) that states "subsection (1) shall have effect only in relation to" etc., is subsection (1) of the 1993 Bill which we are talking about. We are not talking about subsection (1) of section 13 of the 1980 Act. This is what is creating the confusion. The same applies in relation to my amendment.

Mr. Browne

(Carlow-Kilkenny): I have to admit that I do not understand this and as I read the Minister’s amendment I take the meaning from it that anybody who is on a three year contract at the moment is isolated and stands on his or her own and is covered by the old provisions. Deputy Shatter’s amendment states that anyone on a three year contract automatically has that contract extended to a five year contract under the Bill. I cannot see how the two are similar and I would love to get a simpler explanation than I have been getting as to how that is the case. The Minister’s amendment states that it shall have effect only in relation to a lease which commences after the commencement of this Act, so that any lease before that Act is not covered.

Mr. O'Donoghue

It is covered by the old Act.

Mr. Browne (Carlow-Kilkenny)

But how is that the same as Deputy Shatter's; who states that the old three year contract becomes five automatically?

Mr. M. McDowell

I am of the view that the two amendments would have the same effect, but I suggest that it would be better if the Minister could, if he agrees, take out the word "commencement" in the last line of his amendment and put in the word "passing" so that once the Act is passed, there is no interregnum where people can make a mess of things and give too long a lease. The Bill will be passed, say, on 1 April. According to the Minister's amendment it will not commence until 1 May, but if someone did not read it carefully and gave a four-and-a-half year lease between 1 April and 1 May, he would not be protected. There is nothing to be lost by saying that any lease, contract or tenancy which commences after the passing of the Bill is caught. It would improve the Bill, and people would not make terrible mistakes and lose a huge amount of money both ways for want of understanding of the Act.

Mr. O'Dea

That would mean that we would have to take out the word commencement——

Mr. M. McDowell

No, the Minister is saying that the Act——

Mr. O'Dea

It would take out the lead in provision.

Mr. M. McDowell

No, the Act will operate from a day that is one month after the passing of the Bill, but this provision shall only have effect in relation to leases or contracts or tenancies which commenced after the passing of the Bill. In other words, that it should not be possible to misunderstand the law and grant too long a term in the interregnum between the passing of the Bill and its commencement. That is all I am suggesting. I ask the Minister to look at this between now and Report Stage. It would be a neater solution.

Mr. Shatter

I am willing to accept the Minister's amendment.

Amendment agreed to.

Amendment No. 5 not moved.

Section 3, as amended, agreed to.