Amendments Nos. 5a, 6 and 12 are related and may be discussed together.
SECTION 4.
I move amendment No. 5a:
In page 2, line 29, to delete "bona fide" and substitute "valid".
Section 4 extends, to both landlords and tenants, a facility to opt out of the Act and to put their own arrangements in place so that they can determine, between themselves, the length of tenancy and the arrangements for renewal. As I said on Second Stage, this allows, where both parties have full legal advice and are operating at arm's length, a degree of flexibility in the market in relation to rental properties in the businesss sector which mirrors the degree of flexibility currently applicable in a number of other EU countries. It was considered necessary, in the the context of the 1989 legislation in relation to the Financial Services Centre in Dublin, to pass special legislation to allow the financial services sector which was establishing business premises on a rental basis to opt out of the provisions of the legislation. That legislation, in effect, excluded the application of the Landlord and Tenant (Amendment) Act, 1980, and the rights of renewal under that Act from applying to any business lettings that occurred between 1989 and 1994.
Section 4, which amends section 17 of the Landlord and Tenant (Amendment) Act, 1980, states:
. . . in the case only of a tenement falling within the description of the tenement referred to in section 13 (1) (a) (as amended by section 3 of the Landlord and Tenant (Amendment) Act, 1993), the tenant prior to the commencement of the tenancy, has executed whether for or without valuable consideration a bona fide written renunciation of his entitlement to a new tenancy under Part II of this Act.
It was suggested on Second Stage that the use of the words "bona fide" might give rise to confusion. Members were concerned that it should be cleared that under this type of provision a tenant would not opt out without having independent legal advice. The use of the words "bona fide" was designed to ensure that, on the basis of cases determined by the courts over the years. It was my understanding that if such a matter arose it would be interpreted to require independent legal advice for someone to opt out: in other words, if one opted out without knowing the rights one was opting out of it would not be regarded by the courts as valid.
The amendments are designed to address that issue in less legalistic terminology and to put the issue beyond doubt it is suggested in amendment No. 5a to delete the words "bona fide" and substitute the word "valid". Therefore, we are talking about a valid written renunciation of rights. Amendment No. 6 proposes to include an additional subparagraph which arises under section 17 of the 1980 Act to define what is a valid renunciation. The amendment reads:
. . . a renunciation for the purpose of subparagraph (vi) shall not be valid unless the tenant prior to executing such renunciation first obtained independent legal advice.
The other amendment we are discussing relates to section 6 where, for the purpose of consistency, it is proposed to delete the words "bona fide" and replace them with the word "valid".
One of the best cases made for this reform is in the Law Reform Commission report which addresses this issue. The report clearly states that, under the current law, people can enter into arrangements whereby they opt out of the Act. However, it requires a degree of artificial messing around which is disruptive of business and which should not be necessary in a rational world where people form the view that they wish to opt out.
I realise there is opposition to this proposal and before it is suggested that my proposal is revolutionary and perhaps deprives people of rights, it is important to know that in practice this happens in some circumstances. Where a landlord and tenant are resolutely determined to opt out of the legislation they can make an arrangement which has much artificiality and disruption attached to it but which allows them to opt out. The Law Reform Commission makes that point and suggests that the approach I am proposing be incorporated into the legislation. It is a more rational approach and puts our legislation on a par with legislation in other EU countries.
I wish to refer to the Law Reform Commission report and quote the relevant section. Under the heading, "Contracting out of the provisions of the Landlord and Tenant Act" it states:
In modern times, the relationship of landlord and tenant has been to a great extent governed by statute rather than the terms actually agreed between two parties.
One of the principal Acts governing the relationship in this jurisdiction is the Landlord and Tenant (Amendment) Act, 1980. Part II of this Act gives tenants of certain "tenements" the right to a new tenancy once they have satisfied certain conditions. [The report goes on to describe those rights and continues:] Section 85 of the 1980 Act prohibits contracting out of the provisions of the Act and provides that any contract which attempts to do so shall be void. It is arguable that on a strict interpretation of section 85 a contract would have to mention expressly a provision of the Act so as to render it void. Concern as to its applicability has, however, led to practitioners devising various methods of avoiding the provisions of the Act, most notably the "Gatien device", so called after the case of Gatien Motor Co. Ltd. v Continental Oil Co. Ltd. In that case the landlord granted a lease that fell short of the statutory time which would have entitled the tenant to a new tenancy at its expiry. He then entered into a caretaker’s agreement with the tenant for six days and then executed a new lease for a further period. The Gatien case concerned the provisions of the Landlord and Tenant Act, 1931 which contained a similar prohibition on contracting out of its provisions. The Supreme Court held that the device used in that case did not constitute contracting out of the 1931 Act because the tenant had not satisfied the prerequisites for entitlement to a new tenancy as he had not been a tenant for the required amount of time. There appears to be some doubt about the effectiveness of this device under the 1980 Act due to the difference in the wording of the respective provisions giving rise to entitlement. The 1931 Act required an applicant to have been a tenant for the statutory period, while the 1980 Act merely requires continuous occupation during that time.
The 1980 Act provides that properties held under lettings which are made and expressed to be made for the temporary convenience of the landlord and tenant, stating the nature of the temporary convenience, do not fall within the provisions of the Act. We are aware, however, that practitioners have a reservation about relying on these lettings for periods which run much beyond the three year qualification period.
It has been represented to the Commission that the provisions of the Act and the reservations about relying on the temporary convenience letting have led to a petrification of the business letting market. Landlords are only prepared to grant either lettings for less than three years, usually in fact for two years and nine months, or for periods of twenty years or more. [The only way this would change is under the Bill as it is currently framed where lettings for two years and nine months would be replaced by four years and nine months or for periods of 20 years or more.] It is believed that many landlords would be prepared to let properties for periods of up to five years and possibly more if they could be sure that the tenants would not be entitled to a new lease at the expiry of the initial term. It is also believed that many tenants would wish to be able to obtain lettings for more than three years even at the expense of not being entitled to a renewal of the tenancy at its expiry.
The Commission is of the opinion that there is no reason why two parties entering an agreement "at arm's length" should not be allowed contract out of the provisions of the Act.
It is interesting to note that the Landlord and Tenant (Amendment) Act, 1989 provides that the right to a new tenancy will not apply in cases where leases are made with companies carrying on a relevant trading operation in the Custom House Docks area.
This will have effect only in relation to leases made during the period of five years after the passing of the Act unless renewed by the Minister for Justice by regulations approved by both Houses of the Oireachtas.
In the English legislation equivalent to our 1980 Act, the Landlord and Tenant Act, 1954, contracting out is prohibited. . . However, contracting out may be authorised by the court on the joint application of the landlord and tenant in the form of an agreement which either excludes the 1954 Act provisions as to the continuation and renewal of tenancies or else provides for surrender in specified circumstances. This provision is now section 38 of the 1954 Act and was inserted by section 5 of the Law of Property Act, 1969.
The commission has considered the English option and believes that where the parties are in agreement there seems no point in requiring them to incur the expense of an application to the court in order to obtain formal approval of the "contracting out". We feel, however, that it is important that both parties are aware of the implications of contracting out and would therefore recommend that the parties should receive independent legal advice before doing so.
We recommend the Landlord and Tenant (Amendment) Act, 1980 be amended to allow parties contract out of the provisions of Part II of the Act as it applies to business premises provided that both parties have independent legal advice.
The proposals in the amendments I have tabled would in effect implement that provision. It is correct to say — and appropriate that we discuss it at the same time — that Deputy McDowell's amendment No. 11 would largely implement the English provision or would put into Irish law a provision which allows for opting out but only in circumstances where the courts declare that the agreement is fair and reasonable. There is probably a technical difficulty now with Deputy McDowell's amendment as it applies not just to business tenancies but also to residential tenancies in light of the vote we had.
It would still be valid.
It is something we can discuss. In this regard a number of different groups who work in this area have made the point that it is in the public interest that contracting out provisions be permitted. I am bearing in mind that tenants and landlords are of a different hue and variety. In the context of multinational firms coming into this country it might suit certain bodies that there is a facility to enter into leasehold arrangements in places other than the Customs House Docks Area which are not confined to such provisions as are contained in the present Landlord and Tenant Act.
In bringing business into Ireland from continental Europe it can be difficult to create arrangements. A firm may want a ten year letting of a premises but a landlord might not want to be committed to rights of renewal and a situation might arise where, ultimately, that firm may go to Spain or another country which allows opting out provisions.
This is a serious issue. It is not just a matter of technical landlord and tenant law but has to do with job creation and providing a market that responds to modern conditions and difficulties in the letting of premises, not just small retail shops but major buildings for manufacturing and other purposes. It is in the public interest that in dealing with our law in this area we have a public duty as legislators to look at what is being done in other European Union states with whom we are competing to get additional business to create jobs here.
The Dublin Chamber of Commerce's report gives specific examples of situations that have arisen in reality, not just in theory, where companies have sought to enter into arrangements to set up in Ireland and because of the restrictive nature of our landlord and tenant laws they found it impossible to get the letting arrangements they felt were necessary and they went elsewhere. In case Members might think I was exaggerating the report produced by the Dublin Chamber of Commerce is interesting because it briefly deals with the laws in other countries. Countries such as Spain and Portugal have contracting out provisions. Some other countries do not provide the degree of protection to tenants which our laws give and I am not suggesting that should be the case. However, the European experience is that as European countries modernise their laws in this respect they area allowing people at arms length, with independent legal advice, to enter into their own arrangements and the statutory provisions are there as a fall back provision to provide protection for tenants who require it.
It could be argued that if one allows for contracting out provisions, all landlords will force all tenants to contract out and the legislation will become irrelevant. I do not believe that is the case. I travel around the country on a regular basis and I know there is not a town in Ireland I have driven through over the past 12 months where there are not either factories or retail shops vacant. That is a reality. It is unique to find a town where there are not factories or retail shops vacant. The reality is that it is a tenant's market and not a landlord's market. Whether one wants to rent premises in Dublin or elsewhere, if one approaches a landlord seeking a tenancy the landlord will not give it unless one contracts out of all one's rights. It would be unusual if there was not another premises close by where the landlord would welcome a tenant with open arms and provide a tenancy under which all the tenant's rights are fully protected.
There is a balance to be found in all of this. I am not suggesting that no landlord will try to create problems for a tenant, nor am I suggesting that no tenant will try to create problems for landlords. I remind Members that in some instances the tenants are major multinational companies and not small traders. I am concerned that this provision will be painted as something to undermine the operation of this legislation with regard to business tenancies. I am conscious that amendments have been tabled by the Minister and the Progressive Democrats to have this provision deleted from the legislation. If that is the committee's decision, so be it.
I am anxious that we seriously tease out this provision particularly because the people who operate in this area are those who say that an amendment such as this is needed. I would be interested to hear from the Minister in the context of the Government's opposition to this proposal, what feedback he has got from the IDA, or the fragmented version of the IDA we have now, with regard to difficulties experienced in recent years because this type of opt out provision is not contained in our legislation. We are not going to complete this Bill today and if the Minister does not have the information I ask him to contact those involved in the IDA at this level to get feedback from them as to whether such a proposal is necessary. All the information I have is to the effect that it is not only necessary but is essential for job creation.
On a point of order, I know we will probably continue this tomorrow but amendment No. 11 is related. We oppose the opting out section but we have proposed in amendment No. 11 a different form of opt out which is court supervised. It should be taken with this amendment.
Is that agreed? Agreed.
I am happy to hold over my comments until tomorrow. We are not going to finish this issue today so perhaps it is as well to resume tomorrow.
It should be possible to finish Committee Stage between 11 a.m. and 1 p.m. tomorrow.
Another committee with which I am involved is meeting tomorrow.
We are trying to facilitate the Minister and he has suggested we should continue. Is that agreeable?
I have personal problems to attend to. We will need time tomorrow, but we should finish the debate then.
What time should we start tomorrow?
If Members are agreeable, I suggest we start at 11 o'clock. I am sure we will finish by 1 o'clock.
I agree with that proposal.
The Select Committee adjourned at 5.1 p.m.