We will resume on amendment No. 5a. The commmittee agreed that amendments Nos. 5a, 11 and 12 would be taken together.
I hope that, as discussed yesterday, and with co-operation on all sides, we can conclude our deliberations on the Bill at approximately 1 p.m.
While there is some merit in Deputy Shatter's proposal that there would be an opt-out provision in the Bill, I believe that, on balance, Deputy Michael McDowell's amendment is, in all probability, the better option. If there is an opt-out provision it will mean that the vast majority of landlords, at whose discretion the property is being let, will choose such a provision and, effectively, the terms of this Bill will be negated. Such an opt-out provision is weighted heavily in favour of the landlord to the detriment of the tenant. I appreciate and understand Deputy Shatter's reasoning but, on balance, it is fairer that a court should decide whether the tenancy should be terminated in the event of a prior agreement having been reached between landlord and tenant. It is perfectly conceivable that a tenant may have an opt-out provision, an exclusion clause or a contract to avoid and finds his business may be doing relatively well. At a certain stage in the tenancy when, under normal circumstances the period in which the tenancy could be renewed would have elapsed, the landlord could ask the tenant to go.
I understand the concept Deputy Shatter is propounding and I appreciate the desirability of certainty in these matters. There can be no question that there would be a far greater degree of certainty if the opt-out provision was encapsulated in the Bill. However, on balance there is more merit in Deputy McDowell's amendment.
We oppose section 4 which is essentially an opt-out section. We have carefully studied the proposal in the legislation but we have concluded there is too great a danger that opt-out clauses would become universal. Most landlords would be advised by their solicitors to provide for an opt-out when entering into the tenancy. The reason for landlord and tenant protection and allowing for statutory renewal rights is precisely because there is no equality of bargaining power and economic strength between all business tenancies.
As Deputy Shatter outlined, in some modern cases big companies are of equal economic strength and perhaps they should be allowed to opt out. Those situations can be dealt with by the amendment. Our proposal is that the court could supervise and authorise opting out of leasehold renewal arrangements by established landlords and tenants. The court would have to determine that such agreements would only be permissible if they were not improvident. That would go a long way towards creating the flexibility needed, which has been sought by the lobbying groups such as the surveyors, the valuers and the chambers of commerce. Commercial reality must be introduced.
If one looks at the genesis and development of landlord and tenant legislation over the years, it has been recognised that the parties are not always equal. The reason for giving a tenant the right to a statutorily renewable lease at the end of a certain term is to protect the goodwill which would have been built up in the business. We feel landlords would universally decide to impose an opt-out clause when entering tenancy agreements. We favour a certain amount of deregulation in other areas of business and commercial transaction.
Experience has shown that long term residential and business tenants need workable protection which is also fair to the landlord. Our amendment strikes a fair balance. If the present op-out proposals are passed the balance would be undermined. A fairer system for protection of risk taking entrepreneurs is part of the enterprise society we all seek to promote. The opt-outs clause would give too much control and mean too many gains for the landlord who, while important, is not as exposed in the market as the smaller entrepreneurial enterprise and tenant. The system currently operating in Britain is that opting out is allowable under the supervision of a court. The UK Landlord and Tenant Act, 1954, allows such supervised opting out between the parties when it would not be improvident.
As Deputy Shatter mentioned, the Law Reform Commission said opting out should be allowed in these tenancies. Our amendment would allow for opting out but it would be provident and would seek to avoid the risk that tenants would be left without any of the protection so carefully developed over the years to protect the goodwill of tenants in businesses such as a florist shop or a restaurant. After a certain period opt-out clauses would be part of legislation and business and that would be undesirable. Tenants would be left without the protection they need.
I support the point made by Deputy O'Donoghue about the need for flexibility in the system. Without it the cure could be worse than the disease. Our obligation is to make good legislation which is practical, operable and fair to both sides. We must be fair to landlords and tenants and not tie up the system with legalistic, bureaucratic jargon which is difficult to interpret. Our intention is to streamline legislation.
One of the more important points was made by Deputy Michael McDowell. He said that many employers, including local authorities and health boards, have been able to frustrate the terms and conditions of the Employment Appeals Tribunal by making employees sign short term contracts, sometimes for three or six months. That frustrates labour law in the areas of minimum notice, redundancy and unfair dismissal.
That has now been changed but similar changes have been made to this legislation. In the past many tenancies were for three years, or in these cases two years and nine months or two years and 11 months. In many cases the landlord then asked the tenant to vacate the premises and would then seek new bids or tenders for the tenancy. This could affect small businesses like shops or pubs. As soon as the tenancy was broken, the tenant who had been there for three years had no legal rights and no priority established as regards the new letting.
The period has been increased from three to five years but tenants have no rights or protection in the law. This legislation should be framed to give rights to such tenants. A good tenant who may have paid rent for five years is at the mercy of the landlord when the tenancy ends. The relationship between landlord and tenant is not equal. The landlord may, at a whim or for perverse reasons, end the tenancy and give the goodwill of the premises to someone else, even if the tenant has worked hard to build up the business.
I call on the Minister to give protection to people in those circumstances who have been exemplary tenants. There is no protection in the legislation to deal with such an eventuality. That is a flaw in the Bill because the relationship between the landlord and tenant is not equal after five years. The landlord has total discretion which is unfair. There should be some balance.
I support Deputy Shatter's amendment because it strengthens the section. It states: "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". We are referring here to people in business. If people cannot make up their mind about a business lease, they should not be in business in the first place.
I have heard arguments here which do not acknowledge reality. It may be in the interest of a tenant to have the right to opt out because he might get a reduced rent if he surrenders that right, which might suit him. When the five years have expired, he always has the option of seeking a renewal of a new lease. Business people should have the right to be more flexible if they wish. In this instance, the tenants may, if they wish, surrender their right. Otherwise, one will start off the process of landlords giving leases for only four years and nine months to avoid giving any of these rights. This amendment merely allows that practice on a voluntary basis. I cannot see why we should interfere with normal commercial decisions by imposing obligations on them. With all due respect to the Progressive Democrats' amendment, it calls for the courts to decide which creates more legal expense and for what reason. If I voluntarily decide to surrender some right, I can do so in the normal business atmosphere. Deputy Shatter's other amendment says it will only be bona fide provided one has done so having obtained independent legal advice. If that is not further protection for a person, then I do not know where we are going. The courts should not be involved in this process because it imposes unnecessary legal costs on people. It is up to the person to voluntary decide whether they wish to surrender this option. I support Deputy Shatter's amenndment.
While I can see merit in what Deputy Shatter is trying to establish, on reflection I am still concerned about it. When one thinks of the businessman/landlord talking to the prospective businessman/tenant, the opt out clause, although voluntary, seems to be a big advantage to the landlord. There is a kind of moral persuasion factor there in that the landlord may have others interested in his property. If a prospective tenant is not interested in signing the voluntary opt-out clause, it may be difficult to be considered.
I agree that Deputy Shatter is trying to strengthen the section by the inclusion of legal advice. However, one can give the example of a businessman in employment who now wants to be self-employed. There are many risks and he has a lot to learn. He is not, frankly, in a position to decide whether it would be in his best interest to sign an opt-out clause at the commencement of his tenancy. It might take a number of years for him to make that informed judgment.
I am in favour of eliminating the opt-out clause as it would be much safer and restore the balance much more effectively. On reflection, I support the Progressive Democrats' amendment rather than that of Deputy Shatter.
I support Deputy O'Donnell's amendment. The points made by Deputy Barrett are valid, but it worried me that this practice would become the norm. Yesterday, Deputy Dermot Ahern referred to the payment of key money to get into premises in County Louth. The first move the landlord would make would be to automatically include this opt-out clause. When there is competition between retailers, such as in shopping centres, the landlord would have them over a barrel by immediately inserting this provision. The landlords and shopping centre developments would try to make this the norm. It will not necessarily come down to those who cannot make up their minds, but in many cases when landlords and their solicitors know that a retailer wants a certain premises, they will hold out to get this clause in their lease. That could be detrimental for retailers in the long term.
One has to examine retailing and retail business. There has been a huge fall over the years in the number of Irish owned family retail businesses and this measure would be to their detriment. It would suit many of the multinational, high street type shops because they move in and out of premises after a few years. This clause would not help to build a strong indigenous retail business and Deputy O'Donnell's amendment should be supported.
My concern is that we are talking about this matter as if it is in a vacuum. I appreciate the concerns Members expressed about the opt-out clause. It is one of those issues that one could debate endlessly. There is probably no perfect view as to how one would proceed here. Much of it ultimately depends on how business people behave in the market-place.
We should not assume that people do not currently enter into arrangements which have the same effect as the opt-out clause, the point the Law Reform Commission made. I referred to the Gatien case, in which one could enter into a relatively long lease which one provides for people after a specific period on the basis of a temporary letting, and then one has a new lease. The point the Law Reform Commission made is that people can enter into artificial arrangements to get round the legislation. Whether those arrangements are valid can be open to question in certain circumstances and can give rise to court proceedings. On balance, the Law Reform Commission's view was that where people are at arm's length, had independent legal advice and are business people who wished to opt out, they should be allowed to do so.
I fully accept that circumstances may arise where the landlord may be in the stronger bargaining position, but similar circumstances may arise for the tenant. It depends on the business background. This provision is here because in the current market-place, where landlords and tenants are vying with each other and there is a lot of vacant property throughout the country with people wanting to start up businesses and waiting to enter into all sorts of arrangements, it makes sense that two persons or companies can opt out if they wish. Deputy Barrett made an important point worth repeating — I also made this point yesterday — that it may be very much to the advantage of a tenant starting up a business to be allowed to opt out. They may be given a concession in their rent if they opt out rather than opting in, which allows them to exercise their rights.
In the context of landlords in these circumstances using strong arm tactics, anyone today with pretensions of becoming a successful business person, whether selling sweets in their local shop or in a major manufacturing operation, must have some capacity to negotiate business arrangements with all sorts of people, such as suppliers, banks, manufacturers and the purchasers of one's product. One is only successful in business if one has the capacity to enter into negotiations at various levels, some of more or less importance obviously, depending on the business, they may be more or less difficult, even if it is simply buying a property. We do not have laws which state that if I want to buy a shop, the courts will determine how much I should pay if that person who owns the shop is unwilling to sell it to me at the price I wish to pay. We are not saying we are being unfair to small business people who want to buy properties because the courts do not arbitrate on what the price should be of the property they want to buy. It is left to the purchaser and the vendor to conduct a negotiation. If people conducting such negotiations think they lack the necessary skills to do so, they will often get the assistance of those who have the skills.
That applies as much to the acquisition of a leasehold interest in a property as it does to the purchase of a property. The distinction between the two is artificial. Sometimes we discuss this in a mind set that places us back in the last century or to the early part of this century in that we are conscious of days gone by when landlords, who lived outside the country, owned major properties and exploited tenants who had little or no rights under the then existing law. We are no longer in that situation. We are a hundred years on and it is a different environment.
Within the business community, from the survey that was carried out, the majority of people, certainly in Dublin, operating and setting up businesses in the type of situations to which Deputy Kemmy referred, and conducting negotiations to take on tenancies, want to see this type of freedom in the context of entering into arrangements. The Law Reform Commission which examined it in 1989, perhaps from a more academic and theoretical perspective, recommended that we proceed along these lines. It is interesting not a single group representative of any section of business disagrees with this.
We have all probably received some representations and comments about this Bill from different people, such as RGDATA which represents many small shopkeepers, and a variety of other groupings. I have not received a single letter from an individual engaged in business or from any group representing anybody, saying they do not want this. I point this out to members of the committee because there is a possibility that we will get this wrong. I fully appreciate that it is an issue on which Fine Gael does not have the numbers to succeed in any vote but this is an issue on which I hope we can reach agreement. I take the view that there is no party political advantage to anyone in this. It is a question of working out, as Deputy Kemmy said, the best and fairest arrangement to be put in place. It is interesting that I am unaware of any group who considers this a bad idea.
In relation to Deputy McDowell's amendment, he and the Progressive Democrate are in a sense trying to do the same thing. They are providing for an opt out provision but are saying it must be an opt out provision of which a court approves. I have difficulty with that.
Established tenants, not before the tenancy is agreed.
I am not sure why an established tenant would want to opt out after they are in there. I have difficulty understanding that. If one is to get a rent concession, for example, to enter into this arrangement, one will get that at the commencement of a tenancy. Once one is a tenant and is on a full lease, why one would want to opt out of a right to renew when one is an established tenant escapes me. Ultimately, if I am an established tenant and come to the end of the term of my lease, I have a right to renew but if I decide not to do that, I can just walk away. Why an established tenant would want to opt out escapes me because I cannot see any advantage. If an established tenant opts out, one might wonder about issues in relation to the landlord.
The right vested currently in a tenant does not vest in a landlord. It is an issue whether a tenant opts out. If one was to take the broader picture that one would allow an opt out, provided a court agreed, it raises many problems. What court would disagree if a tenant sends their lawyer into court to say they want to conclude this lease that they agree to opt out, are willing to pay a certain amount of rent, they think it is a viable business proposition and the landlord is also agreeable? What is a court to do? Is a judge to be given an entire business plan and all the financial projections for the next five years for someone who wants to start up a business to work out whether this is a viable proposition for them? Of course they are not. There is no reality in that.
A judge will simply give an imprimatur. If judges do not simply give imprimaturs when two people by consent apply to the court, what sort of court hearing would take place? Will a judge arrange for auctioneers and valuers, and a series of other businessmen and property owners, to give independent evidence as to whether they would in the circumstances of this tenant do the same thing? How will that work in practice?
The other problem arises if I am thinking of starting up a business or if I am already in business and want to move to new premises. I see appropriate premises and I do a deal with the landlord. Normally a person would want to get into that premises within a matter of weeks or arrange for internal reconstruction of the premises so that it is suitable for his business. If he is to rent a premises, would he want to be in a queue for six or 12 months to get before a judge in a court to get his approval for the rental arrangements? I do not believe anybody would. Would anyone want to pay a solicitor's and barrister's fees to walk in to court to explain to a judge why he thinks this is a good business venture? Frankly, it does not make a lot of sense to involve the courts in these circumstances. The courts would have a role if someone concluded a lease, in which they opted out, where they did not get independent legal advice and clearly the arrangements they had entered into were inimical to them and they were put at a serious disadvantage. The courts would then have a role because if the landlord tried to rely on the opt out clause, and if there was not independent legal advice, the courts could strike down the opt out clause. That is an important protection for the tenant.
I am responding to what people said on this issue. I recognise that if the majority of Members of this committee are of the view that we should not go ahead with the opt out clause, we will not go ahead with it. I am interested to hear from the Minister whether, following our meeting yesterday or even prior to yesterday, he has received communications from people involved in the IDA who had experienced problems in this area with businesses trying to establish here. I draw the Members' attention to a good example of the problems that can arise under the legislation which is given in the Dublin Chamber of Commerce report. It cites one particular example of a case study in the latter end of their report. It sums up the problems that can arise in this area where the current law can prevent businesses from successfully following a business plan that is advantageous and may create jobs. In case study one, subletting, it states:
Adders and Partners, a leading accountancy firm whose business had consistently expanded over the previous five years decided to relocate from a 1970s office building to a more prime and modern office building. The firms's immediate requirement was for approximately 40,000 square feet and the proposed building contained approximately 50,000 square feet. The requirement at 40,000 square feet included space for short term expansion but the partners envisaged that within five years they would have a requirement for the full 50,000 square feet.
It goes on to explain how this particular company wanted to let out the 10,000 square feet for a period that would be more than three years but less than five years and how they could not then proceed because although they wanted to opt out of the legislation, and the company was willing to let it if sub-tenants wanted to opt out of the legislation, they could not do so. The problem of the particular company would be solved now by the five year rule but all one has to do is put in a business that wants to acquire a premises with a long term expansion plan. They may not need to use part of their premises for seven or eight years and may be able to find a tenant for that period. Under this provision, if the opt out was available they would able to do that. If the opt out was excluded, they would be unable to that. They could perhaps resort to the escapade referred to by the Law Reform Commission in the Gatien case. That case related to a large firm, but it could relate to a small business.
For example, if I want to establish a retail outlet in a town and I have the facility to purchase a premises, the shop retail premises may be too large for a start up business, although I hope to use the entire retail premises in five to ten years. In the short term I may wish to partition the premises and rent it as a shop and it may suit me to enter into an arrangement to give someone a tenancy for ten years and it may suit that someone to take the tenancy on the basis that they get a reduced rent and they do not have rights of renewal after ten years. Why should two business people at arms length not be entitled to enter into that arrangement? Under the law, they cannot do so without the opt out clause. Such a business arrangement is not uncommon.
I promise the committee I will not make further lengthy speeches on this. I wanted to put on record a response to this. We have not heard the Minister's reply and I may want to respond to it, but I will be brief.
The point I made was that this legislation is for general application. It is a continuum of landlord and tenant legislation which has built up over the years. Section 85 of the 1980 Act, which we are seeking to amend, renders void any opt out clause. The Legislature has a reason for doing that. It recognised that one was not dealing with people of equal economic strength. Sometimes one deals with big businesses which are at arms length. For example, British Land and Dunnes Stores are capable of dealing with one another on equal terms. This legislation applies to small, medium or large business tenancies throughout the country.
If we allow pre-letting opt out arrangements, they will become the norm. Predictably, landlords will protect themselves by putting down opt out clauses when entering into tenant arrangements. There is a danger that it would effectively dismantle and negate the protection for tenants which has built up over the years. I accept that from time to time — and cases have been pointed out — big business, for example, in the case of the International Financial Services Centre, entered into special arrangements. Normally, landlords and tenants reach agreement in different ways, for example, temporary convenience leases, etc. to avoid the consequences of the legislation.
In terms of the Legislature trying to continue to protect the goodwill and security of tenants in business contracts, it would be wrong and dangerous to allow the free market to prevail. The free market must be a fair one. Although the climate is good at present, it could change. It would be dangerous to remove these protections by allowing an opt out prior to tenancy. Solicitors would advise their clients to put down an opt out clause, thus leaving tenants without protection. The 1980 Act states the opt out clause should be void and we should continue that.
I agree with Deputy O'Donnell. Deputy Shatter was correct when he spoke about two people being financially equal but coming from a position of weakness, the tenant is at a disadvantage.
In regard to the retail business, those who came from the Dandelion Market are now established retailers in the city. Such markets are a good breeding ground for retailers. Most of those people would have been at a disadvantage when going into shopping centres if this provision was in the legislation. That is why it is not good. The tenant should be given what is proposed by Deputy O'Donnell's amendment.
Banks would consider a five year lease as not being long enough. I have a number of premises in the city and the bank manager usually asks what kind of a lease I have. If one is looking for money to develop a premises and business in the retail sector, one must borrow a lot. If one has a weak lease one will not get as much money as one may need to develop the business and this a disincentive. Although I agree with many of the suggestions put forward by Deputy Shatter in relation to this Bill, I do not agree with this. Deputy O'Donnell's amendment should stand.
Most of the aspects and sections of this Bill are excellent and will help to stimulate business and assist tenants and landlords. If the opt-out clauses is included in the Bill, in every business tenancy the solicitor advising the landlord will state the dangers of this Bill — after five years the tenant can get a renewable lease and the landlord will not have discretion in this regard. In order for the landlord to hold onto his property and to have the best of every world and the worst none, an opt-out clauses should be included in the Bill. However, if the opt-out clause remains in the Bill, all the excellent protections included for business tenants will evaporate.
We could find ourselves in a ridiculous situation where we have enacted a Bill in order to be fair to landlords and tenants and we have given rights of renewal after five years so tenants can continue in business if their tenancies are viable and their business is going well. However, in the final analysis nobody has the right to renew. If that situation is allowed, the Bill will be weighted in favour of the landlord and it cannot be said that there is equity and parity. There will not be a balance in this regard.
Deputy Barrett said that two business people negotiating an agreement are entitled to manage their affairs without interference. A person should be entitled to manage his or her affairs when going into business. However, we must be realistic because the tenant is in a weak position. If there is no opt-out clause when two business people meet to discuss the tenancy, they will be aware of the precise position, that there is no such clause. I have said that, on balance, the amendment tabled by Deputies McDowell and O'Donnell is better but this does not mean it is necessary for either of these proposals to be included in the Bill. I could come to the conclusion, and it is open to debate, that there should be no opt-out clause. My understanding of the amendment tabled by Deputies McDowell and O'Donnell is that it provides for a situation where the tenancy originally entered into is for a period longer than five years and that during the course of the tenancy there is agreement between the landlord and the tenant to vary the terms, perhaps to decide there would be an opt-out provision. The logic behind the amendment is to ensure the tenant has full protection, the court would decide if the terms were fair and reasonable. The alternative to this amendment is to have no opt-out clause. I appeal to Deputy Shatter, who has introduced an excellent Bill, to consider this very carefully because he is now in serious danger, by including the opt-out clause, of undermining the Bill's excellent terms.
I support Deputy O'Donoghue like other Members, because if we agree to an opt-out clause we will undermine this Bill and the 1980 Act. I have previously practised as a solicitor. We are all aware of how quickly provisions of this sort become the norm. In 95 per cent of cases leases are agreed by way of standard form, largely drawn up through the good offices of a number of firms in the city centre who act on behalf of landlords. Most short term lettings are also done on the basis of letting agreements. One may say that people should seek to have these standard forms amended if they do not suit their circumstances. One may also say, as Deputy Barrett said, that we should not intervene in the making of an agreement between two businessmen. Surely the point of landlord and tenant legislation and of this Bill is to intervene in the free market, to say that whatever people may agree we believe this should be an element of it. This is an acknowledgment of the fact that people do not make such agreements from the same position.
When people, particularly small businessmen, want to start up in business, the precise terms of the lease are not their foremost consideration. They are much more likely to be focused on how to obtain money, employ people, start the business and get customers than on the formal terms of the lease which they sign. Frequently solicitors are instructed by businessmen who regard this as necessary only in so far as they have to borrow money on foot of it. They regard it as not much more than a tolerated necessity. They do not focus on the terms or on renewal and opt-out clauses. Independent legal advice may be of help but I am not convinced it would fully rectify the situation. My preference is to have no opt-out clause but, if we must have one, I think the Progressive Democrats' amendment has more merit than that proposed by Deputy Shatter.
All the Members who spoke since I came back have legal training. I conclude from this that they have a monopoly of common sense or have been prejudiced by their legal training. I will offer my common sense. I cannot understand——
On a point of order, I have no legal training.
He used to be a tenant.
I am a poor tenant.
The Deputy should have common sense so.
I would be much richer if I had legal training.
The Deputy would be richer if he was not a Member of this House.
I am sorry I missed the earlier part of this discussion as a different Oireachtas committee was discussing other legislation. Ignoring this opt-out clause would involve trampling on the rights of individuals. Everybody seems to be talking about the landlord dictating to the tenant. I thought Deputy Shatter's amendment provided for independent legal advice. Although I do not have legal advice on this issue, I think that a landlord who bullies a tenant would lose the subsequent court case because the tenant did not have independent legal advice and was forced to do something which he or she did not willingly want to do.
We are getting to the stage where "big brother" will interfere in all kinds of matters and sensible individuals will not be able to agree on anything. It could easily happen that young, qualified graduates would think the production of rubber ducks or rubber effigies of Ministers they wanted to burn would be successful but would not be prepared to be restricted to long leases. They could meet a person who owned a house or flat which was vacant for a certain period of time. The leasing of the property by the graduates for this period may perfectly suit both them and its owner. However, we are saying to them that they cannot do this because if such situations were allowed they would be abused by landlords.
Why do we always make provisions to deal with abuses rather than positive aspects? Why can we not protect the tenant if a landlord has abused his powers? We will prevent young people from becoming the Michael Smurfits of the future by preventing them from taking a certain lease. Some of us may be successful business people but most legislators would probably not survive in business for a week. We are dictating to young people that they cannot make up their own minds as to what they want to do. We are saying they must do things our way regardless of whether it suits them, even though most of us know nothing about running a business. If the Progressive Democrats' amendment, which is of help in one way, means that everyone must go to court to operate such leases, the result will be the discouragement of such leases as people will not be able to afford the costs involved. We should look at the positive side. Individuals have rights. We should not act as "big brother" telling them they should do things our way or not at all. The legislation should deal fully with landlords who abuse their position.
I do not understand the points made, in particular by Deputy O'Donoghue. He said most solicitors would advise their landlord clients not to insert an opt-out clause and insist that this opt-out clause goes in. If the fears expressed by Deputies prove to be correct, why should any landlord agree to leases of more than four years and nine months? All this legislation does, without opt-in or opt-out clause, if those who oppose Deputy Shatter's proposal are correct, is to increase the duration of leases from two years and nine months to four years and nine months. I do not understand their arguments.
There are disadvantages for tenants. Deputy Eoin Ryan spoke of his experience in the retail business. However, in the office, industrial and warehouse sectors a long lease can be a disadvantage for a tenant because he or she would be unable to leave the premises. I know many people who are tied into 35 year leases and cannot leave their premises. This imposes an additional cost on them because the conditions of their leases do not allow them to sublet these properties. These amount to another interference in ordinary business practices simply because we, as legislators, and those who have been influenced by the courts are afraid to let go of something which has apparently been established.
There is no logic in the argument being put forward that it is not in the interest of tenants to have this opt out clause included because, as I said, if landlords are going to behave as those who speak in favour of Deputy O'Donnell's amendment say, then no landlord will give a tenancy beyond four years and nine months. That is reality. Landlords, particularly in the office sector, want long leases because it makes their buildings more valuable. A building with a tenant with a 35 year lease is more valuable than one with a tenant with a four year and nine month lease and various opt out clauses. Landlords want long leases.
All the arguments seem to be based on people's experiences in the retail sector. It is not possible to legislate because of a prejudice in one area and apply it to every other area. Why can the Legislature not agree to the principle of business people coming to an arrangement where one says they voluntarily want to opt out of their right of renewal after five years? Why do we have to say that we believe it is in the tenant's interest not to be allowed to do this because big big brother landlord will insist that this is in every lease? Big brother landlord will only insist on four year and nine month leases if that is the case. The argument does not stand up.
Practically all the advantages are on the side of the tenant. If I was a landlord with office space to let, given the market in Dublin in particular, I would grab anybody who wanted a 35 year lease. Tenants do not want 35 year leases. The arguments advanced against the advice given to us by Deputy Shatter do not stand up. As I and he have said, this will be a matter for the committee but I have not heard the Minister say why he is opposing this section. Perhaps I was late and I ask the Minister to forgive me if he has already outlined this but I have not heard from the Department why it would be opposing this section. I am anxious to hear from the Department because I may have missed some points.
In response to Deputy Barrett's first question, I do not think he is stupid, whatever anybody else might think. I hope Deputy Browne's reference to rubber Ministers is not an adverse comment on the flexibility with which I have approached this legislation.
We will see.
The Minister will bounce back.
In relation to Deputy Shatter's query about communication from the IDA, I have no communication. I have made inquiries as to whether the Minister had recent communications and the answer is in the negative.
What I meant was whether, before forming a view, the Department had taken an initiative to inquire from the IDA if it had a view on this. I would not necessarily expect the IDA to take the initiative and write to the Minister about it.
I can respond to that. Since the legislation was introduced I have spoken to a large number of practitioners and I have also spoken to the specific development agency in my region, Shannon Development. I was intrigued when I heard Deputy Shatter yesterday evening and again this morning speaking about foreign businesses locating here. As the Deputy knows, there is a large number of foreign businesses located in my region and we are always in the market competing for foreign business. I have often been involved in those negotiations, sometimes on the margins.
I know the factors which businesses take into account in deciding whether to come to Ireland — the cost of labour, skilled work force, tax regime, etc. I can honestly say that having been involved in this for more than 12 years I have never encountered a case where a foreign business decided not to locate here because of landlord and tenant laws. It may be a factor in their consideration but it does not loom very large. I have never come across a case where it would have tipped the balance one way or the other.
I take Deputy Barrett's point that if the landlord does not want the tenant to get statutory rights as laid down in the legislation he will only give a lease of four years and nine months. Up to now, if that landlord did not want the tenant to get statutory rights he would only give a lease of two years and nine months. I think Deputy Barrett will agree that this legislation, introduced by Deputy Shatter, represents a considerable improvement on the present position.
One of the difficulties with the initial opt-out clause is that, as Deputies McDowell and O'Donoghue said, it is the landlord's solicitor who prepares the lease and they will inevitably have an opt-out clause in the lease. In 99 per cent of cases the tenant will be given the choice of taking it or leaving it. If that is the position, then every landlord will be able to say to a tenant that it suits them to give a 15 or 20 year lease with an opt-out clause. The tenant might be successful in business and build up huge goodwill and, at the end of that 20-year lease, the landlord can effectively take the tenant's goodwill. We would have to at least introduce legislation to compensate the tenant for the goodwill which the landlord could effectively snatch at the end of a 20, 30 or 50 year lease.
The effect of section 4 together with section 6 would be to allow people on entering into a business tenancy to renounce in writing their entitlement to a new tenancy under Part II of the Landlord and Tenant (Amendment) Act, 1980. I am aware that in their report on landlord and conveyancing law the Law Reform Commission recommended that parties should be allowed to contract out of the provisions of Part II of the 1980 Act as it applies to business tenancies. The commission did stipulate that this would be provided that both parties had independent legal advice and amendment No. 6 addresses that point. In any event, irrespective of whether independent legal advice is required, the danger of what is being proposed here is that, in relation to all new business tenancies entered into after the Bill becomes law, it would render the provisions of the 1980 Act redundant.
The point was made on Second Stage that the likelihood would be that all new business leases would be offered on the basis that they would, in effect, incorporate a renunciation clause. The Government accepts that there is a difficult balance to be drawn between the rights of parties to freely enter into agreements and the State through is legislation impinging on such agreements in the interests of the common good.
We must have regard to the fact that there is not in every case absolute equality on the part of landlord and tenant when entering into leases. We are not just talking about large corporations, which could be regarded as being able to look after their own interests, making leasing arrangements. We are also talking about individuals who seek to set up and develop small businesses and who have done so successfully could find themselves many years later with no rights in relation to their business premises.
While there is room for debate on what the period before rights accrue should be, I have to suggest it is going much too far to bring about a situation where, in effect, such rights would not accrue at any stage. I do not believe that point would be met by the provision of independent legal advice. If a possible effect of allowing contracting out is the most, if not all, future business tenancies are offered on a contract out or no lease basis, then all the independent legal advice in the world will not change that and, in effect, the protection in Part II of the 1980 Act will be dismantled.
The amendment tabled by the Progressive Democrats contains a different approach which would allow opting out only after a tenancy had been entered into and where both parties agree and a court approves the agreement. According to my reading of the amendment it refers also to residential tenancies. We dealt with that at some length yesterday and I cannot agree to change the law in such a piecemeal way.
Since we must have a comprehensive response to that I cannot accept the amendment as it is drafted. I have only seen the amendment in the last two days and I think that it is certainly worth considering. I accept Deputy Shatter's point about the difficulties having to go to court could cause. The Legislature has intervened in the area of landlord and tenant law for the public good. The amendment, as I read it, seems to smack too much of handing the function entirely over to the courts. If we are to decide on the court route, we would certainly have to spell out in any legislation we introduce what is meant by "fair and reasonable". The Legislature would redress the balance in their own direction. However, I will certainly consider this between now and Report Stage.
Deputy Shatter mentioned foreign businesses and people looking for longer leases and so on. We could meet the difficulties experienced by foreign businesses and so on by providing that the entitlement to a right of renewal would arise after ten years rather than five years. However, I am sure Deputy Shatter would then point out the difficulties with that which we discussed yesterday. There will be a downside to whatever option we take.
Deputy Shatter mentioned the weakness of the market and the fact that several landlords would only be too glad to let their premises. That is true and I know of empty office space in my constituency and elsewhere in the country. That argument is not good enough because the market is cyclical. At the moment the market is weak and it is true that the weaker the market, the more equality there will be between landlord and tenant but that is a temporary phenomenon. The market can move up and down. Are we to shackle ourselves to a provision which is designed to meet the conditions of the market in one particular state? That is effectively what we are being asked to do.
There is not a perfect market in land and the market in retail and commercial letting is very imperfect. There are many situations where only one location is suitable for a tenant who wants to set up in business. Im many cases location is all important, A person may want to set up a florist ship or a retail outlet in a shopping centre. I do not know if there is a shopping centre in Blanchardstown but presumably if that person wants to set up his business in Blanchardstown, he does not want to do it in Dundrum or elsewhere. If he wants to set up a business in Nenagh, he does not want to do it in Clonmel. The market is imperfect.
I consulted widely with practitioners in the field of landlord and tenant law after Deputy Shatter introduced his legislation. Deputy Shatter said on Second Stage that it is a matter of making difficult choices and that is true. There is consensus that change is necessary but there is a tremendous absence of consensus as to the precise nature of those changes. All members said we have to change the three year period but there was not consensus on what the period should be. Members said we have to do something for domestic tenants in relation to security of tenure, particularly in light of the Mespil Estate case and others, but there was not consensus as to what we should do. There was, however, one point on which there was consensus, and I say this honestly. There was consensus that there should not be an opt-out clause ab initio. Others may have feedback from their sources but the feedback I got from my sources was that there should not be an opt out clause from the beginning because it would render redundant the whole concept of statutory rights. People would be faced with the option of taking or leaving the lease with the opt out clause.
I accept the point made by Deputy Michael McDowell on Second Stage that if we are to have an opt out clause, it might be more honest to abandon statutory protection altogether. That is correct for the following reason. If statutory protection in abandoned in 95 per cent of cases by using an opt out clause, the tenant who will be left to avail of the statutory protection will be the tenant who is in the strongest bargaining position at the beginning. The panoply of legislative protection will apply to the tenant who was in a strong enough position to bargain the landlord out of an opt out clause and there will be no protection for tenants who are in a weaker bargaining position at the outset. Surely that cannot be right.
I agree with Deputy Shatter that there are various avoidance devices which people use, for example, as he mentioned, that which was used in the Gatien case. Deputy Shatter has much more experience in this area than I but I am aware that the courts tend to take a dim view of these avoidance mechanisms. We have a Finance Act every year which imposes tax and people find all sorts of elaborate devices to get round the provisions of revenue statutes.
Even amnesties.
However, if somebody finds an avoidance mechanism we do not abandon the section or the tax imposition or introduce some change in the law so they no longer have to go through so much to avoid the revenue imposition. I may have misunderstood him but I thought Deputy Shatter said that in the Dublin Chamber of Commerce survey most tenants favoured an opt out clause. I have to confess that I have not read this in any great detail but, in view of the feedback I got, I would be surprised if that were the case.
For those reasons I regret I cannot accept the amendment. I cannot accept the Progressive Democrats amendment because it relates to residential tenancies. I will look at it between now and Report Stage.
We have had an extensive debate on this and I do not intend to respond to the Minister. The Minister responded to many points I raised. We have a somewhat differing view on the issue. At the end of the day, it is a matter of choice and I would not pretend to have a monopoly of wisdom on it and I am sure the Minister would not either.
Clearly the view of the majority of Members is that this provision should not be in the Bill. I would formally put the Minister's proposal to delete this provision to a vote but I do not think there is any purpose in teasing it out any further as everything that can be said has been said.
Amendment No. 6 was already discussed with amendment No. 5a. Is amendment No. 6 being pressed?
I move amendment No. 6:
In page 2, between lines 30 and 31, to insert the following:
"(vii) 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.".
I move amendment No. 7:
In page 2, before section 5, to insert the following new section:
"5—The following shall be substituted for subsection (1) of section 23 of the Act of 1980:
‘(2) The Court shall fix the duration of the tenancy at twenty years or such less term as the tenant may nominate provided that it shall not be fixed for a term less than five years without the consent of the landlord.'.".
We might be able to curtail the debate on this somewhat. The section suggests that the right of renewal should be for 15 years originally. The Progressive Democrats are suggesting 20 and the Minister is suggesting 25 years. Having heard the debate on Second Stage, I tabled an amendment proposing 20 years. Again this is a matter of judgment and choice. Would the Minister be willing to compromise between 15 and 25 and agree to 20 years because it does not take away the rights of tenants as they can, at the end of 20 years, look for a further letting period? That might curtail the discussion.
I cannot accept amendment No. 7 because it extends to residential tenancies. I will withdraw amendment No. 8 and I will accept amendment No. 9 which is in the name of Deputy Shatter.
I movement amendment No. 9:
In page 3, line 6, to delete "fifteen" and substitute "twenty".
I move amendment No. 10:
In page 3, line 8, to delete "lesser" and substitute "of less"
The Minister and I have identical amendments. This is a drafting amendment and I presume it is not of great controversy. It seeks to replace the word "lesser" with the words "of less"
