I move: "That the Bill be now read a Second Time."
I wish to share my time with Deputy Browne (Carlow-Kilkenny).
Private Members' Business. - Landlord and Tenant (Amendment) Bill, 1993: Second Stage.
Is that satisfactory? Agreed.
There are in this State more than 300,000 people unemployed. Political and legislative action is needed to remove the barriers to job creation and to modernise outdated legislation where it inhibits people from taking risks, thereby creating new jobs for themselves and others. There is a limit to the contribution that Opposition politicians can make. We engage in negative criticism of Government when it gets it wrong and prod lethargic Ministers into action to address issues which have been for far too long ignored. We also produce alternative tax plans and policy documents. However, since we are in a minority position in the Dáil, it is the Government which at the end of the day determines the policies to be implemented.
One of the few methods by which an Opposition party can bring a positive proposal before the Oireachtas is by use of Private Members' Bills. The Landlord and Tenant (Amendment) Bill, 1993, is the tenth Private Members' Bill I have published on behalf of the Fine Gael Party, the third this year. This Bill is designed to address problems relating to the commercial property sector which create particular difficulties for those who wish to start up businesses. It addresses an area which this Government and the previous Government indicated they intended to address with amending legislation but in respect of which to date no Government legislation has been published. I intend, first, to describe the background problems which give rise to the need for such a Bill and then to refer to the detailed proposals contained in it.
The Landlord and Tenant (Amendment) Act, 1980, as it relates to leases for the occupation of commercial property, acts as a barrier to business and job creation. Under its provisions a tenant of a commercial property becomes entitled to a 35 year lease after only three years continuous business occupation. This has resulted in only very short term or very long term leases being available. Legislation in force in other European Union countries provides for a much more flexible regime for the leasing of commercial property.
The current law is widely perceived as being disadvantageous to both landlords and tenants. Among the difficulties caused by the current law are the following. Many landlords are unwilling to lease premises for periods longer than two years and nine months as they do not wish to commit themselves to a 35 year letting. Such short term leases are a disincentive to tenants who wish to or need to modernise and fit out newly acquired premises as, upon completion of the letting period, there is no certainty their lease will be renewed. Many tenants do not want to make the financial commitment to a 35 year letting as they may be uncertain as to their ability to meet such financial commitment. Many people starting up new businesses envisage an initial three to five year growth period and then wish to move to larger premises without the burden of having to dispose of a leasehold interest of long duration. The possibility of longer start-up leases would facilitate tenants obtaining a reasonable return on money invested in leased premises without creating the burden that arises from a 35 year commitment.
The IDA has over a number of years experienced considerable difficulty with the existing Landlord and Tenant Acts when seeking to attract multinationals to the country on a leasehold basis. The current law is a disincentive to overseas business wishing to locate and lease property in Ireland. Such businesses are used to medium term leases and their accounting practices, which require them to treat long term leases as a liability, act as a deterrent to their locating here. This was recognised by the Government in the case of firms wishing to locate in the International Financial Services Centre in that the Landlord and Tenant (Amendment) Act, 1989, removed the leasehold renewal rights granted in the period 1989-94 for companies trading in the IFSC. Even where a landlord and tenant wish to enter into their own arrangements and do not want to be bound by the current law, they are prevented from opting out of the provisions contained in this Act.
The need to change the law in this area has been known for some time. A recent survey undertaken by the Dublin Chamber of Commerce of a representative mixture of businesses in Dublin city, a mix which included both landlord and tenants, shows that 78 per cent of those surveyed favoured change, 64 per cent of whom were landlords and 83 per cent tenants. There was a desire for change among all sections of the business community. In the context of this survey it was quite clear that the majority of people in all sectors of business in Dublin city favoured change. The results of this survey are mirrored by views of business people in towns and cities throughout Ireland, who believe that the current law creates difficulties and barriers for business. This survey, published only a short time ago, was conducted at a time when Fine Gael was preparing the legislation which is before the House. It is interesting that the feedback we got from the business community was mirrored in the results contained in that survey. I think I am right in saying that this survey is the first of its kind published in an attempt to address this area in detail.
The need for reform has been highlighted not only by Dublin Chamber of Commerce but also by other groups and organisations working with the business community and dealing particularly with business premises. It is interesting that since publication of this Bill the Irish Auctioneers and Valuers Institute, whose members are directly involved in the leasing of premises, acting on behalf of both landlords and tenants, indicated their support for this measure and expressed the hope that this Bill will be successful in its passage through the House.
I wish now to deal with the Bill's proposals. The provisions contained in the Bill will provide a modern legal framework for business tenancies. They are designed to provide for flexibility while also ensuring for business tenants the security of tenure necessary to maintain continuity in their businesses. Under the Bill's provisions the right to a new tenancy will arise upon five year's continuous occupation of a business premises instead of the current period of three years. As a result it will be possible for landlords to provide for longer leases than are available at present without being obliged to enter into a 35 year leasehold agreement upon termination of the tenancy. Moreover, tenants who do not wish to be committed to unduly long leases but who wish to have reasonable security of tenure to realise the benefits of any moneys invested by them in a property leased will be able to enter into leases of longer duration than is possible under present law.
Typically, in the context of this Bill what is at present the two year and nine months lease will become, in circumstances where the landlord or tenant do not wish to be committed to a longer lease, a four year and nine months lease, if people do not entirely opt out of the Landlord and Tenant Acts. Because of the proposed opt out provision it would be possible, in effect, for landlords and tenants to enter into whatever arrangements suit them in the context of the tenancy agreed for the business for which it is required. Under this Bill it will be possible for the first time for landlords and tenants to voluntarily contract out of the statutory leasehold renewal rights and obligations contained in the Landlord and Tenant (Amendment) Act, 1980. There was a time when it was necessary to ensure that such an opt out could not take place. This was at a time when business tenants were very much at the mercy of landlords. The provisions in the 1980 Act had a function in their day, which perhaps was a good deal prior to 1980. Nowadays the arrangements entered into should very much depend on what each side wish to agree in the context of the existing market. Due to the difficult business climate, business premises are available for leasing in most areas. It is more a tenants' market than a landlords' market. The curiosity is that in many respects the current law makes life a great deal more difficult for tenants in the commercial property sector rather than providing protection. This was proved in the survey carried out by the Dublin Chamber of Commerce where a large number of tenants leasing business premises indicated their support for change in the law.
Where the right to renewal of tenancy is relied upon, the current law applicable to business premises is modified by the Bill to provide for a 15-year as opposed to a 35-year lease, with five year rent reviews. This does not mean that at the end of the 15-year period a tenant running a successful business who wishes to maintain his business in the original premises is prevented from doing so. The Bill will allow for renewal of the lease for a further 15-year term. The Bill also provides that after the 15-year period a tenant should not feel bound to renew the lease for a further 15-year period, as perhaps is the case under the present law. The difficulties which can arise in such circumstances will not arise under this Bill.
I wish to refer briefly to the specific provisions contained in the Bill. Section 1 deals with the Title of the Bill, while section 2 is the definition section. Section 3 is a substantive section which proposes to change the current legal position. This section proposes to amend section 13 (1) (a) of the 1980 Act so as to provide that the right to a new tenancy under the Act will only arise upon the business tenant being in continuous occupation of a premises as a tenant for a period of five years instead of the current period of three years. Accordingly, a landlord wishing to lease a premises but not wishing to make a long term commitment to a tenant will, under this section, be free to enter into a longer leasehold arrangement than is possible under the present law. Moreover, tenants who do not wish to be committed to unduly long leases but who wish to have reasonable security of tenure in order to realise the benefits of any moneys invested by them in the property leased will under the Bill be able to enter into leases of longer duration than is possible under the present law.
Section 4 provides that tenants will be allowed legally to contract out of their statutory lease renewal rights if they so wish at the time they are entering into a leasehold arrangement. In order to do this they must be acting in a bona fide manner, which effectively means they must have their own independent legal advice and understand the nature of the arrangements they are entering into and what they are contracting out of.
Section 5 deals with the general position in regard to the renewal of leases in the context of the term of years which becomes available by way of a statutory right to a new lease. Under the current law, when a tenant invokes his right to a new tenancy a landlord can be required to enter into a lease of 35 years duration. Provision is contained in current legislation for rent reviews every five years. Under this section it will be possible, if the tenant is agreeable, for a lease of a lesser duration to be entered into. In the case of business premises, this section provides for the new tenancy to be for a period of 15 years instead of a period of 35 years. Provision contained in the legislation for rent reviews every five years mirrors the current position where there can be rent reviews every five years in the case of a 35 year lease. In this case rent reviews will apply to 15 year leases.
Section 6 is essentially a technical section. Section 85 of the 1980 Act renders void any agreement to opt out of the provisions contained in the Act with regard to the right of a new tenancy. This technical amendment to the 1980 Act will allow business premises to avail of the opt out provision in the Bill. If this provision was not included there could be a difficulty in the interpretation of the Bill.
I want to emphasise that this legislation is confined only to commercial premises and commercial leases. It does not address the broader issues which arise in other forms of leasehold arrangements. It is designed to meet a particular need within the business community and to remove artificial barriers to the creation of business or artificial barriers which give rise to difficulties in arranging for suitable premises to be made available to people, particularly in the start-up business sector. The Bill covers all areas from the retail area to the manufacturing and services areas. Many of the reasons which gave rise in 1989 to changing the law as it applies to the Financial Services Centre, a small area of Dublin, apply equally in terms of changing the law on a national basis.
This relatively simple and straightforward Bill addresses an issue which to date has not been regarded as a priority by the Government. Having regard to the pressures on it and the different areas which require legislation, it is understandable that this area has not been addressed to date by the Government. The Bill, if implemented, will provide badly needed flexibility in regard to the provision of commercial property for leasing and help to create an environment which encourages people to take the risks involved in creating their own businesses, while removing artificial burdens imposed by out-dated legislation. The Bill contains no hidden political agenda and poses no political dangers of any nature to the Government or either Government party. It is a modest, unexceptional measure with which the Government could not have any great argument.
I hope the Government will not have the same knee-jerk opposition to this Bill as it had to the Refugee Protection Bill, which was brought before the House earlier this year. I ask the Government not to oppose the Bill on Second Stage but rather allow it to proceed to be dealt with by the Select Committee on Legislation and Security. I will be happy to take on board any constructive amendments which might be tabled to ensure that the Bill meets the objective for which it is intended.
I believe this Bill has widespread support within the business community. It will bring our laws in regard to business premises into line with the laws in many other European Union countries. This is a technical, uncontroversial measure which I hope will be supported by all Members of the House.
(Carlow-Kilkenny): It gives me great pleasure to welcome this Bill and to congratulate my colleague, Deputy Shatter, a man of tremendous energy and skill, on the introduction of his tenth Bill in this House. He always introduces Bills which are badly needed. I am sure the Minister for Justice, who has brought forward a number of Bills since she took office, will be very happy to have Deputy Shatter's expertise available to her. The experts in the Bills Office are good, but I doubt very much if they are any better than Deputy Shatter, who deserves praise for the easy manner in which he can formulate Bills. I suppose his training in the legal profession has been of benefit to him.
I hope the Minister will indicate her welcome for this Bill which will resolve a problem. In general, landlords and tenants have tempestuous relationships. On occasions landlords find it difficult to remove tenants from their flats and on other occasions the tenants do not wish to remain in the flats because of the treatment they are receiving from landlords. The whole question of landlord and tenant should be reviewed across the board as well as the question of ground rent.
This Bill will be welcomed by young people wishing to set up in business. Establishing a new business can be an expensive process. People have to decide whether to take a risk which may cost them quite an amount of money over a long period of time. Under the proposals in this Bill they will be getting a fair crack of the whip. Under the old legislation two years and nine months was too short a time frame for those who were serious about what they were trying to do. The period of four years and nine months is certainly more fair. It gives people an opportunity to get established, thereby allowing them to consider what their chances of success will be.
It is hoped to set up innovation centres around the country with adequate rooms and floor space to encourage people to develop their ideas, because this country depends on people having ideas. We must no longer believe that the old system will work. Those who can come up with new ideas are needed in our society. When these people have gone through the innovation stage we hope to have enterprise centres established in most towns where they can rent out floor space, thereby expanding on their initial developments.
This Bill will encourage landlords to rent their premises because they will be aware that there will no longer be a 35 year lease commitment. The Bill will also helps the young person starting off in business because he or she will not be bound by that lease commitment. In fairness to both sides, a 35 year commitment is too long. Many rents are completely unrealistic from the landlord's point of view; and from the point of view of someone who has not much money but who is hoping to become a millionaire as a result of a particular invention, a long term lease can be discouraging. In section 5, the proposal for a 15 year lease will give people an opportunity to cut their cloth to suit their measure.
A survey carried out by the Dublin Chamber of Commerce revealed that 64 per cent of landlords and 83 per cent of tenants were in favour of a change in the present law. That is sufficient proof that this Bill is needed both by landlords and tenants. If the people involved in this area want change we must provide that change. I hope the Minister will accept what is proposed in this Bill and put those proposals into action. I am sure many people around the country will benefit from the effect of this Bill, people in towns like Carlow and many more where there are many buildings that could be used if landlords felt satisfied to lease them and if tenants were happy to rent them. Tenants should have the option of a five year rent period with the possibility of an extension.
This Bill is necessary to encourage young people and landlords alike. In so doing it will be a help to the country in general, because we have to get industry up and running, we have to get people working and if problems exist in regard to the length of time one can rent a premises they will have a negative effect. The concept of a 35 year lease is now out of date.
I welcome the Bill and I hope the Minister will welcome it also.
I would like, first, to commend Deputy Shatter for the work which he put into preparing this legislation.
The Programme for a Partnership Government, 1993-97, contains a commitment to amend the law on business tenancies. While the Government has substantial reservations about the detail of some of what the Bill proposes, it does recognise the need for change in the law in this area. In the circumstances the Government does not propose to oppose the Second Reading of the Bill on the basis that it will then be referred to the Select Committee on Legislation and Security where I will bring forward amendments. From my experience of the new committee system I believe it is ideally placed to deal with legislation of this nature and, in particular, to resolve differences of approach in the detail of the measures. I should make it clear, however, that the reservations to which I have referred are of real significance and that the Government intends to use Committee Stage to advance its own approach in this matter.
While the long title of the Bill refers to an Act to amend the law of landlord and tenant, I am sure Deputy Shatter will accept that what the Bill in its detail sets out to do is, in the context of legislation in this area generally, quite modest in its scope. In particular the Bill confines itself to amending aspects of the law in relation to business tenancies. Given the difficulties which have come to light particularly in recent months in relation to residential tenancies — for example, the controversy about Mespil Estate — there may be some concern about the fact that in bringing forward proposals in the area of our landlord and tenant law the Deputy's party has chosen to give priority to the limited area of business tenancies rather than bring forward proposals to meet the concerns expressed by members of his own party and many others about the law in relation to security of tenure for residential tenants. In the circumstances it might be helpful if I were to set out briefly the present position in that regard.
The House may recall that last May I replied to Private Notice Questions about Mespil Estate and I indicated that I would look at what amendments might be desirable and possible in the relevant areas of our landlord and tenant law. There is clearly a very difficult balance to be drawn between, on the one hand, the level of protection which can be reasonably afforded to residential tenants and, on the other hand, the position of owners of such property. The difficult reality in this area is that changes in the law which might be considered desirable in the context of the rights of tenants cannot be considered in isolation from their likely effect on the willigness of people to make available their property for rental in this sector.
Last Thursday I informed the House at Question Time that, given the stage which the assessment of the law in this area which had been under way in my Department had reached, the clearly complex issues which arose, the involvement of the Department of the Environment in related areas and the board nature of the considerations which had to be taken into account, I proposed to establish a working group which would effectively be able to advance this matter. I have since appointed a senior official in my Department to chair the group and the other membership and terms of reference of the group will be finalised shortly. As I have already indicated to the House, I will ensure that the group will report in the new year.
I accept, of course, that different considerations apply in the area of business tenancies. There is, as I have mentioned, a commitment in the Programme for a Partnership Government to bring forward legislation to amend the law in this area and, indeed, proposals in this regard had been brought to an advanced stage within my Department. The House will appreciate that in so far as my Department is concerned there is a heavy legislative workload and this inevitably means that Bills have to be prioritised. While not wishing in any way to belittle the significance of the measure before the House, I think few would argue that legislative proposals in areas such as unduly lenient sentences, the decriminalisation of certain sexual offences, public order, miscarriages of justice and confiscation of the proceeds of crime should have been in any way slowed down in favour of an amendment to the law on business tenancies. Equally, I am sure that the House will understand why in recent months in the area of landlord and tenant law I have had to give priority to the assessment in relation to security of tenure of residential tenants which I have referred to earlier.
Accepting, as the Government does, the need for changes in the law in relation to business tenancies, the question which must be addressed is whether the proposals in the Bill adequately address the difficulties to which our present law gives rise. Deputy Shatter has set out much of the background to this matter both in his speech this evening and the explanatory memorandum which accompanied his Bill. It might be useful to the House if I were also to do so, even at the risk of going over some of the same ground again.
Section 13 (1) (a) of the Landlord and Tenant (Amendment) Act, 1980 gives a right to a new tenancy to business tenants of three years standing. In the absence of agreement between the parties, the Circuit Court sets the terms of the new tenancy. The period of that tenancy is for a 35-year term unless the tenant opts for a shorter term. The rent is subject to review by the court at five year intervals.
For commercial reasons, two kinds of business leases only are normally offered under existing law: a lease for a term under three years — where there would not be a right of renewal — or a long term lease of up to 20 years or more. This means, essentially, that a potential business tenant is faced with the offer of a lease for less than three years which may be insufficient to recoup start up costs such as the fitting out of premises etc. or a very lengthy lease which might represent too great a commitment.
As I understand it, long term leases of 20 years or so are generally favoured by landlords because they allow them to protect and retain control of their investment and avoid court renewals during that period. As against that, the present arrangements are argued to work against the interests of landlords, particularly in the semi-State sector where property is held for long term development. Such property can prove unattractive for tenants if offered for less than three years, while at the same time there is an understandable reluctance on the part of organisations in this sector to enter into very lengthy leases as they will ultimately require the property for their own purposes.
The Law Reform Commission in its report on land law and conveyancing law looked at the issue of business leases and concluded that many landlords would be prepared to let properties for up to five years and possibly more if they could be sure that tenants would not be entitled to a new lease. On the other hand, they believed that many tenants would wish to be able to obtain lettings for more than the present three years even at the expense of not being entitled to a renewal of the tenancy at its expiry. The commission's conclusions were borne out by a survey recently conducted by the Dublin Chamber of Commerce which showed that about 80 per cent of those surveyed in Dublin favoured an initial short lease — without a right of renewal — of between five and ten years. It is also the case that property investors and business tenants in other countries are accustomed to medium-term leasing and more flexibility in leasing arrangements than our present law allows.
Following the publication of the Law Reform Commission report my Department circulated to a wide range of interested groups a position paper which canvassed a number of options about possible changes in the law in this area. The response to the paper was uniform in the sense that all of those consulted favoured change in this area with a view to providing a greater level of flexibility in leasing arrangements. However, there was far from being a consensus as to what precise changes would be desirable.
In the position paper three possible options for change were set out. I should stress that these were merely illustrative and were included only for the purpose of attempting better to focus the response to the discussion paper.
The first option was to increase the existing three-year qualifying period for a new business tenancy to five, seven or ten years. It was argued in the discussion paper that this would solve the problem of those such as public service bodies who have property for which they have no immediate use who find the present three-year period too short for letting purposes. On the other hand, it was suggested that to allow tenancies in the range of seven to ten years without any rights to a new tenancy or compensation in lieu might be perceived as being unfair on tenants.
The second option was to the effect that, as well as increasing the three-year limit, parties when entering a new lease would be able, subject to obtaining independent legal advice, to opt out of the provisions of the 1980 Act. In other words, the parties could decide at the time of entering into a lease that the protections available in the 1980 Act in relation to security of tenure — such as the right of renewal of the lease after three years or whatever new limit might be set — would not apply to that lease. This was described in the discussion paper as an option which would represent a major departure from general policy in the landlord and tenant code; that it would in all likelihood result in many new leases being made outside of the 1980 Act and could render statutory provisions in this area more or less redundant.
The third option was that, as well as increasing the three-year limit, or, indeed, leaving that limit alone and allowing parties to opt out of the 1980 Act provisions, there would be provision for the payment of compensation for disturbance to a business tenant if the landlord wished to terminate the lease — which, under this proposal, the landlord would have an absolute right to do — some time after the qualifying period for a new tenancy. The discussion paper explained that this would mean that a lease granted for a term less than the number of years which would be specified in section 13 (1) (a) of the 1980 Act, either as at present or as amendend, would give no entitlement to a new tenancy or compensation. In the case of a lease granted for a longer period, say, 15 or 20 years, the landlord would have a choice whether to allow or refuse the tenant a new tenancy. If the landlord refused, the tenant would be generally entitled under section 58 of the 1980 Act to compensation.
The responses to the discussion paper were far from uniform as to which of these options — or, indeed, any other options — should be pursued. However, there was fairly general agreement that the third option which suggested compensation arrangements was, basically, a non-runner. If the period before the right to a new tenancy accrued was to be increased it should be done on a similar basis to the existing provisions in relation to the three-year period, that is, that there should be no right to compensation where there was no obligation to renew the lease.
Whether with knowledge of the contents of the discussion paper or otherwise, the Deputy's proposals in the Bill represent a form of the second option which I have outlined. As I understand them, the Deputy's proposals amount to this: there would be an increase in the period before a right of renewal accrues from three years to five years; in setting the terms of a new tenancy the court would be able to fix the duration at up to 15 years rather than 35 years as at present. In addition — and crucially — the Bill would allow people, when entering into new tenancies, to renounce in writing their right to a new tenancy under the 1980 Act, even as amended by the Bill.
I am sure that the House would accept that it would not be sensible to attempt to assess any of these measures separately. I think there is broad agreement about the difficulties which we are trying to address. What is involved is bringing forward a package of inter-dependent measures which in their entirety would best deal with the situation.
I have to make it clear that the Government has fundamental difficulties with the proposal in the Bill that there would be a right for parties entering a new leasing arrangement to have the right to contract out of the protections contained in the 1989 Act. At present such arrangements are specifically prohibited by that Act. The Law Reform Commission did recommend in its report that this should be allowed, subject to the parties involved having obtained independent legal advice. It is also the case that the Landlord and Tenant (Amendment) Act disallows the right to a new tenancy under the 1980 Act in so far as financial services companies locating in the Custom House Docks are concerned, but those provisions cater for the very particular leasing requirements of both landlords and tenants — development companies and financial services companies respectively in the docks area. The considerations which gave rise to those provisions do not apply to proposals in the area of business tenancies generally. The proposals in the Bill before the House are of far more general application.
I mentioned earlier the points which were made in my Department's discussion paper about introducing a right to contract out. I think that they are worth repeating and expanding on.
This type of arrangement would represent a major departure from the general policy which has been pursued for decades in our landlord and tenant code. In all likelihood it would result in many, if not most or virtually all, new leases being made outside the 1980 Act. In practice it could render statutory provisions in this area more or less redundant.
I am aware that there is a view held by some people that, where parties freely enter into contracts in relation to the leasing of property, it is none of the State's business to impinge in any way on such arrangements. There are two points I would make about that. First, our landlord and tenant code has never been influenced by that view and, even while there may be difficulties with particular aspects of that code — for example, those issues which the Bill seeks to redress — I believe that, by and large, the central approach contained in that code has served us well. Given the complex issues involved, and indeed the troubled history surrounding the issue of relations between landlord and tenant generally, it seems to me that it would be most unwise to set about dismantling, particularly in a piecemeal fashion, central tenets of that code. Second, such a view seems to presuppose an absolute equality on the part of landlord and tenant when entering into a leasing arrangement. That would be fine if we were just dealing with arrangements on the part of large organisations or corporations between themselves. In reality, what can be involved is one individual successfully setting up a small business who could find himself or herself many years down the road having no rights at all in relation to the property where he or she has developed that business.
I do not think that it would be much of an exaggeration to contend that if the contracting out arrangement were to stand then the rest of what the Bill proposes would be largely irrelevant in that few, if any, leases would be made available without the landlord insisting on the tenant agreeing to contract out of the statutory protections contained in the 1980 Act.
However, I do accept that in not accepting a right to contract out there would be scope to go perhaps further than the Deputy has done in relation to the other provisions of the Bill. In particular, I believe that without a right to contract out an increase in the period where rights of renewal accrue from three to five years would be insufficient. Subject to any views which might be expressed about this matter during the course of this debate, I have it in mind to introduce an amendment on Committee Stage which would increase the period to ten years.
Also it has been represented to me that, where a court is setting the terms of a new tenancy under our present law, the right of the tenant to opt for a lease of any period — however short — of less than 35 years is open to abuse in that the tenant may opt for a very short term and invite recourse to the courts again within a short period. Accordingly, I propose on Committee Stage to introduce an amendment to provide that where the terms of a new tenancy are being set it must be for a minimum of five years with a maximum of 25 years.
On a technical note — in terms of drafting — it would be desirable if the Bill contained a commencement provision that it would come into effect, say, a month after its enactment. It would be fair to people about to enter leasing arrangements to have a reasonable time to take into account the implications of the changes being effected under the Act.
I appreciate there may be genuine differences of opinion as to the detail of the approach which should be taken in the Bill. Deputy Shatter has set out the thinking behind his approach and I have set out my views about changes in the Bill which I regard as desirable. These matters can be teased out more fully at the select committee and I propose to consult the chairman of that committee, Deputy Dan Wallace, about referring the Bill to it. The necessary motion to that effect can be brought before the House by Deputy Shatter or myself at a later stage.
This Bill carries with it a number of difficulties. The whole problem with the landlord and tenant code, as I understand it, is that it is trying to match inequalities of bargaining power in relation to business and ordinary domestic tenancies. From that perspective one has to bear in mind that the philosophy lying behind the landlord and tenant code is that bargaining power is not equal. If it was equal in every case there would be no need to stipulate what should or should not be in leases or to have protections for domestic tenants and the like. I take the Minister's point that it is naïve to assume you start on the basis of equal bargaining power in all business tenancies which cover such a magnitude, for example, the ordinary Joe Soap or Josephine Soap — now that we have to be politically correct — on the one hand as well as huge companies dealing with each other at arm's length on the other.
While I listened to Deputy Shatter advocating that it should be possible to contract out let us be clear on what will happen. The vast majority of landlords will slap two documents on the table and say: "sign both, and if you do not sign both you will get neither". That is the reality. Very few landlords will give an option. If the contracting out provision takes effect for business tenancies only it will be in cases where solicitors are being sued for negligence, for failing to advise their clients about Deputy Shatter's amendment, in reality the vast majority of them will contract out. There is no point in codding ourselves. We have to realise that the vast majority of landlords will contract out or will force a tenant to contract out of the system. You then have to ask yourself if that is fair to everybody. Is it fair to big business or to the small individual operator?
As I understand it there are several reasons for giving people a right of renewal. First, they built up their own goodwill in a particular place. The consequences of being pushed out, at the whim of the landlord, are immense for a small business. If you set up a florist, cake or shoe shop in one place and you are told at the end of five or ten years that you must leave, it is not easy to move. You cannot pick up a new, suitable premises as you would a taxi. There is not a perfect market in land. There is certainly no perfect market in relation to retail commercial premises. We are talking here not simply about shopkeepers but restaurateurs or people running licensed premises, goodwill cannot be turned on and off like a light bulb or shifted from one socket to another. The real world does not work like that. While I have very little sympathy for big businesses who can use their own market clout to extract concessions from their landlord, the reality is that in large shopping centres the person setting up a business as a florist, a cake shop or a restaurant in one of the modern complexes, is very much at the mercy of the landlord.
In most towns there is only one shopping centre and one or two locations available to a would-be restaurateur. In most towns if a restaurateur is forced to close they cannot find a suitable alternative premises. By lumping all business tenancies together and saying they should all operate on the same basis is to ignore commercial realities; that inequality of bargaining power does exist even among businesses. The second basic proposition — with which even Deputy Shatter would have to agree — is that the great majority of landlords will slap two documents down in front of their would-be tenants, one of which will be a renunciation of the statutory protection. At that moment the tenant will not be in a position to say that he wants his statutory rights and try to persuade the landlord by some kind of argument or appeal to his best instincts to give him statutory protection. That will not happen.
If we are to have an opt out clause in principle, it must take account of the unfairness for which the present ban of opt out clauses was designed to deal with. When a business tenancy is coming to the end and there is no entitlement under the 1980 Act, two things happen. First, the landlord can sum up the options open to his tenant. In the case of a restaurant the landlord will say that it is doing a thriving trade and that if it has to move there will be considerable costs in terms of advertising, relocating staff, fitting out a new premises and so on. In those circumstances because the market is a fairly cruel place a landlord will increase the rent on the new lease, if he has to offer a new lease, to reflect the fact that the tenant will have to incur substantial expenditure by having to move. Deputy Shatter should take on board the fact that landlords in possession of premises and whose tenants are coming to the end of their term, are bound to be in a position where they will have increased bargaining power over their tenant. If the tenant is put out on to the street there is so much loss involved that he or she is obliged by market forces to pay in excess of the market rent to avoid the inconvenience of moving which becomes an asset in the landlord's bargaining power in such a situation.
Another point which Deputy Shatter should also bear in mind is that, for example, if I were to establish a florist shop or a restaurant in Rathmines Shopping Centre or wherever and after five or seven years I came to the end of my lease without a right of renewal the landlord can effectively take my goodwill. Most people do not care who owns a florist shop, a jewellers shop or whatever. Depending on the nature of the trade the goodwill can effectively be snaffled by the landlord if the tenant is put out. In the real world a landlord can effectively help himself to his tenant's goodwill by putting them out and refusing a new tenancy. That again increases the landlord's bargaining power over the captive tenant rather than over anybody else because he can tell the tenant that he will take the goodwill he has built up and pocket the benefit, or alternatively impose huge liabilities in terms of the tenant having to relocate his business, with the added expense of relocating staff and of advertising change of telephone numbers. When dealing with businesses which depend on passing trade or trade generated by the telephone, location can be all important. It is not good enough simply to approach this on the basis of a free for all market, because we do not have a perfect market. The Progressive Democrats believe in the market system, but it believes in a fair market system; and I do not believe we will achieve fairness or economic justice if we pretend that everybody is competing in the market on the same basis. Anybody with common sense will realise that opt outs will become the norm in 99 per cent of cases and, effectively, that means we are ending the protection of the Landlord and Tenant Act in commercial cases. Do we want to do that? Do we want to do that under the guise of an opt out provision that would be universal? If we want to scrap the rights of protection for tenants in occupation on a comprehensive basis, let us do it; but let us not cod ourselves that we are merely bringing in a system where there is a mere opt out clause, because that will become universal.
The Minister raised the question of the commencement period for this statute if it became law. I wonder if it is fair to discriminate against those who are approaching the third year in occupation of a premises and to rob them of their entitlements? What will happen to those in occupation for seven years if the Minister's proposal for a ten year lease comes into effect? Will they suddenly be robbed of their rights of protection? I think the Minister will need to take account of this if she is bringing in a ten year entitlement. At present somebody who has been in occupation for seven years has a new lease in the bag if the landlord proposes to serve notice to quit on a person with a monthly tenancy, whereas if the Minister extends the period from three to ten years a great many people will lose what they thought were very solid entitlements. I do not have a magical solution, but I think we need to think through this provision and that a set of transitional provisions would be necessary.
One of the peculiar features of Deputy Shatter's Bill is that if the tenant prior to the commencement of the tenancy executed a document making a bona fide renunciation of rights, that renunciation might not be apparent to somebody who subsequently bought the tenant's lease unless it is written into the lease. It would be quite possible for a landlord and a tenant to have a document sitting in a desk somewhere and for people to be dealing with the lease as though it carried certain rights, because the renunciation clause would not be stamped all over it. I suppose it is true that anybody purchasing a leasehold interest would advise his solicitor to find out from the landlord whether such a renunciation existed, but there is a number of issues as to whether it would provide good security. It is just a technical problem.
The Minister raised the issue of noncommercial tenancies. I believe that noncommercial tenancy arrangements must be addressed. In that context there is some double thinking in the present law which needs to be corrected. As any urban Deputy knows, frequently there are elderly people who are living alone in flats and coming up to their nineteenth year in occupation. If they remain in occupation for 20 years they become entitled to a 35 year lease with five year rent reviews. All they want, however, is to be left alone. Many of them are in their seventies and eighties and do not want a 35 year lease — in fact, they could not care less what is going to happen in 35 years' time — but those people are regularly evicted from their homes and flats by landlords who know they cannot afford to allow possession of their flat to be converted into a 35 year lease.
I believe that lies at the bottom of a substantial number of unfair eviction cases of elderly people, because landlords simply cannot afford the risk of having tenants in occupation for 20 years. I have come across cases at my clinics where the landlord would be quite willing to say to the tenant "If you deal with me honourably I will leave you there". But the statute forces the landlord to take one view or another and, even if he trusts the little old lady absolutely, he cannot trust her executor not to claim a tenancy when she should die. It is very unfair that people are evicted from their homes simply because if they stay any longer there are cataclysmic consequences from the landlord's point of view.
In avoiding that issue, Deputy Shatter did not want to get sucked into that quagmire in terms of morality and all the rest. Nonetheless, I accept what the Minister said, that if we passed a measure amending the Landlord and Tenant Acts and did not attempt to look at those issues in the near future, people would look at us circumspectly and wonder how it is that our priorities are such that we are worried about the business community but are not worried about people being flung out of their homes in those circumstances. I do not have any easy answers, but I believe that elderly people in particular should be given some type of personal tenancy, a life tenancy, instead of a tenancy that they can hand on in their wills to nephews and nieces just because the landlord has left them in occupation for 20 years. The Minister should examine this.
I am very glad the Minister has signalled a willingness to accept the necessity of amending legislation in this area and that Deputy Shatter's Bill will be the means by which this matter will be moved up the order of priorities. I have a grave difficulty, which I share with the Minister, about simply pretending that there is an absolutely fair open market and that all one has to do is let the strong and the weak come to their own bargains and never interfere. Although Deputy Shatter — doubtless in good faith — thinks it is fair to allow people to opt out, if opt out becomes the universal norm, effectively the previously protective code ceases to exist any more. I can see there are some rational grounds perhaps for arguing that that should be done, but if that is to be done let us not pretend it is an opt out clause in the exceptional circumstances with which we are engaged.
Finally, I wish to comment on the five year and the 15 year periods provided for in Deputy Shatter's Bill. I think the five year period is sensible and I would not agree with the Minister that ten years' continuous occupation should be the minimum before one gets protection. I do not accept that somebody who has been in occupation for seven or eight years running a restaurant or some other business should have nothing to show for it. All of these are matters of degree and personal judgment. Three years ago by almost in the batting of an eyelid. Funnily enough, I had to take a leasehold of an office when I moved my office out of Leinster House to my constituency, as Members will all be glad to know. In that context I had to sign a lease and the one thing my landlord was absolutely scared about was giving me rights under the Landlord and Tenant Acts. Whether three years is a reasonable view of my longevity in this job is a matter for another day.
Past history and all of that.
In the end I had to put a clause in my own lease that it was for my temporary convenience as a Member of Dáil Éireann — Members will be glad to know it is a temporary little convenience — and by so doing I and my landloard could effectively opt out of the protection of the 1980 Act.
Apart from temporary convenience lettings, a vast number of businesses need protection, and the big thing is to save them from the predatory landlord at the end of their lease. As sure as night follows day if a landlord sees a large restaurant coming to the end of its leasehold entitlement and he has the power to turf the lessees out on the street or charge a new rent, that power and the inconvenience to the tenant will be translated into more money for the landlord. That is exploitation, as it is taking advantage; it is sharing in the tenant goodwill.
When one sees the vast word processed leases handed to tenants of shopping centres, where everything is stacked in favour of the landlord and the terms of the lease are extremely onerous, one could be forgiven for believing that the landlord is the person sucking all the profit out of the shopping centres in question, that the landlord is not just providing a factor of production but is also effectively a sleeping partner in most of the businesses because of the vast amount of rent tenants are charged and the onerous conditions put on them.
Landlords are a valuable part of our enterprise culture but investing in property is not taking a risk. The real risk-takers are the tenants in most cases. We as a society should keep the balance in favour of real enterprise and that involves protecting tenants from landlords who will just share in their profits if they can.
This Bill represents another notch in the legislative gun of my colleague Deputy Shatter who has had two of the many Bills he has brought before the House accepted. It is encouraging to see that Deputy Shatter has found time to put together another Bill which has been accepted by the Government to plug a glaring legal loophole. The Minister deserves credit for addressing this issue and seeing that the solution provided by Deputy Shatter's Bill is the answer in principle and for accepting it on Second Stage.
The normal short term business lease granted is two years and 11 months so as to ensure that there will be no tenant rights. It is a curse and a plague for new businesses. The problem arises not just in Dublin as I have has representations from country towns on this issue. The 80 per cent poll in Dublin by the Dublin Chamber of Commerce probably reflects all towns and cities throughout the country. If we are to give priority to enterprise, people investing in starting a business must be given some security. Even though at the moment they appear to have security under the 1980 Act, they do not have it, because most landlords will not take a gamble on them by giving a lease longer than two years and 11 months. The net effect is that the entrepreneur is taking the chance, is getting the business going and in many instances the business established actually accrues to the benefit of the landlord at the end of that period who more often than not will not return the lease. This problem affects the establishment of business and the encouragement of enterprise throughout the country. The Bill is much more important than it may at first appear. It is not just an arcane matter of interest to lawyers, it is of major interest to the business sector, particularly to young enterpreneurs who want to set up in the services sector. We must have change.
Now that the House has accepted that we need change and the central thrust of the Bill has been accepted we will argue on Committee Stage on what is best for the country. The Minister should reconsider her approach. It is important to have an opt out clause. The ten year alternative proposed by the Minister is mad because instead of new businesses starting off for two years and 11 months, the business will go for some period up to ten years so that the investor will acquire no tenant rights but will be much longer in possession and will have probably developed the business. That person may then find himself out on his ear along with his enterprise. A ten year basic term without right of renewal is not the answer. We must consider the opt out clause proposed by Deputy Shatter.
The tradition was that the landlords were in a dominant position and much of the legislation introduced by Wyndham and Ashbourne before the foundation of the State and legislation introduced in the early days of the State tried to give some support to essentially defenceless tenants. Things have now changed and in many instances it is the landlord who is in the weaker position. We are not talking about multinationals or absentee landlords but about people who are often not very well off, who, have perhaps, inherited some property the income from which is largely their only income. In my town, two sisters are in a terrible position because part of their premises is tenanted by somebody with tenant rights. They can neither sell the place nor get the tenant to take over the entire premises. They are without a penny, and are now being pressed by the bank who are threatening to sell them out. Let us forget the image of the landlord putting the tenants in impossible situations. The days of Captain Boycott are long gone. The people who must get priority are those who try to get enterprise going, small business people who often take premises from people in similar situations in terms of equality. Those getting involved in business nowadays will get independent legal advice. If they do not I would not say much for their chances of prospering in business. In that situation there is not a dominant position for the landlord. I urge the Government to consider that issue between now and Committee Stage and to think twice before forcing a change in the opt out clause.
I am delighted with the enterprise of my colleague in confronting this issue and going to the trouble of drafting a good Bill to provide a solution. I am glad the Government has accepted the Bill and I look forward to a good debate on Committee Stage. I hope all of us will approach this issue with a genuinely open mind and will listen and debate the few controversial issues so that we can ultimately put on the Statute Book an Act which is the sum of the goodwill and knowledge of all sides of the House.
I think we are in a position to wind up the Bill this evening. I thank Members who spoke on it and the Minister for not opposing it. My party is anxious to make progress on this Bill and sees no reason for spreading the debate over the four evenings to which we are traditionally entitled in Private Members' time.
I would like to make a few brief comments on the Minister's speech. I welcome her approach. Such an approach should be taken more often in regard to Private Members' Bills. We should view them as a vehicle to address constructively issues to which the Government, because of demands, has a difficulty in giving priority. Bills that come before the House in this way should be teased out across party lines on Committee Stage so that we can produce the best solution in the interest of the people on the issues being addressed, be they major or minor. If such issues need to be addressed, Private Members' time should be used in a constructive manner to do so. I welcome this opportunity. This is the first time in the lifetime of this Government this has happened. To date every Private Members' Bill introduced in this House produced a knee-jerk reaction by the Government. I am glad we are dealing with this Bill in a different manner and hope it will set a precedent for other proposals, not alone from my party but also from Deputies on the other side of the House.
The Minister stated there might be some concern about the Fine Gael Party giving priority to the limited area of business tenancies rather than introducing proposals to meet the concerns of residential tenants and their security of tenure. I am sure the Minister did not mean to be ungenerous in her remarks but they could be misinterpreted to suggest that we have no particular concern for the security of tenants in residential premises. Members of the Fine Gael Party were to the forefront in highlighting the problems experienced by the tenants of the Mespil Road flats, about which Deputy McDowell spoke earlier. We are addressing this area this evening because it needs to be addressed and is somewhat less complex than the issue of residential tenure, but we may deal with that at a later date.
With all the resources at the disposal of the Government and the Minister's Department, the best she could do in that area so far was from a committee to make recommendations to her. I am not being critical of her in that regard, but I do not want people to believe that the Fine Gael Party is concerned with the business sector and not with the residential sector. I make no excuse for introducing legislation designed to modernise anachronistic legislation in the area of the business world, business tenancies and commercial properties, which actively erects a barrier to business and job creation. All of us in this House have an interest in removing those barriers.
I accept there is no solution to the problem set in tables of stone. The proposals contained in this Bill were designed to generate the discussion we have had this evening and to set out the measure which we believe will work best in resolving the existing difficulties. It was interesting to hear the Minister's reference to the interdepartmental committee which has proposed three different sets of possible solutions. The Minister stated that this Bill seemed to be on all fours with its second solution. I think she implicitly wondered if I had discovered the contents of the proposals of the internal committee. I have no idea what is contained in those proposals, but the three proposals under debate gave rise to major difficulties for the Department in making choices as to the best solution. It is a matter of judgment and the choices are difficult.
I hope the Government will see the merit in the suggestion that the right of renewal should arise after five years and not three years. That is designed to ensure that people can have a reasonable start-up period without being committed to 35-years leases. It is designed also to ensure that when a person sets up a business and invests in property, be it in the manufacturing, retail or services area, he or she has reasonable time in that premises to get a reasonable return. It also recognises that when a person is in business for five or more years the business becomes identified with the property out of which it is operated.
I would be concerned at the suggestion that tenants should have a right of renewal only at the end of a ten-year tenancy. I do not wish to conflict with the Minister, but her objections to the opt-out provision would apply equally to the suggestion that one should not have a right of renewal as a tenant until one is in a premises for ten years. That might cause problems.
We have had a great deal of debate this evening on whether there should be a right to opt out; that is a value judgment. I have similar concerns to those expressed by the Minister and Deputy McDowell with regard to the position of a person who has built up a business over ten or 15 years. That person may have signed a lease with an opt out provision, the business may be identified with the premises out of which it operates and at the end of the period the person could be in a difficult position. We must strike a balance in that regard and that matter should be debated on Committee Stage. There is no ideological view in that regard. It is a matter of judgment.
When the Law Reform Commission considered the options in this area it stated that where independent legal advice is available and where parties are operating at arm's length they should be free to negotiate and opt out provisions should apply. That is reflected in current law in some EC member states. In some states where the law is being reformed at present they have provided for an opt out provision particularly because, as outlined by my colleague Deputy O'Keeffe, the market has changed for some large companies who own property and who try to impose tenancy arrangements. Such tenancy arrangements may be disadvantageous to tenants not just in the context of renewal but also in other areas. In the current economic climate the majority of landlords and tenants are operating at arm's length. If a landlord insists on a tenant opting out, in the current business environment one can be relatively certain that other landlords in the same area will be willing to conclude leases under which one is not required to opt out. We wrestled with that issue in preparing this Bill. We had an interesting discussion on it this evening, but the Minister missed the point in that all the arguments she used against the opt out provision would apply equally to her suggestion that one would not have a right of renewal unless one had a ten-year tenancy. We would benefit from dealing with that matter on Committee Stage.
I have no difficulty with the Minister's suggestion that there should be a provision in the Bill stating it should come into operation one month after its enactment. However, the Bill is drafted on the basis that if it proves successful it would operate from the day the President signs it. I fail to understand the need for a one month lead-in period because there would then be an interregnum of four weeks in which people might enter into new business arrangements. This Bill will not require any statutory instruments or preparation prior to becoming operative. That matter could be teased out on Committee Stage.
Deputy McDowell raised a matter to which the Minister did not refer but which has some merit. I considered inserting this in the Bill initially, but because I do not believe it is a problem in practice I omitted it. However, for theoretical reasons and in case somebody is affected by it, perhaps we should include it.
Deputy McDowell, too, asked what the position would be for a person who had a tenancy for three or four years if the Minister decided to insert a ten year period provision and the tenancy expired within that period. Under the law such a person would be entitled to seek a renewal of the lease whereas under the Minister's proposal, that there be a ten year period, they would not. I hope the Minister will think again in regard to the ten year period.
The same issue arises under the Bill as drafted. In theory there could be someone somewhere in the country who has signed a lease for four years. Let us say for arguments sake that this Bill becomes law next March and provides for a five year period one could arguably say that someone who had signed a four year lease was entitled to a 35-year lease with five year breaks but by virtue of the fact that the law had been changed they would lose their right to seek a renewal.
I drafted a provision to address that issue. However, the advice available to me was that it was a wonderful academic argument but that in practice no one probably found himself in that position. The reality is that every person either has a lease for two years and nine months or a lease of substantially longer duration, well beyond the five year period provided for in this legislation in terms of renewal. They might have, as the Minister suggested a 20-year lease with five year breaks or a 35-year lease with five year breaks. Therefore in practice one either has a lease for two years and nine months or a lease of much longer duration. It is theoretically possible that one may have a lease for a transitional period of three to five years but this is highly unlikely in practice. Nevertheless if the Bill was to remain in its present from it might be the case that we should insert that kind of provision.
We have had a constructive discussion on this Bill this evening. The Minister has referred to it as a modest measure. I am not going to make any major claims. When I opened the debate I do not think I used the word modest but rather referred to it as a simple, straightforward Bill and as an unexceptional measure. Despite the fact that neither I nor the Minister knew what the other was going to say I held a similar view but Deputy O'Keeffe was right in one respect. It is not relevant to Dublin only, it will have an impact on the business community throughout the country. For many people who decide to take the plunge and start up their own business and rent a modest shop as a retail outlet or small premises for manufacturing purposes this Bill is of substantial importance and, if enacted in its present form or in a slightly modified form, it will certainly remove current barriers to job creation which inhibit people from taking risks in starting up their own businesses.
Deputy O'Keeffe was right when he said we had changed as a country. If a survey had been conducted among tenants 20 years ago — the majority of people who responded to the Dublin Chamber of Commerce survey were tenants — the view would have been not to change the law, to keep it as it was. What was very interesting in the recent survey was that more tenants than landlords wanted the law changed. In a modest Bill we may be introducing an important reform when it comes to leasing commercial property.
The Select Committee on Legislation and Security is uniquely well qualified to take the Committee Stage of the Bill. I am pleased that the House is not dividing on it this evening and there is no need to detain the House for three more evenings to debate the measure.
In conclusion I thank all those who contributed to the debate. Through the Government and Fine Gael Whips we should arrange to have the appropriate motion placed before the House during the course of this week to refer Committee Stage to the Select Committee on Legislation and Security. I hope we will then make substantial progress on Committee Stage if not this side of Christmas, soon after.
I understand that the Minister has indicated she is accepting the Bill.
Question put and agreed to.
As this is a Private Member's Bill it must under Standing Orders be referred to a select or special committee. The motion of referral does not have to be made tonight.