Limerick East): The proposals in this Bill are for the most part of a rather technical nature. The need for the Bill arises from a judgment of the Supreme Court that was given in November 1980, in the case of Gilsenan. v. Foundary House Investments Limited and Rathmines Properties Limited. That judgment, which is so far unreported, bears on the determination of the rent that is payable under a renewal of a ground rent lease, or a reversionary lease as it is called. The judgment amounted to a finding that the existing provisions of the law for determining such a rent are unworkable. The background is as follows.
Ground rent tenants have, in general, the right either to buy out the ground landlord and acquire the fee simple, or to renew their leases for 99-year terms. The rent that is payable under the renewed lease represents what one may call an updated ground rent, that is to say it is related to the current open-market rent of the property in question. In consequence it is usually very different from the rent payable under the previous lease, granted very many years ago. The legislation provides a formula which relates the new rent to the rent which, in the opinion of the court, a willing lessee not already in occupation would give and a willing lessor would take for the land comprised in the reversionary lease. The new lease is, as I have said, for a 99-year term. The Supreme Court, in arriving at the judgment I have mentioned, had had evidence that freely negotiated leases of that kind are no longer entered into, in other words that a lessor would not now willingly grant a lease for a term as long as 99 years at a fixed rent. Without provision for rent reviews, no such willing lessor is to be found nor can any such rent be determined, and on that basis the court found that the formula is inoperable.
Two main consequences follow from that judgement. The first is that the courts are unable to determine the terms of a reversionary lease and such terms cannot be fixed if the parties themselves cannot agree on the terms. The other is that — again in the absence of agreement between the parties — a ground rent tenant who wants to buy out the fee simple rather than get a reversionary lease cannot implement his right of purchase unless his lease has more than 15 years to run. The reason for this is that, where the lease has less than 15 years to run, or where it has already expired, one of the considerations — perhaps the most important consideration — that bears on determination of the purchase price is the rent that would be reserved under a reversionary lease. Since as matters now stand that rent cannot be determined except by agreement between the parties, the purchase price of the fee simple likewise cannot be determined except by agreement in the cases I have mentioned.
The judgement of the Supreme Court was to the effect that these provisions of the law had come to lack relevance to current market conditions. The obvious change that is necessary in order to permit the rent under a reversionary lease to be related to current market conditions is, of course, to introduce provision for reviews of the rent payable under such a lease. Consultation has established that there is fairly general agreement among those professionally concerned with the matter that the review period should be five years, that is to say, that the rent payable under a reversionary lease should be open to review, at the instance of either lessor or lessee, at intervals of not less than five years. Section 3 of the Bill proposes a change of this kind for future reversionary leases. The review period of five years is the same as the Bill proposes a change of this kind for future reversionary leases. The review period of five years is the same as the review period that already applies to the rent payable when a different kind of tenancy — namely an occupational tenancy — is being renewed by intervention of the courts.
Section 5 of the Bill proposes that rent reviews at intervals of not less than five years should also apply in the case of any sporting lease that is granted in the future. The law as it stands — in section 5 of the Landlord and Tenant (Amendment) Act, 1971 — already contains limited provision for reviews of the rent payable under sporting leases which, like reversionary leases, run for terms of 99 years. Where the terms of a sporting lease are fixed by the court the rent is subject to review, at the option of the lessor, after 24 years and thereafter at intervals of not less than 25 years, and the rent itself is a "fair rent" that is determined in the light of a number of considerations.
The judgment of the Supreme Court which I have mentioned was not directly concerned with the determination of rents under sporting leases. However, it is a possible inference from that judgment that no rent could be "fair" that could not be altered over such a lengthy period. Accordingly, section 5 provides for rent review periods of not less than five years, at the instance of either lessor or lessee, in any future sporting leases whose rents fall to be fixed by the court. Existing sporting leases do not come within the scope of these proposals. It is reasonable to take the view that interference with existing leases is not warranted in the absence of a definite indication that the terms of such leases cannot be operated.
Of course, the changes that must be introduced to enable the courts to fix the rent under a reversionary lease invite the question as to why the right to a reversionary lease should not simply be abolished. After the changes we have been discussing had been brought about, how many ground rent lessees would actually be interested in obtaining a reversionary lease, since they would be committed to the expense and trouble and uncertainty of rent reviews every few years? Would it not be simpler to leave ground rent tenants with the single remedy, that is to buy out the fee simple, which of course they would have to do if the right to a renewed lease were abolished? The landlord and tenant code would be simplified; a step would be taken towards simplifying titles to land, and the persons concerned would be saved the expense and so on that I have mentioned.
This question has been considered carefully and full weight has been given to representations that have been made. The conclusion that I have reached — and that has been accepted by the Government — is that, on balance, the right to a reversionary lease should be preserved. This is a right which some tenants will find essential in practice. A greater number will find it preferable to purchase the fee simple and such a freedom of choice must be given some value.
Provision for the grant of reversionary leases will continue to be necessary in special cases — for example, ground rent leases made by harbour authorities — where the right of purchase does not apply. However, the most important reason for preserving the right to a reversionary lease is the objection in principle that arises to the abolition of an existing legal right, with the consequence that the alternative right to buy out would become less a right than a matter of practical necessity, and that, perhaps, in circumstances where the necessity to buy out was a most unwelcome one for financial or other reasons.
We now come to consider the effect of the judgment of the Supreme Court in relation to the question of determining the price of the free simple where ground rent lessees are buying out and where their leases are expiring, or have already expired. Arising out of that judgment it has become necessary to settle completely new provisions in the law in that regard. As I have said, the rent that would be reserved in a "reversionary" lease has hitherto been the most important consideration in determining purchase price in such cases. The introduction of five-year rent reviews under future reversionary leases raises an immediate problem as to how purchase price can be related to the rents in any objective manner. In fact this is quite impossible and a fresh approach had to be adopted.
An example may bring out the difficulty. Take a case where a tenant exercises his right to get a reversionary lease before termination of his present lease and where that lease would not commence to run for more than five years — that is, where the ground rent purchaser's existing lease has more than five years to run. In such a case no one can say what the commencing rent would be under that reversionary lease because, even if a rent is settled now it will fall to be reviewed, under the rent review proposals we have been discussing, before the lease commences to run. Accordingly, no purchase price can be determined here and now if its determination depends upon that rent.
Because of these considerations it was necessary to find some new basis for determining purchase price in these cases. The solution that is proposed in the Bill in subsection (4) of section 7, is that, where the purchaser's lease has expired or where a rent review is already due, the purchase price will normally be one-eighth of the current fee simple market value of the property in question, subject to the making of adjustments and allowances of the same kind as are made in determining the rent to be reserved in a reversionary lease. The proposals are designed to reflect closely the provisions of the law as it stands in accordance with which reversionary rents fall to be determined by the courts on the basis that they be one-eighth of the open market rent of the property. In other words, the proposed new formula maintains, in terms of a purchase price, the same stakes in the property of the ground landlord and of the ground rent lessee as the old formula provides in terms of a rent.
The parallel is one that is reflected in detail in the new proposals. Under the provisions of the law as it stands the actual rent payable under a reversionary lease excludes any rental element arising from the value of the lessee's goodwill or from any improvements that the lessee has voluntarily undertaken. Similar exclusions are provided in the new formula in relation to purchase price. Again, the rent under a reversionary lease is based on the rent of the property in its present use and with its existing buildings. That is to say, that rent excludes any element attributable to development value, and this is again reflected in the formula. Finally, in so far as the existence of covenants could have a bearing on the amount either of rent or of purchase price, the proposed new formula allows for this so as to ensure that no distortion is introduced.
While the rent that would be reserved in a reversionary lease is the most important consideration that bears on the determination of purchase price in a case where a ground rent lessee is buying out and where his lease is expiring, or has already expired, it is not the only consideration. There are other matters to which regard is to be had in determining price. Because of the importance of the changes that are being proposed, however, and for clarity and simplicity, the existing price provisions as contained in section 17 of the Landlord and Tenant (Ground Rents) (No. 2) Act, 1978, are being repealed and re-enacted and the old and new provisions together are set out in full in section 7 of the Bill.
Senators who have some familiarity with the landlord and tenant code will note that certain other changes are being proposed in section 17 of the 1978 No. 2 Act. One such proposal is that the purchase price of the fee simple should be determined by reference to circumstances obtaining at the date the purchase application is made, rather than being left to depend — at least in some cases — on the date of a final judicial determination where price is in dispute. The reason for the change is that the date on which price is determined could in future be a matter of greater importance than in the past, since price may be rather more liable to vary as a matter of time, and it would be fairer that the date should be a definite one. A further change is that the new price formula is being applied not only to cases where the relevant lease is expiring or has expired but also to cases where a rent review is due within the 15 years. The reason for this change is that where a rent review is due the price of the fee simple is influenced in the same way as if the lease were expiring. Finally, it is proposed that, in the determination of purchase price in cases where the new formula will apply, but where there is yet some time to run to the expiration of the relevant lease, or to the rent review, as the case may be, that length of time should be taken specifically into account. This provision is in section 7 (9).
Senators who look at what I may call the sliding scale provisions for price in section 7 (8) may perhaps be puzzled as to why the subsection (9) provision that I have just mentioned is not simply assimilated to the sliding scale in subsection (8).
Subsection (8) represents in substance the re-enactment of the provision in section 17(6) of the 1978 No. 2 Act that provide for the determination of price according to a sliding scale. That price depends on the length of time to run under the lease at the existing rent and the scale goes from the lowest point — where the lease has more than 15 years to run and where the provisions for the "formula" maximum price apply — to the highest point, where the lease has run out or, as may be the case from now on, where a rent review is due. However, since that "formula" maximum price does not apply in the case of all ground-rented properties — typically it applies in the case of the ordinary dwellinghouse that is held under a long lease — the scope of subsection (8) is likewise restricted to cases where that maximum price applies, or rather where it would apply were not the lease running out.
I may mention in passing that the provisions for this "formula" maximum price are being re-enacted in section 7 (5). Subsection (9) on the other hand, while it also concerns cases where there is yet some time to run to expiration of the lease, or to a rent review, yet concerns cases of a different kind. It concerns cases such as business properties where the "formula" maximum price does not apply. In such cases the high point of the scale can be ascertained, the point where a lease has run out or the time for a rent review has arrived, but there is no low point. In other words, no matter how many years there are to run on the lease of a business property, there is no "formula" for purchase price at the lower end of the scale. Accordingly subsection (9) simply provides that, where the lease has run to within 15 years of expiration or of a rent review, the length of time still to run is to be taken into account in determining purchase price.
What I have said so far covers in outline the main proposals in the Bill, that is, the proposals for rent reviews in reversionary leases and the proposals for a new price formula in certain cases of purchase of the fee simple.
A number of ancillary proposals are contained in sections 4, 8 and 13, of which the most important — in sections 4 and 13 — are designed to cater for cases where leasehold renewal or purchase of the fee simple has been held up in consequence of the Supreme Court judgment on foot of which the main proposals in the Bill arise. In some such cases at least it is possible that rights of renewal or of purchase could have been carried away by the passage of time alone and without default on the part of the party concerned. The Bill provides a further period of 12 months within which such rights may still be exercised following the coming into operation of the legislation and the removal of the difficulties that have imposed the delays.
In particular, section 13 caters for any cases where a ground rent lessee, who would have preferred to buy out the fee simple, may have felt himself constrained to apply instead for a reversionary lease rather than see his lease run out — and with it, perhaps, his right of purchase. Where such proceedings have not actually been concluded the lessee is being given the option of buying out instead, subject to recoupment of the other parties' costs. A 12-month limit is again being proposed in respect of this relief.
A number of miscellaneous improvements in the landlord and tenant code are also being proposed, most of them of a rather minor nature. There are three of these proposals that may be of sufficient importance to warrant mention now. One — in section 9 — amounts to the recognition of a new class of ground rent tenant, although the change that is proposed is rather a marginal one. What section 9 proposes in effect is that, where a yearly tenant can prove that the buildings on his property were erected by himself or his predecessors, and where otherwise he satisfies the necessary conditions, he will be recognised as a ground rent tenant — a recognised that carries with it the right to buy out the fee simple — even though his yearly rent is not less than the rateable valuation of the property. At present the rent under a yearly tenancy must be less than the rateable valuation, on an annual basis, otherwise the tenant cannot have recognition as a ground rent tenant even in a case where he or his predecessors built on a bare site. Of course, this does not affect the position of tenants who are not in a position to establish that they did so build and for whom the rent/valuation criterion may be essential in establishing their rights.
The second change is in section 14 which proposes an amendment of section 4 of the 1980 Landlord and Tenant Act — merely to remove a minor anomaly. Section 4 of the 1980 Act, while declaring the State to be exempt from the legislation, nevertheless extends limited rights under the Act to persons to whom rights had already accrued before the State authority concerned became landlord. Such persons retain their right to a renewed tenancy, on one occasion only, and their right to compensation for any improvements already carried out.
It has come to notice that an anomaly could arise in applying the provisions of section 4 of the 1980 Act in a case where one State authority took over as landlord from another State authority. In such a case a tenant who had no rights previously could acquire them, contrary to the intentions of section 4 of the 1980 Act. Section 14 of the Bill proposes, accordingly, that the rights I have mentioned will be preserved only in a case where a State authority becomes landlord of a tenanted property in which no State authority had any previous interest as landlord.
The third change is in section 15. It is proposed that section 15 will replace section 24 of the Landlord and Tenant (Amendment) Act, 1980. Section 24 of the 1980 Act provides for rent reviews under renewed occupational tenancies and the new proposals mean that, following such a rent review, the reviewed rent will run, not from the date the reviewed rent is fixed, but from the date the rent review proceedings are commenced, provided the previous rent has run for the necessary minimum of five years. The change is being introduced in the interest of fairness. It could happen, for example, if protracted negotiations for a rent review were followed by protracted litigation, that a considerable time could elapse between the initiation of a rent review and the final determination of that rent on review. The new rent review procedure that is proposed in section 15 represents my acceptance, with the approval of the Government, of the validity of representations that have been made to me for a change of this kind.
As the law stands, in section 24 of the Act of 1980, the reviewed rent could commence to run only from the date of the determination of that reviewed rent, even though that date is outside the control of either party to the tenancy. Under the proposals in section 15 of the Bill, five years will continue to be the minimum period for which a rent will run before any alteration upon review. Likewise, if there is dealy in initiating a review, the operation of the reviewed rent may be delayed for that reason as under the present law. However, that operation will no longer be subject to delay simply because of procedural delays: in principle the reviewed rent will run from the date of the review notice rather than from the date the rent is finally determined, and the time for service of the review notice is being regulated accordingly. These amended provisions are of a general character and — apart from their application to occupational tenancies — they will also apply in relation to the proposed rent reviews under future reversionary leases and sporting leases that I have described.
There is one further matter that I should like to mention before I conclude. When this Bill was being debated in Dáil Éireann I found it necessary to make it clear that in my view the question of the abolition of ground rents, in the sense in which the ground rents campaigners use that expression, is one that is quite outside the scope of this Bill. I am sure, a Leas-Chathaoirligh, that this will also be readily understood by this House and that Senators will appreciate that I could not appropriately address myself to that problem in the context of this legislation.
I commend the Bill to the House. I ask that it be given a Second Reading.
