Upward Only Rent (Clauses and Reviews) Bill 2013: Second Stage

Question proposed: "That the Bill be read a Second Time."

Senator Feargal Quinn

I welcome the Minister of State, Deputy Tom Hayes, and his officials. We are getting to know the Minister of State quite well again. He was, of course, a Member of this House some years ago. I was delighted when he was appointed to his current position.

I have been concerned about the matter with which the Bill deals for some time and I had understood that Government legislation was to be introduced in respect of it. That is why I waited until now to bring forward the Bill, which is worthy of consideration. The problems posed by upward-only rent reviews for businesses, particularly small businesses, are well known. The reality is that many businesses are trapped in certain kinds of leasing arrangements. The rents attaching to their properties are more reflective of the fact that land and property were massively overvalued in 2006 than they are of the position which obtains in 2013. The situation is exacerbated by the fact that consumer spending and economic activity are at an all-time low. With no way out, many businesses feel that they have no option but to close down, leading to job losses for those they employ. This can push people over that very thin line between economic survival and poverty. There is a huge difference between a business which is facing the difficulties presented by normal rent arrangements and one which is obliged to pay excessive rent. The first will survive and thrive, while the second probably will not. If we can manage to find a solution to this problem, it will make a world of difference in terms of job creation.

Upward-only rent review clauses in pre-2010 leases are artificially propping up the rents achievable by landlords in respect of commercial premises. According to a report authored by Colm McCarthy, new lettings for commercial properties in Dublin have been commanding rents of €30 to €35 per square foot. At the height of the boom, these properties would have commanded rents of €60 or more per square foot. The reality is that if we had killed off these upward-only rent review clauses, commercial property rents would have fallen as quickly as they did in the residential sector. Upward-only rent clauses have ensured that the rents payable for the buildings to which I refer bear absolutely no relation to the current value of those properties.

The Bill is the fifth item of legislation aimed at tackling this issue. It will address the most significant factor which has led to the collapse of many small businesses and the loss of thousands of jobs. The continued failure of the Government to tackle this problem head on will result in further closures and job losses. Those businesses which struggle to survive while paying exorbitant rent have little prospect of being able to expand and flourish. If we are serious about getting the economy back on its feet, we must consider how we might create new jobs and foster the establishment of new businesses. The House engaged in a very interesting discussion earlier today about small and medium enterprises, SMEs, etc. It is crucial that we consider how to safeguard existing jobs and businesses. We must examine ways in which those such businesses can be encouraged to grow and expand.

The Bill before the House is entirely compatible with the Constitution. I will now address its constitutionality under various headings. The first of this relates to the fact that the State's duty to protect property rights is not absolute. The wording of Article 40.3.2o of the Constitution makes this clear.

In Moynihan v. Greensmyth the Supreme Court noted:

... that the guarantee of protection given by Article 40.3.2o of the Constitution is qualified by the words 'as best it may'. This implies circumstances in which the State may have to balance its protection of the right as against other obligations arising from regard for the common good.

According to Gerard Hogan, SC, the State's leading constitutional lawyer and now a judge of the High Court, "it follows that the State is entitled to balance the protection of property rights against other considerations".

The legislation will apply generally to all commercial leases and will ensure that rents reflect the impact of deflation in the economy. In effect, therefore, the Oireachtas would be removing an impediment to the market finding its true levels of rent. It is true that this Bill would be depriving individuals and companies of an important contractual right without compensation, but this is very often a consequence of regular and ordinary legislative activity. This point has been made by Mr. Justice Costello in Cafolla v. the Attorney General in 1986.

The approach taken in this legislation is anything but arbitrary or discriminatory. The reason this Bill targets upward-only clauses in the commercial sector is because of the damage which has been done to that sector by the existence of such clauses. This Bill does not seek to impose any burden on landlords as a class, it merely seeks to allow market rents to prevail.

I wish to deal with the interference in private contracts as that is always a concern. Legislation often impacts on contracts which have been executed between private parties, the Competition Act 1991 is just one example. Interference in a private contract is done in the interests of the wider common good. One has to look no further than the Financial Emergency Provisions in the Public Interest Act 2009, which allowed the State to unilaterally reduce the amount which it would pay to service providers, in spite of the fact that the rates payable were set down in pre-existing contracts. What is being proposed in this Bill is no different from that.

The question of the absence of compensation comes into play. Where legislation interferes with or removes an existing right, it does not automatically follow that the persons affected must be compensated. In the Private Motorist Provident Society v. Attorney General in 1984, the Supreme Court upheld the constitutionality of legislation which, without compensation, prohibited an industrial and provident society from operating a banking business because it was desirable in the public interest. This is a very important part. The retrospective nature of this Bill forms part of that carefully balanced exercise. The full retrospective interference with a person’s right may in certain circumstances be justified. This point is supported by the comments of Mr. Justice Henchy in Hamilton v. Hamilton in 1982.

According to economist Colm McCarthy, the level of deflation of wages and prices has never arisen before, certainly we have not seen it happen in our lifetime, and was not envisioned when legacy leases were entered into. The State is entitled to have regard to present economic conditions which address the extent of its duty to protect property rights. This point was made by Mr. Justice J. McMahon in JJ Haire & Co. Ltd. v. Minister for Health and Children in 2009 where he said that "economic realities must inform the interpretation of the constitutional phrases in assessing what the State can do ...".

I wish to deal with the issue of proportionality. The critical question is not so much whether a contractual right will be interfered with without compensation, but rather whether the end result is proportionate and objectively justifiable. This Bill satisfies the test of proportionality in that it does not constitute a disproportionate interference with property rights. It is minimal in terms of how it seeks to achieve its objectives and those objectives are wholly driven by the exigencies of the common good. It is undeniable that the exigencies of the common good lie in favour of a legislative measure such as this which carefully balances the rights of small business as against the rights of banks and institutional investors so as to ease the burden on small businesses. This is a balancing exercise with the very survival of small businesses at its heart. The banks and institutional investors on the other side of the equation are not faced with the prospect of closure or collapse if this Bill is enacted. For many small businesses, the enactment of this Bill will mean the difference between survival and closure; it will mean the difference between staying alive and thriving in the future. For those employed in the small business sector this Bill could mean the difference between working this week or joining the unemployment line next week. I found this quite an interesting challenge to have and it is worthy of consideration to a very large extent. The problems posed by upward-only rent are very real for small businesses. Because of the long-term nature of leases entered into during the boom, this problem is not going to go away anytime soon. I urge the Minister of State in the strongest possible terms to support this Bill.

I found it very interesting to go into the details of this legislation and the Minister of State will realise that it is not an area in which I had a great deal of experience and, therefore, I have had some help. However, I had the opportunity, probably long before he was born in 1971, of ending up not only in the District Court and High Court but in the Supreme Court and I won a case in the Supreme Court back then. I feel very proud of that achievement because I was only a young fellow at the time. I have had to learn a good deal about legislation but I have learned a great deal more in the past few months in examining this issue. This Bill is one that is worthy of consideration, it is one this House should pass tonight and I urge the Minister of State to give it every consideration.

Senator Sean D. Barrett

I welcome the Minister of State, a former colleague on the Joint Committee on Transport and Communications when he was Chairman before being elevated to a ministerial post recently. It is a great pleasure and honour to second the reading of Second Stage of Senator Quinn's Bill.

A problem arises when there are asset bubbles in an economy. When we get over our temporary difficulty on Friday we have to address that. The economy went wrong between 2000 and 2008 and how do we repair the damage that was done by 2008 and afterwards? A large part of that problem, as the Minister of State will know, was a property bubble. We got a good deal of material from the Royal Institute of Chartered Surveyors in the United Kingdom and we did not know enough about this, but it has now assembled information. If this starts to happen in other countries one would reduce the loan to value ratio. The institute would say it should never be above 80%. That figure should be brought down to 70% if a market starts to heat up. We will know better how to do all of that again.

We had a person from AIB before the finance committee who was dealing with an outstanding debt of €340,000 for somebody whose income was €34,000. That is reckless banking and the Governor of the Central Bank, Professor Honohan, said that when he came before the committee. We need laws in that area and we have a Bill listed on the reform of banking. Unless we prevent that happening again and unravel, as Senator Quinn has tried to do, what happened during the last property bubble, our recovery will be unfortunately delayed.

When one inflates property prices, as house prices were in Dublin by 500% between 1996 and 2006, and by even more on some commercial properties, with absurd prices being made for land as in the case of the veterinary college site, that bubble has to be burst. The people who did it were gamblers, entrepreneurs. They still own the properties but how come we have given them, as Senator Quinn has said, the property rights to prices right at the very top of the market, which was irresponsible and which none of us in this House would ever allow to happen again? We will have banking laws, much stricter control of the banks and stricter regulation by the Central Bank. I would say to those people that they certainly filled up enough property pages and they called themselves wizards but they backed the wrong horses. Inherent in what they did was that what goes up, comes down and my goodness it came down with a bang. Holding those properties at artificially inflated rents so that they appear as hugely valuable assets in people's balance sheets in property companies is not on. I am delighted that houses were sold in Monaghan during the week for €30,000. We need those asset prices to fall, as Senator Quinn has said, in terms of the cost of being in business. Where house prices are lower, it makes the cost of living lower and it will make Ireland a competitive economy again.

Like Senator Quinn, I do not think there is a property right in the Constitution whereby one is entitled to maintain the property price right at the top of a bubble. The strong economic case is very much to the contrary. Those prices have to fall. That is an integral part of our economic recovery. We will all be working, I hope, from next Monday on designing banking rules to make sure this does not happen again. We as politicians will have to get together to do it because from my experience with the banks and property developers, they would start this all over again and we would be back to having 50-page property supplements in the newspapers.

This is a danger in Irish society. Property has held too much sway and entrepreneurs and small businesses have not been listened to.

In regard to moral hazard, people will say some borrowed to move to a slightly bigger house. Real moral hazard applies to people who invested recklessly in the kind of properties to which Senator Quinn referred and to reckless bankers. I would have said in the example from AIB that 70% to 80% of that case, where a man with €34,000 owed €340,000, must be due to reckless bankers. I would not go on a case-by-case basis. This should be rules-based. We must get rid of this property bubble and ensure we never have anything like it again. With sensible economic policies and good people like Senator Quinn, I am sure that can happen.

In regard to the rights to private property, I am not a lawyer but I remember when the courts deregulated the taxi business. People who had a piece of paper called a taxi licence were very annoyed and brought cases. In this regard, I mention Mr. Justice Roderick Murphy, the judicial review by Mr. Justice Paul Carney and the judgments by Mr. Justice Declan Costello and Mr. Justice Hugh Geoghegan. The taxi drivers still have their taxi licences - it is a piece of paper - but they do not have a property right to keep any newcomers out of the business, which is what they were trying to do. They still own the property but they backed the wrong horse and it is now worth one quarter or one tenth of what it was before. They should not come looking to the taxpayers for any assistance because they are broke as well because of the €64 billion they had to pay to finance this kind of nonsense.

I want a capitalist system which takes some of the risks and stops sending it back to new entrepreneurs. In this case, we are probably bailing out large international property companies, insurance funds, big banks and so on at the expense of the small entrepreneur, which was what we were discussing earlier with the Minister's ministerial colleague.

The exaggerated definition of property rights is that one is always entitled to be paid at the top of the market. Even we should have known that what was going on was grossly irresponsible. We might take a look at countries which did not have a property bubble such as Norway, Singapore and Canada. I gather China is heading towards one but there will be really strict rules.

Confusing asset price bubbles with proper economic growth and entrepreneurship was a serious mistake the last time. This is part of the curative measures we will all have to take one way or the other. We must be beware of lax monetary policies and reckless lending by banks.

Property speculators drove prices to levels which the Exchequer or the economy cannot now sustain. The Minister knows well the situation in the public finances and we will cope with that on budget day. The kind of property prices Ireland had were unrealistic and Senator Quinn's Bill is a major step forward. These people never lost any opportunities and they were not great entrepreneurs or visualisers; they were speculators and they lost. We do not pay out on losing horses in the 3.30 p.m. in Leopardstown. These prices should fall and we should not attempt to put a floor under them. We should have been far more sceptical when some of them came calling to Government Buildings five years ago last weekend.

Senator Martin Conway

Cuirim fáilte roimh an Aire go dtí an Teach. As public representatives, we are embarrassed when we are not in a position to deliver something for people which we believe they deserve. There is very little that embarrasses me as much as having to stand up here without a comprehensive solution to an appalling problem. To be fair to the last Government, it introduced the Land and Conveyancing Law Reform Act 2009 which at least stopped this appalling practice going forward. A commitment was made prior to the last general election that the Government would do something to deal with this retrospectively but unfortunately that was not possible because of the very difficult legal situation which prevailed in Articles 40.3.2° and 43 of the Constitution and the fact they must be viewed together. There were legal issues with dealing with this problem retrospectively.

I commend Senator Quinn on bringing this Bill forward. It is another very worthwhile Bill which he has brought forward in my two and a half years in the House. The Bill brought forward by Senators Quinn and Zappone on Seanad reform is a very interesting one that I commend but we can talk about that another day.

This problem is almost as bad as it was five years ago in the sense that many businesses in the mid-1990s, when they were trying to get some sort of security for the future of their businesses, entered into long-term leases, some of which were for 25 years, 35 years and longer. Landlords were quite happy with this arrangement. Tenants entered into this arrangement to ensure they had some security in terms of building and developing their businesses. We then saw the madness which took place from the late 1990s until four or five years ago. Nothing else is upward-only in this country except rent reviews. Property prices tumbled and properties around a person's property, which suffered from upward-only rent reviews, became vacant and rental values dropped. Unfortunate people were caught up in this bubble.

The people for whom I feel most sorry are those with small and medium-sized businesses who do not have access to big legal teams, well-resourced accountants and so forth who can identify ways and means of getting people through a crisis and who are in a position to negotiate with banks and to avail of any possible loopholes. I am more concerned about the ordinary 95.5% of businesses which are small and medium sized and are the backbone of business in this country. Big business can avail of the examinership option when they get into trouble where they secure court protection and can enter negotiation with landlords and other creditors and come up with a deal which sees a variation in what they are paying in rent. Unfortunately, that is not available to people with small and medium-sized businesses because they do not have the resources to procure the legal and accounting expertise necessary as it is an expensive process.

I always believe there are solutions to every problem. There is more than one way to skin a cat. If there is a constitutional or legal impediment to following through on Senator Quinn's Bill, then let us look at other options. The examinership option is certainly one at which we can look. The Companies Bill 2012, which will go through Committee Stage later this year, has an option called examinership light that would open up the prospect of examinership to small and medium sized businesses which would be a vehicle to deal with these astronomical upward-only rents and where they would secure court protection and would be in a position to alter and, hopefully, force down the rents they are paying along with dealing with other creditors.

We must deal with this because if we do not, jobs will continue to be lost. I have absolutely no doubt jobs have already been lost because this has not been comprehensively dealt with. I understand Governments must take cognisance of legal advice, which is appropriate as they would be negligent if they did not do so, but we must be creative and think outside the box and come up with mechanisms to facilitate the retention of jobs and ways and means to secure small and medium-sized business.

This Government and previous Governments have supported and saved the banks. Big business can save itself most of time.

Some very high-profile international chains that have got into difficulty in this country have been able to go through the examinership process and, thankfully, retain jobs and get their rents renegotiated downwards. That facility must be available to small and medium-sized businesses. It needs to be available to the shop in the main street in Cashel that is caught in a 35-year lease on an upward-only rent basis and a shop in Donnybrook that might be run by an entrepreneur who set up in the late 1980s or early 1990s and finds themselves in this awful situation. As an Oireachtas and Government, we need to think outside the box, be creative, come up with solutions and not be afraid of pushing the boat out. If this Bill is not legally sound or impossible to implement, let us come up with other solutions. I firmly believe that where there is a will, there is a way.

I have already identified one possible solution to this problem. The good offices of the Minister could encourage the Government to fast-track the Companies Consolidation and Reform Bill 2012, push it through Committee Stage and look for this examiner light option to include people who find themselves in this type of scenario. We have a responsibility to people who find themselves in this position with regard to the hope they were given prior to the last general election and the early part of the tenure of this Government. We have a responsibility to support them and to ensure the State co-operates with and facilitates them.

I look forward to the Minister of State's response. I understand the constraints he faces. I commend Senator Quinn on putting the Bill before us and on facilitating this very important debate, as he has done many times before. I look forward to, hopefully, seeing a comprehensive response that will end this awful predicament in which many people renting properties and operating small businesses find themselves.

Senator Darragh O'Brien

I am not sure how to follow Senator Conway. I know that his sentiments are valid and well held. He mentioned a number of things such as how we need to think outside the box; how where there is a will, there is a way; and how we need to fast-track this and that. That is correct but there are no solutions there.

I commend Senator Quinn for producing this Bill. I have no doubt the Minister of State will say it is unconstitutional and that a referendum would be required. That is the script he has been given. I would tell him that this Government tends to have a referendum once every couple of months and it could have included a referendum on this issue in conjunction with one of them so it would have had a real effect on businesses.

Successive Governments have failed in this regard. I remind some colleagues about what was said when Fine Gael and the Labour Party were in opposition before the general election. In 2011, the Fine Gael manifesto stated that Fine Gael would pass legislation to give all tenants the right to have commercial rents reviewed in 2011 irrespective of upward-only or other review clauses. The Labour Party manifesto, which is not a document to which I often refer, stated that it would enact Labour Party legislation to abolish upward-only rent reviews for all commercial leases as a matter of urgent priority. The Tánaiste and Labour Party leader, Deputy Gilmore was quoted as saying that there was a crazy law on the Statute Book which did not allow for downward revision of rents. He was quoted as saying that the Labour Party would change that law so that businesses that got stuck with high rents at the height of the boom will be able to have them renegotiated. These were election promises.

I agree that this needs to be done. The programme for Government, which both parties said was an agreement between the Labour Party and Fine Gael, states that the Government would legislate to end upward-only rent reviews for existing leases. It did not say there was a constitutional problem. I would support it on that. I argued with the previous Minister for Justice, Deputy Dermot Ahern, regarding this issue at the time. As Senator Conway rightly noted, the previous Government brought forward the Land and Conveyancing Law Reform Act 2009 which stipulated that there could be no upward-only rent review for leases entered into after the Bill's enactment in February 2010. What has changed since then? Only five months after the Labour Party and Fine Gael entered Government, the Minister for Justice and Equality in response to a parliamentary question tabled by Deputy Calleary effectively said that the Government was seeking further advice from the Attorney General and that it still hoped to do this. Following budget 2012, the commitment was abandoned because it was deemed legally impossible to implement it. I know some very eminent legal people back Fine Gael and the Labour Party. Both parties put forward very clear pre-election positions. They put it very clearly in their programme for Government.

Senator Quinn has set out very clearly how this measure is constitutionally sound. I agree with him on that. It will give businesses a fighting chance. Let us be honest. Why has this not happened? Most smaller landlords - people who live in the real world - have had to review their rents to keep shops in main streets in Swords, Tipperary or anywhere in the country open. Who are the landlords who are not doing it? They are the institutional investors - the pension funds and banks. It is because they are keeping rental yield on their property funds artificially high. I worked in the pensions industry for 15 years. That is what we know. Go 200 yards down the road here to Grafton Street. Most of the properties are owned by institutional investors. They will ensure they get the rents they want to artificially prop up their pension fund and their own returns.

We have a commercial market, part of which is starting to move again which I very much welcome and which is partly due to some of the measures taken by the Government on which I commend it. However, it is now a two-speed commercial market. There is a level playing field for anyone entering into a lease since the enactment of the Fianna Fáil legislation in 2010. Anyone who entered into a lease before that date does not have this level playing field. That is a crazy situation. All of us agree that this situation is untenable and unfair. Senator Conway spoke about sympathy and concern and he is right but to paraphrase another Minister, concern and sympathy do not butter any parsnips. The Minster for Communications, Energy and Natural Resources would be the first one to tell him that. He said deals in Europe do not butter any parsnips for the Irish people. I will tell him what would help, to actually do something for the small and medium-sized business sector in this regard. This House can genuinely support that.

I understand that the Minister of State and the Government have a job to do but allowing this Bill to go through on Second Stage may refocus minds. Things are moving in certain sectors of the economy, which is great. All citizens want to see that happening but if we look at indigenous Irish industry, particularly the retail sector, we can see that upward-only rent reviews are albatrosses around their necks. They cannot move on. In respect of cutting their salary costs and costs across the business, the major cost is their rent. I will not even talk about the revaluation under the Valuation Act. There is something we can specifically do about rents.

Who will challenge it? If the Government says this Bill is not constitutional, who do people think will challenge it? I will tell you who is going to challenge it. It will be the institutional investors. Have the Departments of Finance and Justice and Equality received advice from or been lobbied directly by institutional investors? What stick are these investors holding over the Government on the basis that if it does this, they will do something else? Everyone knows that is the case. Let Canada Life or Friends First challenge the Bill when it is enacted.

Let an institutional investor go to the High Court, the Supreme Court or the new court of appeal, if it is established. There is nothing to stop us. Senator Quinn has clearly outlined his opinion, which my party shares. Our view used to be wrong. At the time, I stated my disagreement with the previous Minister with responsibility for justice that we could not remove and render unenforceable a clause contained in a commercial lease where a review process took place to set the rate at a level that was above the prevailing market rent. The playing pitch has been changed for those who sign leases after 20 February 2010, but what about people who signed before then? Consider how much rent they are paying.

Of whom are we and the Government afraid in passing this legislation? Of whom was the previous Government afraid? I do not want to sound partisan, but we have an opportunity to provide a solution by allowing this Bill to pass. Let it go through all of its Stages and into the Dáil. Let a bank, insurance company, pension fund or hedge fund challenge us. Why are we afraid? I do not understand it.

I hope the Minister of State, whom I welcome to the House, understands this position in light of his own constituency. We all know it. There are vacant properties everywhere. New start-up businesses would take them. Existing tenants are being crippled by upward-only rent reviews and prevented from expanding. The Minister of State has a chance this evening. Senator Conway asked us to think outside the box. I agree with him, but the Minister of State should think inside this room. Senator Quinn's Bill can be passed on to the Government. It is part of the solution.

Senator Aideen Hayden

Senator Darragh O'Brien is correct in that it is Labour Party policy to abolish upward-only rent reviews. However, this is a complex issue and must be handled correctly. Much and all as I applaud the Bill and its sentiments and regardless of the rhetoric that has been exchanged in the Chamber, aspects of this situation must be considered.

I thank Senator Quinn for presenting this Bill. It is an opportunity to raise this important issue yet again in the public domain. The presentation of legislation such as this represents the finest aspects of the Seanad in tabling legislation on difficult commercial and social issues. In many speeches to the House, Senator Quinn has made persuasive arguments about the damage that has been done to small businesses in particular by upward-only rent reviews. All Senators are aware of that damage. One need only walk down the main street of any small or middle-sized town, Dún Laoghaire or this city to see the impact on the commercial sector, including the loss of venerable, well-established businesses and the consequent proliferation of what we used to call pound shops but are now termed €2 shops. No one would disagree that there is a serious issue that must be tackled.

My speech will have two parts. It is important to give balance to the debate. I have practised as a commercial lawyer. Upward-only rent review clauses in commercial property leases are the result not just of the Celtic tiger era, but of the radically different development of the legal systems relating to commercial and residential properties. Prior to the collapse of the economy, long leases that provided certainty were the norm and were held up as promoting stability in the commercial leasehold market. In my experience of sitting on the Commission on the Private Rented Sector in 2000, five year rent reviews were held up as the ideal for which the residential sector should aim. From the 1970s to the 1990s, the argument was that tenants benefited significantly from the certainty provided by five year leases in times of rising rents. This is how upward-only rent reviews came into being. It is important we understand this. For a time, tenants who had the benefit of commercial leases gained substantially from periods of rent certainty.

Like all Senators, I accept that we are in a different era and that upward-only rent review clauses are damaging to business. According to the Bill's explanatory memorandum, Senator Quinn does not foresee any constitutional issue. I am afraid that I must disagree. The main difficulty with the proposal is that it is an arbitrary and disproportionate blanket provision. While all Senators would like small businesses that are in trouble to benefit, that would not be the impact of this proposal. According to the advice the Government has received, a class of landlords would take the consequences of a provision that is in effect retrospective on contracts that were freely negotiated - admittedly, not all of them were free - between equal parties with equal negotiating contractual positions.

Senator Mark Daly

If only the Government parties had the Senator's advice when drafting their manifestos.

Senator Aideen Hayden

If Senator Daly does not mind, without interruption.

Acting Chairman (Senator Paschal Mooney)

Yes.

Senator Aideen Hayden

Many commercial leases are held on those terms and many are not. I am well aware that there was not equality in the negotiation of many commercial leases, particularly those for shopping centres or multiple units owned and managed by large companies. However, proportionality is an issue. Senator Quinn need only look back as far as 1986 to the Madigan case on rent control to see that any retrospective provision that is arbitrary and benefits an entire class without taking into account the circumstances of the members of that class would be struck down by the courts as being unconstitutional.

Senator Darragh O'Brien

What about the 2009 Act?

Senator Aideen Hayden

Senator Katherine Zappone

I welcome the Minister of State to the House. I wholeheartedly welcome this Bill which has been introduced by Senator Quinn and is supported by Senators Barrett and Norris. Having listened to Senator Hayden, it is a loss and a pity that the Government did not draw on her expertise to write a Bill that we could be discussing here now. However, that did not happen so we have before us this Bill which I welcome. I wish to echo a few things that both Senator Quinn and Senator Darragh O'Brien have said.

The impact of upward-only rent review clauses, that this Bill will render unenforceable, is that businesses struggle to pay their rent. The inevitable consequence of this is that many of them have to close down, and people lose their jobs and are forced on to social welfare.

The effect of the upward-only rent problem is all too visible in towns and cities around the country, where the streets are scarred with closed shutters. Why do we make them go through this? Why do we tolerate a situation where Government inaction - could we call it Government policy from this side of the House, perhaps not - is strangling the small business sector?

The latest figures indicate that there are 435,280 people signing on the live register, which is an unemployment rate of 13.4%. The programme for Government made a series of promises to ease the plight of small businesses. Small businesses hold the potential to be significant employers. The passing of this Bill would do more to help the SME sector to grow than any other small business initiative that this Government has implemented.

To add to that, this is a Bill which the Government had committed itself to implementing. Senator Darragh O'Brien has already referred to the election manifestos of both the current Government parties, as well as the programme for Government, which promised to legislate to end upward-only rent reviews for existing leases. In making those promises to the people, both Government parties had the benefit of professional legal expertise. They could only have made such promises safe in the knowledge that they were legally and constitutionally sound and could be delivered upon.

In fact, the Government went so far as to commission the drafting of legislation to fulfil its promise. It was to be called the landlord and tenant (business leases review) Bill 2011. In spite of its promises, the Government appears to have washed its hands of the solution which could save existing businesses from closing down and save countless jobs.

Who benefits from the upward-only rent situation? Generally speaking, the landlords of these premises are not ordinary people who need exorbitant rents to fund their mortgage payments. Many of these buildings are owned by NAMA, the banks and institutional investors. NAMA is now the biggest commercial landlord in the State. If the SME sector were to be given the space to agree realistic rents, then NAMA's books probably would not balance. I suspect that banks and institutional investors are also against legislation such as this because they depend on exorbitant levels of rent which are paid by small businesses.

The ordinary people and future generations of this country have been forced to bail out the bankers. Now the SME sector is being forced to pay artificially high rents to banks and investors to supplement their losses elsewhere.

Such is the extent of the lobbying conducted by banks and institutional investors on this issue that the Government appears to be bowing to their demands. This is in spite of the fact that legislation such as this Bill could save businesses and help the SME sector to grow and generate more new jobs.

Another critical point is that many Government bodies and agencies occupy offices which are subject to an upward-only rent review clause. Taxpayers are also bearing an unnecessary burden in the payment of exorbitant rents.

Fine Gael and the Labour Party made a solemn commitment to the people that they would resolve this issue. Under Standing Order 56, the Attorney General has the right to appear and speak in the Seanad. I would like to extend an invitation to the Attorney General to come into this House so that we can tease this matter out once and for all. We could also invite in her predecessor, Mr. Paul Gallagher, SC, who advised the Fianna Fáil Government on this matter.

Acting Chairman (Senator Paschal Mooney)

I am afraid the Senator's time is up.

Senator Katherine Zappone

I will only take another 30 seconds. Let us be frank about this, a vote to oppose this legislation today is a vote for banks and investors. Banks have been calling the shots in this country for too long. I support small businesses' need to survive and expand. That is why I urge my fellow Senators to support the passing of this legislation today.

Senator Cáit Keane

I welcome the Minister of State to the House and am glad to have an opportunity to speak about this important legislation. Hopefully, we can do more than speak about it and if the Minister of State and his colleagues cannot do anything about it today, perhaps they will give a commitment to act shortly.

The subject of upward-only rent reviews has been on the political agenda for many years. It has become a major issue since the onset of the economic recession in 2008 when businesses began to struggle. Huge rents that had previously been manageable became destructive and beyond the capacity of a lot of businesses to pay. Unfortunately, we have had a system in Ireland whereby upward-only rent reviews were common features of business leases or rental contracts until 28 February 2010. We are one of only two EU countries with such a system, the other being the United Kingdom.

Senator Martin Conway complimented the previous Government on introducing legislation, the Land and Conveyancing Law Reform Act 2009, which, in section 132, banned upward-only rent reviews in new contracts agreed subsequent to 28 February 2010. Why did the previous Government not go the whole hog at the time and ban upward-only rent reviews in all rental contracts? Why did it confine it to new contracts? I understand the reason given then is the same as the reason being given now, namely, that such a provision could be found to be unconstitutional. The only way to find out if that is the case is to make the ban universal and have it tested in the courts.

While the introduction of section 132 of the 2009 Act was welcome, it only applied to new commercial leases agreed after the enactment of the legislation. I can understand the reason the measure was not applied to contracts agreed previously. Between 2000 and 2007, retail rents increased by 240% whereas the consumer price index increased by only 30%. These figures demonstrate how skewed rents became in the period in question. Some people believe rents should decline over time as business failures and job losses would force landlords to reduce rents. Recent statistics support this view as they show that Dublin retail rents suffered the second sharpest fall in Europe in the past 12 months. The capital was only one of five major European cities to record falls in high street rents, while 19 others notched up retail rent increases. Despite a 15% decline, Dublin high street rents, which average €2,389 per sq. m., remain 18th highest out of 37 European countries. Given how badly the Irish economy is performing, we need to examine the reasons rents in Dublin remain so high.

Naturally landlords are entitled to make a profit but they are not entitled to make a killing or kill businesses. It is reasonable, therefore, to do everything in our power to address this issue. Ireland is one of only a few jurisdictions in the world where upward-only rent reviews apply and rents cannot fall irrespective of how the market performs.

I refer to the High Court's decision in the Bewley's case to allow the rent to fall to the open market value, albeit not below the initial rent agreed. The important point of the court's ruling was that the rent would be allowed to decline not to the level in place at the time of the expiry of the contract but to that which applied when the initial lease was signed. The "preceding period" referred to in the contract was adjudged by the court to be the initial five years of the lease rather than the period immediately preceding the most recent review date. This is an important distinction for legal experts dealing with leases. The interpretation of the court in the Bewley's case overturns the long understood meaning of the term "upward-only rent review". This matter should be teased out further and if this House is good at anything, it is at teasing out issues. I hope we will have an opportunity to further discuss the interpretation of the court in the Bewley's case. We do not want every business in the country to take a court case. The purpose of legislators is to ensure that legislation is considered from every possible angle. The judgment in the Bewley's case may have set a precedent for commercial leases dispute. As a previous speaker noted, the A-Wear company, which has 32 stores in this country, is also trying to negotiate its rents downwards.

I understand the constitutional difficulties that arise and that one cannot leave the Government open to the possibility of being fined. We must, therefore, be careful as private contracts are entered into freely and the country's reputation as a location for investment would be damaged if we were seen to act unconstitutionally. The Minister of State noted that the State could be liable for compensation. As I stated, it is worth testing whether this is the case. I support Senator Zappone's request that we invite the Attorney General to come before the House to give her view on the issue.

Senator Marc MacSharry

I welcome the Minister of State, Deputy Ring, to the House. With every respect to him, however, it is highly disruptive to have ministerial changeovers, as it were, when Senators are contributing to a debate, as was the case during Senator Zappone's contribution. One Minister should be present in the Chamber for the full debate.

Deputy Michael Ring

The Senator is not often present in the Chamber.

Senator Marc MacSharry

I am not being personal. It should be possible to have one Minister present in the Chamber for the duration of a debate.

I am pleased the Minister of State is present because he will, no doubt, relate very well to the issue under discussion. In the interests of those who prepared the legislation and those who seek to improve or comment on it, they deserve, at a minimum, to have only one Minister present for a debate.

I commend Senator Quinn on introducing the legislation. In 2012, my party introduced the Landlord and Tenant (Business Leases Rent Review) Bill in the other House. Despite certain commitments being given at that stage, no action has been taken in the meantime and it is clear the Government will not accept the legislation. Senator Quinn's Bill is imaginative and deserves a hearing. I appeal to the Government to allow it to pass Second Stage. It is clear from the Senators opposite that the Government side in this House wants this issue addressed. The practice heretofore is that advice received from the Attorney General is not cited or shared in the House by Ministers. This is regrettable. If necessary and in the interests of citizens and small businesses, we should test the constitutionality of the legislation in the courts.

The programme for Government clearly states the Government "will legislate to end upward only rent reviews for existing leases." The manifestos of the two Government parties gave all sorts of commitments. The Tánaiste, as leader of the Labour Party, told us it was the Labour Party's way or Frankfurt's way and described the law on the Statute Book as crazy. Back in the land of the little people, to use the expression of Senator Hayden, there are 50 empty retail units in my home town. In 2004, all of these units were commanding high rents but many families and retailers have since gone out of business. Even large UK multiples, notably in the area of ladies clothing, have closed down because they were unable to pay the rents. In the north west, the boom manifested itself through an increase in activity in the service industry, specifically the retail sector where a large number of people were employed. This sector has been bitten hardest in the recession. On O'Connell Street, the main street of Sligo, a Boots chemist store was paying €250,000 per annum for a lease at one stage and the rent for another small unit on the same street was €100,000. Many of these units are now empty.

I accept the Attorney General and her predecessor have concerns about proposals to ban upward-only rent reviews. Senators asked why my party in government did not go the whole hog when it introduced legislation on the issue. I agree that we should have done so at the time. As Senator Darragh O'Brien noted, many of us disagreed with the view of the then Minister for Justice, Equality and Law Reform, Deputy Dermot Ahern, that we could not go the whole hog. In Senator Quinn's Bill we have a vehicle by which we can achieve the objective for which we all yearn.

Senator Zappone pointed out that the National Asset Management Agency is the largest property owner in Ireland and perhaps the world. What is NAMA doing on the issues of empty premises, enforcing rents and so forth? What is it doing in cases where holders of leases are in arrears?

Is there any engagement? Is anyone saying that they want to keep these people in situ? Has anyone sought to bring down the rents? I suggest not. I know of and have anecdotal evidence relating to local authorities throughout the country - the Department of Agriculture, Food and the Marine comes to mind in particular. It may own many commercial buildings in ports like Killibegs and Sligo and smaller ports throughout the country. Has the Department reduced rents for anyone? The answer is "No". I know first-hand of companies that have gone into receivership, gone bust or ceased trading because of the fact that they cannot afford those rents. I venture to suggest that the State is being penny wise and pound foolish. It should engage with these people, keep them in business and reduce the rents rather than argue that a given business has a lease and it must pay it or get out. I do not believe we are being particularly smart about that.

I thank Senator Quinn and my Fianna Fáil colleagues in the other House who produced a similar Bill some time ago. I call on the Minister of State not to give us the set piece this time, as has occurred so often in the last Administration and this Administration. The line is that they say they are sorry because it is a good initiative for which we all yearn but it is simply unconstitutional. Government Senators have said it. Well, let us test it in the courts. This is something that Irish society genuinely needs and yearns for. It could benefit employment and small business and that will no doubt contribute in a major way to the national effort.

I thank the Minister of State for listening. I reiterate that it is nothing personal but those who schedule these debates and the Minister's schedules should ensure that one Minister, the same Minister, is here for the entirety of the debate.

Senator Ivana Bacik

I welcome the Minister of State to the House. I commend Senator Feargal Quinn on introducing the Bill, which seeks to tackle a real and pressing issue for many people, especially those working in retail and running retail businesses. The issue was raised with many of us in the lifetime of the previous Government as well as since the 2011 election. The issue of upward-only rent reviews was dealt with, albeit in a very limited fashion, by the previous Fianna Fáil-led Government under the Land And Conveyancing Law Reform Act 2009, section 132 of which deals with upward-only rent reviews in commercial leases on a prospective basis. In 2009 the Government only dealt with leases on a prospective basis and therein lies the rub and the difficulty.

Senator Quinn's Bill deals with the pressing issue of upward-only rent review clauses in leases and seeks to change the terms of these retrospectively. As other speakers on this side have said, there is a difficult constitutional question about whether one can do that.

I have often been critical of the elevated protection of property rights in the Constitution and that is the problem. I could point to any number of examples. A colleague of mine, Conor Power, wrote about a previous Labour Party Government's attempt to bring in progressive legislation that fell foul of the Constitution on the grounds of property rights. I am referring to the first Employment Equality Bill, which was brought in by the rainbow coalition or perhaps even the Fianna Fáil-Labour Party Government. It fell foul of the Constitution in the Supreme Court. As Conor Power put it in an excellent academic commentary, equality rights, particularly the equality rights of employees with disabilities, were trumped by private property rights in the Constitution. This arose with the first version of the Employment Equality Bill. It was subsequently enacted with a different provision on disability. The first provision that fell foul of the Constitution placed, in the Supreme Court's view, an unduly onerous obligation on employers to make reasonable accommodation for employees with disabilities. The court held that there was no distinction between classes of employer and that a small employer would have the same obligation and that this could encroach on the private property rights of employers. That is my summary of the judgment. Effectively, the court held that private property rights in the Constitution prevailed over the rights to equality in the workplace of persons with disabilities. A different and less strong version of that provision was subsequently included in the Employment Equality Bill that was enacted in 1998.

I have written critically about the Supreme Court's treatment of a previous Labour Party attempt to alter property rights through the Matrimonial Home Bill, struck down by the Supreme Court in 1993. That Bill would have given equal rights in the family home to a non-owning spouse. That was to deal with an issue at the time whereby typically the husband was the sole owner of a family property and could sell it or mortgage it without the consent or knowledge of the wife. There were various issues about that.

Senator Thomas Byrne

The issue was that it went too far and favoured a couple making a different decision themselves.

Senator Ivana Bacik

That is right. As Senator Byrne said, it was not only about property rights. The striking down of the Bill was also related to the position of the family in Article 41 of the Constitution. The judgment was that the Bill went too far in encroaching upon the right of the family to decide for itself on what basis the ownership of the family home would be allocated. These are simply two illustrations of the way in which property rights have been interpreted by the Supreme Court. I do not agree with that but we need to be cognisant of it.

There is conflicting legal advice about what we can and cannot do. It is arguable that we could seek to tackle the issue of upward-only rent reviews in a retrospective fashion, but to do so would require some form of compensation scheme. That argument has been strongly made. I realise there is no contemplation of a compensation scheme in this Bill. The Seanad could not do so because it would involve a charge on the Exchequer. Perhaps that requires further examination but it would be a serious matter to start bringing in a compensation scheme given the current economic climate.

It is regrettable that we cannot take a more generous approach to the Bill. I strongly believe, as does my party, that this is something that needs to be tackled. We are conscious of the serious issues facing businesses, especially small retail establishments which have these clauses in their lease agreements. The previous Government ran up against exactly the same difficulty that we are faced with.

I suggest that Senator Quinn might consider adjourning the debate on the Bill, as we have done previously in the Seanad, without calling a vote on it in order that we could explore some way in which it might pass constitutional muster. There is a serious issue about the undue or elevated protection of property rights in the Constitution and that is the central problem.

Senator David Cullinane

I welcome the Minister of State to the House. I commend Senator Quinn on tabling the Bill. It gives us the opportunity to discuss this issue. We had some conversation with the Minister of State with responsibility for small business, who was in the House today. He was dealing with the legislation to put in place the local employment offices. The issue of upward-only rents was one of the many issues raised with him that impact on the small and medium enterprise sector in particular.

I welcome the Bill and the principles behind it. Last year, my party drafted a Bill to address what we saw as the ongoing injustice of upward-only rent review clauses. Despite the fact that Bill was published, the Government has still not provided time to debate it. Upward-only rent clauses undermine our businesses and cost jobs. Only a few hours ago, we learned that a chain of shoe shops throughout the State has gone into examinership because of upward-only rents. We saw the same with B&Q not long ago. We could all give other examples, especially from the retail sector, of businesses which have gone into either examinership, receivership or which have gone out of business altogether because of these clauses.

The bottom line is that the inclusion of these causes is anti-competitive. It corrupts the market for the benefit of the least-productive sections of the economy. It lines the pockets of landlords. It paid for the greed of property developers and it inflated the bottom line of failing banks. In many respects, it was one of the worst excesses of the Celtic tiger. Yet, it is still with us today. The political will is simply not here to deal with this issue. We are hiding behind the Constitution and advice from the Attorney General, which was never made public. We do not know what that advice was. The countering legal advice that my party has received is to the effect that this Bill, if accepted, would deal with the issue in a very similar way to the Sinn Féin Bill which has been published and is to be debated in the Dáil.

Customers and taxpayers are paying for this because businesses have to stay afloat and they pass the cost on to their customers because they have no choice.

Consequently, the consumers end up paying for it. I would have hoped this Bill would receive the support of all parties because before the last election, all parties quite rightly articulated this as a real concern that is affecting businesses and jobs. I appeal to Senator Quinn to press this issue to a vote later today. Let Members support this legislation and move it on to the next Stage. Thereafter, let the Government revert with its arguments as to the reason the Bill is unconstitutional or otherwise.

In the past, both Fine Gael and the Labour Party vowed to support traders such as Korky's Shoes on Grafton Street. In the programme for Government, they committed to tackling these clauses and to aid struggling businesses. Soon after coming to power, the property lobby comprising landlords, estate agents, developers and special interest groups began to lobby all political parties. Claims were made that changes to the clauses would bring the world down around our ears. How many times have Members heard this claim from the same people? This view of course ignored the loss of 40,000 jobs in the retail sector or how local businesses are struggling to survive both because of the general state of the domestic economy and because of the cost of doing business of which upward-only rents forms part. Yet again, the Government chose to take the side of landlords. It stated the advice of the Attorney General was that to proceed may be unconstitutional and may leave the State open to compensation claims and some Government Senators have made that point in this debate. As usual, Members never get to see this legal advice. It is unusual for a legal opinion to be so definite. Members are being told this advice is definite but as they can never have sight of it, they must always take the word of the Government and the Attorney General regarding it. As Members cannot actually see it, they are unable to decide for themselves and it cannot be tested. This is one flaw in the manner in which we legislate in this State as far too often, the advice of the Attorney General is used to prevent Members from progressing with legislation. Other legal opinion has demonstrated likewise.

I will conclude by noting the choice in this regard is simple. One is either with landlords and developers or one stands with those entrepreneurs and workers who work in the retail sector. These entrepreneurs are struggling to stay open and I know many of them are working for the minimum wage and less to keep the shops open in the high streets of our cities and towns across the State. The daily reality for them is they are being crippled and whatever support Members can give to them should be given to them. This Bill constitutes an earnest and honest attempt by Senator Quinn to address an important and pressing issue for many small to medium-sized businesses in general, including those in the retail sector, and I fully support the Bill. If this is pushed to a vote, my party will vote in favour of the Bill.

Senator Colm Burke

I thank Senator Quinn for introducing this legislation and it is important that Members debate this issue. On the reduction of rents, I note that two years ago, a colleague of mine was in the High Court in respect of a rent review on Grafton Street. My understanding had been that it concerned a lease that had expired and that the tenants were entitled to a new lease. However, on checking with my colleague before coming to the Chamber, I learned it in fact was a lease that did not have an upward-only rent review clause. The matter went to the High Court for review and the manner in which that court dealt with it was interesting. The issue concerned current market rent and evidence was given by two different valuers, one on behalf of the tenant and the other on behalf of the landlord. I believe the annual rent had been more than €500,000 under the old lease and the person giving evidence on behalf the landlord stated the new rent should be approximately €375,000. However, when questioned as to when was the last time he had negotiated a rent on Grafton Street, he fumbled the reply. On being asked the question a second time, it turned out that in the 30 years of his practice, he had never negotiated a rent on Grafton Street. The High Court duly disregarded his evidence and reduced the rent by 65%.