Upward Only Rent Reviews

Mad Finn

There seems to be a widespread belief that the rents of commercial property in Dublin can never be decreased, only increased. Is this true?

Or is it a crass generalisation which only applies to long-term leaseholders who have signed up to regular upward reviews of rents and not to the sector in general?

Even so, how can this be justified in terms of market theory? Surely the price at which a good or service is traded depends on teh immutable laws of supply and demand?

Anybody know any good links to articles/pieces that might explain this?

Ta

Sponge Bob

Mad Finn wrote: »

There seems to be a widespread belief that the rents of commercial property in Dublin can never be decreased, only increased. Is this true?

Reading the lease contracts themselves, yes it is true.

Even so, how can this be justified in terms of market theory? Surely the price at which a good or service is traded depends on the immutable laws of supply and demand?

It does indeed , however 2009 would be the first time that HIGH quality MODERN office/retail/warehouse has been left lying around in large numbers pretty well nationwide.

Every commercial sector is super saturated...everywhere.

1/3 of all the offices in Galway are empty and some have never been occupied and fitted out since being built up to 8 years ago .

This means that companies with NEW leases have a great advantage over those who committed to long upward only leases 10 years ago .

An example would be 2 companies I know in Galway , next door , each with around 4000 sq ft .

One pays €17 PSF and one pays €10 PSF ( per annum)

The first has a 15 year break clasuse and the other has a 2 year break clause .

The first also had to fit the office out where the second had to do almost nothing with theirs .

gurramok

Mad Finn wrote: »

Even so, how can this be justified in terms of market theory? Surely the price at which a good or service is traded depends on teh immutable laws of supply and demand?

FF favouring the landlord class? It couldn't be!

Its only recently that this issue is being tackled through a review of that rent law provision. If they did nothing about it, the city centre would be deserted due to the recession.

7mountpleasant

The reasoning behind upward only rent reviews is a legacy of the very high inflation during in the earlier to middle part of the last century, in order for a property investment to be classified as 'investment class' and suitable to go on the books of instuitional property investors for the purposes of valuation it had to have an standard 25 FRI (full repairing and insuring 25 year lease) as instuitional property funds and investors in the uk were the main part of the market this led to the 25 FRI upward only being the standard lease in the uk and this was put on the statute books in the early seventies in the uk.

It was adopted here as well as we have a very similiar legal framework (and the Society of chartered surveyors operates here also), the upward only portion means that the rents are reviewed every five years (by agreement or binding arbitration usually by someone drawn from the pool of the scs) the reason it was only ever upward only is because it is only in the past 25 years where inflation had subsisded to a point where there is a much higher probabiliity that nominal rents will be lower in five years that now). It was thought at the time that by removing this small uncertainty it would ecourage more investment property by allowing a greater degree of certainty in valuation analysis.

Personally I think that the french system makes much more sense where commercial rents are linked to the increase in the cost of commercial construction and leases are set for 7 years. The big probelm in ireland is that if the upward only clause is removed it could have big knock on effects for commercial property yields going forward and discourage inward investment, although there is definitely two sides to that coin!

silverharp

7mountpleasant wrote: »

The big probelm in ireland is that if the upward only clause is removed it could have big knock on effects for commercial property yields going forward and discourage inward investment, although there is definitely two sides to that coin!

The company I work for has alot of leased property and we are finding that they are not pushing for increases and can only assume they are trying to keep us sweet so that we dont move on a break.

Using the " you cant buck the market" as soon as a lessee has a legal break rents will drop. It will be interesting to see if companies go into bankruptcy just to break a lease? whatever way you cut it there is going to be a ratched down of prices. Commercial owners that have little debt will survive, those that cant make repayments will go under, more forced sales ...rinse ..repeat. Remember an empty building is not even worth 0, it costs money to maintain and make debt repayments.

Mad Finn

7mountpleasant wrote: »

The reasoning behind upward only rent reviews is a legacy of the very high inflation during in the earlier to middle part of the last century, in order for a property investment to be classified as 'investment class' and suitable to go on the books of instuitional property investors for the purposes of valuation it had to have an standard 25 FRI (full repairing and insuring 25 year lease) as instuitional property funds and investors in the uk were the main part of the market this led to the 25 FRI upward only being the standard lease in the uk and this was put on the statute books in the early seventies in the uk.

It was adopted here as well as we have a very similiar legal framework (and the Society of chartered surveyors operates here also),

OK this is a bit of a bump but I was reminded of it while listening to Brian Lenihan defending his NAMA policy on Morning Ireland today.

One thing he said caught my attention. He was responding to the comments of Finance Professor Lucey who was decrying the wisdom of paying over the odds for assets in a market that is still declining.

Lehihan said (listen from about 7 mins onwards on the link above) that "NAMA's income flow will be sufficient to pay the bonds" and then (about nine minutes in) he said:

"Rents in Ireland have not declined. The return on property has not declined. The return on property in Dublin is now at an all time high because property values have fallen so much. That is clear evidence we are at the bottom of a cycle."

Is this not an example of total disingenuousness? Of course rents aren't declining if it is legally prohibited for existing tenants to reduce them. The sight of acres of empty office space in central Dublin, however, shows that the number of new businesses seeking office space has dried up. Existing rents have not declined; but the overall rental business is stagnant. The classic consequence of a rigged market.

Is this evidence of such a market distortion dictating bad policy? Of a minister looking at a small spurious part of the picture and saying "Rental property is a good investment in Dublin"? Meanwhile businesses are closing daily and relocating overseas because our cost base is too high.

Surely allowing a general easing of commercial rents in Ireland is a good thing. It will reduce the cost of doing business and make us competitive again. It will give people the confidence to take on office leases and get businesses operating.

Of course the investors who are looking for the magical returns promised by market-rigging rules will be upset but sod them. You live by the market; you die by the market.

And if, as seems the case, such a rigging is necessary to underpin Lenihan's NAMA policy, then maybe NAMA is the bad solution so many people seem to think it is.

It makes my blood boil that such an artificial pricing mechanism is being maintained to the general detriment of the country.

We had no qualms sticking it to the taxi drivers over their crappy rigged market a few years ago; why should we tolerate a fixed market from commercial property investors?

7mountpleasant wrote:

The big probelm in ireland is that if the upward only clause is removed it could have big knock on effects for commercial property yields going forward and discourage inward investment, although there is definitely two sides to that coin!

Two sides alright. The other side in this case being our general competitiveness.

herya

Mad Finn wrote: »

"Rents in Ireland have not declined. The return on property has not declined. The return on property in Dublin is now at an all time high because property values have fallen so much. That is clear evidence we are at the bottom of a cycle."

Residential rents are falling right left and centre. We got a substantial reduction on our rent (a high standard 3bed in a "desirable" area) this year and now we are moving just across the road to another lovely 3bed which will be even cheaper and last year it would be totally out of our reach.

User21027

Eamonn Gilmore threw it back at Lenihan yesterday in the Dáil that it is written into legislation, by FF, that commercial rental rates cannot be reduced. There was such an abvious lok of WTF? on the faces of FF, when he said it, that i laughed.

They are not reducing cos THEY CANT. And he's using this as the backbone to form NAMA that the market "has hit its lowest point"...

Talk about going on bad figures...............

ifconfig

There has been discussion on this very topic on the Irish Economy blog
Essential reading :

Link here
Also Link 2

-Ian

thebman

Yeah upward only rent reviews are clearly bollocks.

I don't know why you'd sign up for one in the first place though.

especially if your a business. Any business with such an agreement should relocate TBH because it is definitely going to pay off and the rent will quickly come down on that property given the surplus in the market once its vacated.

Hell I'd say in most cases if you said you had no choice but to move they should look into reducing the rent and if not move. It wouldn't harm that many businesses TBH to move if properly advertised on websites and in store.

Mad Finn

Fintan O'Toole has addressed this issue in his Times column today.

"The second non-appearance [in the new programme for Govt agreed between FF and the Greens] is the urgent issue of upward-only rent reviews for commercial property. This has to be tackled right now: ludicrously high rents are closing Irish businesses every day and throwing workers on the dole queues. The Greens have been going on about this for ages. All we’ve got on the table is a very weak proposal to outlaw the practice for new leases. What have the Greens, and the Irish retail sector, got to show for all the posturing? Nothing.

And why is nothing happening on these two crucial issues? Because change would not suit the Nama strategy. Implementing Kenny would bring down long-term property values, while Nama needs them to grow. Banning upwards-only rent reviews would expose one of the big flaws in the Nama strategy. Brian Lenihan has repeatedly pointed to the “health” of commercial rents as a sign that the property market will bounce back.

The reality that all of this is based on an absurd insistence that rents cannot be negotiated downwards has to be denied."


I am getting more and more worried that despite the fact it was an over dependence on property values which gave us the illusion of an extended boom, the government is putting all its eggs into the basket of a renewed property boom as the way out of our problems.

Talk about curing an addiction by shooting up!!

Cadiz

Classic Irish Times to catch up on this issue six months to a year after everyone else... (some good stuff on over the summer, but buried in their property pages, naturally).

murphaph

thebman wrote: »

Yeah upward only rent reviews are clearly bollocks.

I don't know why you'd sign up for one in the first place though.

especially if your a business. Any business with such an agreement should relocate TBH because it is definitely going to pay off and the rent will quickly come down on that property given the surplus in the market once its vacated.

Hell I'd say in most cases if you said you had no choice but to move they should look into reducing the rent and if not move. It wouldn't harm that many businesses TBH to move if properly advertised on websites and in store.

The landlord can sue you for the lost rent if you just move out. A lease is a legal contract between 2 or more parties. Landlords need to realise that many businesses will indeed go to the wall if they have to keep paying celtic tiger rents and if the landlords don't realise it they'll have empty units on their hands. It's going to take a bit longer for this to sink in.

thebman

murphaph wrote: »

The landlord can sue you for the lost rent if you just move out. A lease is a legal contract between 2 or more parties. Landlords need to realise that many businesses will indeed go to the wall if they have to keep paying celtic tiger rents and if the landlords don't realise it they'll have empty units on their hands. It's going to take a bit longer for this to sink in.

I know its a legal contract but if your going to go under if you don't move then you have no choice. Better to risk the courts.

Landlords know your limits! I can see why so many businesses or would be businessmen think its impossible to run a business in this country.

murphaph

thebman wrote: »

I know its a legal contract but if your going to go under if you don't move then you have no choice. Better to risk the courts.

But this would likely be considered reckless trading by the ODCE (carrying on trading with debt of say 20 years worth of rent, could be literally millions) and could land you not just before the courts, but in jail! And to cap it off-most small businesses would have also been asked to sign personal guarantees for the rent, so no hiding behind the limited liability of the company.

If you're going to go under then the best thing is to produce the books to the landlord and show that you'll be forced out of business if the rent isn't reduced. If the landlord refuses, then you have to go out of business and be liquidated....a landlord won't let a commercial tenant walk away from a lease if he still has assets worth chasing.

Sometimes there is no escape and business carries a lot of risk. Any landlord that would allow a tenant to go out of business (unless the location is superb etc.) because of high rents is no businessman himself and would need his head examined. Then there are the landlords who are mortgaged to the hilt, they'll go bust themselves.

Fratton Fred

I know a guy that has a retail franchise for Ireland. His turnover has dropped by 50% over the past 18 months so he has approached all his landlords telling them he can't afford to pay their rent. Some of them have told him that they actually want to increase his rent (to make up for the empty property in their new shopping malls) and will sue him if he doesn't pay. Other landlords, particularly supermarket chains who under stand that it is better to have a tennent paying low rent than no rent at all, have offered to wipe off his back rent and reduce his rents by 50%. Each of his shops are seperate businesses so he will be closing some because they are not viable ongoing businesses. Guess which ones?

Landlord, including those renting residential properties, need to realise that all bets are off. Your projected ROI isn't going to happen and trying to screw your tennants is going to backfire big time.

ronbyrne2005

Rents on average proabbly havent risen in past year but the amount of empt stock has balooned. In a normal market the oversupply would drive down rents. People entering a new lease can negotiate a lower rent than a previous tenant had but landlords know it's not simple for a tenant to leave a premise where they have become established and have binding contracts etc. FF suiting their property cronies again.

Mad Finn

Hurray!!! Upward only rent reviews are being banned. Not a moment too soon.

Of course they're only being phased in and it will take time etc etc etc

So if you're an existing tenant trying to run an existing business you will be undercut like crazy by new competitors renting premises significantly cheaper than yourself and benefitting from a much lower cost base but what the heck. You could be living in Connacht/Munster and under water.

Wonder what this will do for Lenihan and his assertions that rental yields in Dublin have not declined.

zootroid

Too little, too late I think.

The damage has already been done, and it only applies to new leases. Wonder what the repercussions would be for a business to break their existing lease and move? And even then, could they afford to do so?

Dannyboy83

zootroid wrote: »

Too little, too late I think.

The damage has already been done, and it only applies to new leases. Wonder what the repercussions would be for a business to break their existing lease and move? And even then, could they afford to do so?

As far as I understand, they have to either buy them out or a mutual agreement, otherwise the landlord can sue for the remainder.

Only the stupidest of landlords will not agree to negotiate now, unemployment is predicted to go up to 17% next year.
Another 150 jobs lost in Cork I hear.
If it was the Luftwaffe bombing us, we wouldn't be losing them so quickly.

flas

Can anyone tell me the adavntages and disadvantages of upward only rent reviews for the landlord.
I can clearly see from reading the papers the advantages and disadvantages to the tenant but I would like to learn more about how they affect the landlord.
Any replies to my question would be appreciated. Thanks.

Madd Finn

Is this issue going to go away at all?

See this letter in the Irish Times from a restaurateur who has had to close two outlets in central Dublin, blaming "the intransigence of landords who still demand boom-time rents with their upward-only review mechanisms still in place."

From a more anecdotal point of view, I have heard from a relative in a provincial town that a long-established business on which they have chosen to depend, namely the local launderette, is having to close its doors after its landlord (a bank) demanded an annual rent increase of €8,000. That's an extra €150 a week for a small business to find in a recession just to stand still.

How could any organisation justify rent hikes in these conditions. Whether you are a socialist or a capitalist there is no argument in your canon of dialectics that could justify this. Only if you are a Cronyist.

Or am I wrong? Is there a legitimate argument for holding small business's feet to the fire and demanding more money for a stationary service?

paul71

Sometimes the trend can buck both ways, I was recently helping a small business to readjust its overheads, in the course of this a rent review was due and an assesment from an 'independant' real estate agent stating (not asking) that rent was being increased by 15%. We bombed back a letter stating that we were seeking 25% reduction and payments would cease until this was agreed, naturally we arranged a meeting quicktime. They arrived bleating on about the lease agreement and personal gaurentees, the reply to that was fine we will liquidate the company and you can chase your personal guarentee after the banks have their cuts of personal guarentees.

It was a simple case of the market solving a problem created by stupid rules, tradition and legislation. I only wish it were so easy when the choice to liquidate was not as simple as the one faced by this company.

recedite

Sponge Bob wrote: »

This means that companies with NEW leases have a great advantage over those who committed to long upward only leases 10 years ago .

An example would be 2 companies I know in Galway , next door , each with around 4000 sq ft .

One pays €17 PSF and one pays €10 PSF ( per annum)

The first has a 15 year break clasuse and the other has a 2 year break clause .

The first also had to fit the office out where the second had to do almost nothing with theirs .

The company with the NEW lease is at an advantage alright, but its nothing to do with any "upward only" clause. Think about it, they are both locked in at their separate rates. That is the agreement.
Now imagine there was no "upward only" clause; they are still locked in at the same rates.
Now imagine the landlord sees that the €17 psf business is likely to fail, and sees that he will be stuck with an empty premises. He can scrap the upward only lease (assuming the tenant agrees) and sign a NEW upward only lease with the same tenant for €10 PSF. Happy days.
If he is too stupid to do that, or he gambles that the business will struggle on, he does nothing.

Madd Finn

recedite wrote: »

imagine the landlord sees that the €17 psf business is likely to fail, and sees that he will be stuck with an empty premises. He can scrap the upward only lease (assuming the tenant agrees) and sign a NEW upward only lease with the same tenant for €10 PSF. Happy days.

You would think. But clearly, landlords are still demanding rent increases in a vastly oversupplied market because they think they can. And how well placed is a landlord to be able to "see that the [tenant] business is likely to fail"?

Business is a game of bluff and horse trading. Some landlords evidently think that their tenants are playing the poor mouth or must have nest eggs squirrelled away to which they the landlords have an inalienable right.

Or maybe they think that because of the personal guarantees that directors often have to put in to agreements, that they win whichever way because if the tenant breaks the terms of the lease, eg by going bust, they the landlords can still chase them for the remainder of the lease.

If he is too stupid to do that, or he gambles that the business will struggle on, he does nothing.

What happened to "the value of your investments may go down as well as up"? Just about everyone in the country has less money than they had a few years ago. Even the much maligned public sector. Why should commercial landlords be allowed to indulge the illusion that they can continue to demand increasing rents from tenants as if there were still a credit-fuelled pandemic of "irrational exuberance" at large?

I know that upward only clauses are now banned, and not before time, but it seems that existing lease holders are still being screwed by landlords who feel that even this screwed up financial world still owes them a sumptuous living.

I'm amazed that this gouging is tolerated as much as it is. Whichever way you look at it: in a free market with a fair degree of price elasticity rents would rise and fall according to supply and demand. Regular rent reviews, negotiable up or down, could adjust to fluctuations in the market. Naturally, people could lock in to longterm agreements if they wanted to offset the effects of fluctuations but in such cases they should have the advantage of favourable terms to encourage steady, low risk rates of return to the landlord.

The system of regular rent reviews, especially when combined with the culture of "upward only" gives landlords a one-way bet.

Perhaps it's time to look backwards in time to Michael Davitt, whose legacy is often misappropriated by the most grasping avaricious landlords as a justification for behaving worse with "their land" than some of the worst stereotypical "Anglo" landlords of the past.

Davitt, after all, wanted to nationalise land and have farmers maintain their status as tenants, albeit with the safeguards of "Fair Rent, Fixity of Tenure and Freedom of Sale."

No doubt those reared on a post Thatcher/Reagan world of limited government intervention and free markets would baulk at the principle of centrally controlled rents but if you want to cite the free market then live up to it and demand that the providers of buildings play to market rules.

What are the chances of a latter-day "Land League" organising boycotts of landlords (often financial institutions) who unfairly impose spurious rent increases on struggling businesses?

Welease

recedite wrote: »

The company with the NEW lease is at an advantage alright, but its nothing to do with any "upward only" clause. Think about it, they are both locked in at their separate rates. That is the agreement.
Now imagine there was no "upward only" clause; they are still locked in at the same rates.
Now imagine the landlord sees that the €17 psf business is likely to fail, and sees that he will be stuck with an empty premises. He can scrap the upward only lease (assuming the tenant agrees) and sign a NEW upward only lease with the same tenant for €10 PSF. Happy days.
If he is too stupid to do that, or he gambles that the business will struggle on, he does nothing.

I would imagine in a lot of cases it's not quiet as simplistic as your scenario though.. Your scenario works if the landlord has manageable finance on a building. I would imagine the bulk of landlords owe substantial amounts for the buildings.. In order to make their repayments, they need to continue to keep getting boom time level rents..

For some it may be a dog eat dog scenario... either their tenants go bust paying the high rents, or they go bust themselves.. Sadly I imagine we will get the worst of both worlds where both go bust in many cases.

recedite

Welease wrote: »

I would imagine in a lot of cases it's not quiet as simplistic as your scenario though.. Your scenario works if the landlord has manageable finance on a building. I would imagine the bulk of landlords owe substantial amounts for the buildings.. In order to make their repayments, they need to continue to keep getting boom time level rents..

For some it may be a dog eat dog scenario... either their tenants go bust paying the high rents, or they go bust themselves.. Sadly I imagine we will get the worst of both worlds where both go bust in many cases.

I agree, many landlords/property funds are in as much trouble as their tenants.

My point is; this "upward only rent review" thing has been demonised in the media as if abolishing it would make some difference to the tenants.

A lease can only be terminated if both parties agree. Be careful when signing a long lease at the start of a recession.;)

Slideshowbob

Will FG/Lab stick to their manifesto pledges on this?

http://namawinelake.wordpress.com/2011/02/15/upward-only-rent-reviews-under-threat-with-fg-and-labour-policies-yipeee-say-commercial-tenants-boo-hoo-says-the-property-industry/

Slideshowbob

2 sides to every story:

http://www.irishtimes.com/newspaper/finance/2011/0402/1224293650830.html

http://bit.ly/fZugXR

Gumbo

Simply private sector landlords being greedy.

Amhran Nua

Commercial rents in this country are far too high, simply put, after many years of upwards only rent reviews. Grafton street had the eighth most expensive rents in the world last year, putting Dublin in the lofty company of New York and Paris, despite being only a tenth their size. Obviously artificial rent inflation. Even today some of the prices being asked for in towns like Galway defy belief.

I think it's worth investigating just how much of a widespread premium this puts on goods and services supplied throughout the country, and how much of a role it has played in our high cost of living. It's a drain on the real, productive economy, and has driven many businesses under.

zig

Sorry for my ignorance, but what are upward only rent reviews? Im presuming something to do with rent only going up?

Im not sure if this is relevant, but Limerick city centre has been well and truly killed off due to rent, its slowly turning into a desolate core where mini busier shopping centres surround it in the suburbs. This is purely due to rent in the city. I am seeing it quieter and quieter every few months, a Wednesday morning at 10 am now feels like a Sunday morning at 8am.

motherriley

Amhran Nua wrote: »

Commercial rents in this country are far too high, simply put, after many years of upwards only rent reviews. Grafton street had the eighth most expensive rents in the world last year, putting Dublin in the lofty company of New York and Paris, despite being only a tenth their size. Obviously artificial rent inflation. Even today some of the prices being asked for in towns like Galway defy belief.

I think it's worth investigating just how much of a widespread premium this puts on goods and services supplied throughout the country, and how much of a role it has played in our high cost of living. It's a drain on the real, productive economy, and has driven many businesses under.

UK brought into effect yesterday a cap of £400 benefit for rents for tenants that are claiming benefits. They say that this will bring them down.:(

gurramok

Slideshowbob wrote: »

2 sides to every story:

http://www.irishtimes.com/newspaper/finance/2011/0402/1224293650830.html

http://bit.ly/fZugXR

To add to this story(Blanchardstown) http://www.breakingnews.ie/archives/2011/0401/ireland/job-threat-prompts-union-demand-for-shopping-centre-get-real-on-rents-499559.html

Basically 9 shops(plus Argos are moving/closing in July) are closing because the landlord(property company) refused to lower the rents in this severe recession. They'd rather 9 units in the centre be empty or on the lost hope of getting replacements. These shops if you know Blanch are quite big and lets face it, if they do close it will seriously damage the centre as a trading venue. Will they cop on?!

gurramok

Here's the Irish Times link. http://www.irishtimes.com/newspaper/ireland/2011/0402/1224293650024.html . I think this is big news as Arcadia are one of the biggest retail high street giants. As they are taking this attitude towards Green Properties at Blanch, one must suspect they are doing the same at their numerous branches all over the country in order to reduce rent costs. This could be the one big wakeup call for landlords in the Irish retail sector.

Amhran Nua

gurramok wrote: »

Will they cop on?!

They'll cop on quickly enough if local authorities start charging full commercial rates on empty properties as they should have been doing all along.

gigino

Past experience here + elsewhere suggests when that is tried all that happens is that people sooner or later take the roof off the property so they do not have to pay rates then.

Local authority rates are too high....businesses resent paying huge amounts of money to councils, whosse employees are paid, cossetted, holidayed and pensioned often considerably better than most of the employees of the business / shop.

Amhran Nua

gigino wrote: »

Past experience here + elsewhere suggests when that is tried all that happens is that people sooner or later take the roof off the property so they do not have to pay rates then.

Yeah, I've heard of that scheme before. The results however are predictable, those who try it end up paying more in repairs than they would have paid otherwise, and someone else steps in to create competition. It's much easier just to drop the rents.

femur61

Didn't somebody bring in this legislation a few years back while things seemed to be going good, when we thought we were infallable. Why would a landlord have an empty property with no rent,than one with some rent even at a reduced rate. In this climate who is going to pay rent for a strugggling market and every market seems to be struggling. Maybe Argo and all the other shops are glad of an excuse to pull out of Blancharstown.

lods

gurramok wrote: »

To add to this story(Blanchardstown) http://www.breakingnews.ie/archives/2011/0401/ireland/job-threat-prompts-union-demand-for-shopping-centre-get-real-on-rents-499559.html

Basically 9 shops(plus Argos are moving/closing in July) are closing because the landlord(property company) refused to lower the rents in this severe recession. They'd rather 9 units in the centre be empty or on the lost hope of getting replacements. These shops if you know Blanch are quite big and lets face it, if they do close it will seriously damage the centre as a trading venue. Will they cop on?!

While a landlord should ,maybe reduce rent for a struggling tenant , why should he reduce it for a company like Argos thats making loads of profit?

Its not as simple as it sounds.

Small private landlords have mortgages & need the rent depending on what they paid. These landlords are giving reductions to keep tenants

Large institutional landlords such as banks , pension funds & Insurance companies are not reducing rents. Pension funds argue they need the money to pay the pensions , which is a valid point.

Upward only can be €1 at each review.

Legislation will hard to get through to change this. Why should a court put aside a contact between two businesses? Argos or arcadia were happy to sign the lease at the start & new what the deal was.

A lot of companies are just trying to bully landlords into a reduction.

Welease

lods wrote: »

While a landlord should ,maybe reduce rent for a struggling tenant , why should he reduce it for a company like Argos thats making loads of profit?

Its not as simple as it sounds.

Small private landlords have mortgages & need the rent depending on what they paid. These landlords are giving reductions to keep tenants

Large institutional landlords such as banks , pension funds & Insurance companies are not reducing rents. Pension funds argue they need the money to pay the pensions , which is a valid point.

Upward only can be €1 at each review.

Legislation will hard to get through to change this. Why should a court put aside a contact between two businesses? Argos or arcadia were happy to sign the lease at the start & new what the deal was.

A lot of companies are just trying to bully landlords into a reduction.

Agreed.

.. And a lot of those landlords may not be in a position to reduce.. The centres were built during the celtic era so cost top dollar, and those loans now need to be serviced. Dropping rents across a centre might crystalize a monthly ongoing loss for the developer which ends up in the taxpayer picking up the tab, while Argos (for example) continue to make profits...

A solution does need to be found, but it might not be as simple as just allowing rents to drop.

lods

Welease wrote: »

Agreed.

.. And a lot of those landlords may not be in a position to reduce.. The centres were built during the celtic era so cost top dollar, and those loans now need to be serviced. Dropping rents across a centre might crystalize a monthly ongoing loss for the developer which ends up in the taxpayer picking up the tab, while Argos (for example) continue to make profits...

A solution does need to be found, but it might not be as simple as just allowing rents to drop.

In new leases "upwards only isn't allowed" , so if nothing is done, most of the old leases will have washed out over the next 15-20 years. I can't see new legislation being successful. A contact is a contract. The Arcadia group & other British retailers have destroyed Irish fashion retailers, i've no sympathy for them. We now look like any British high Street.

Amhran Nua

lods wrote: »

While a landlord should ,maybe reduce rent for a struggling tenant , why should he reduce it for a company like Argos thats making loads of profit?

If all these companies are making loads of profit, why are they closing? Here's the thing though, businesses are closing because people can't afford what they sell, and they can't drop prices because the rents are too high. High rents keep prices high and contribute greatly to our high cost of living.

lods wrote: »

Its not as simple as it sounds.

Generally, it is.

lods wrote: »

Small private landlords have mortgages & need the rent depending on what they paid. These landlords are giving reductions to keep tenants

Some do. A lot don't. Here's what usually happens: the business talks to the landlord asking for a rent reduction, the landlord comes in and looks at the books, and picks a number that maximises the rent as high as possible, keeping retail prices high. The landlord has no part of this business, no understanding of how it works, and no comprehension of how to make it successful. What they are doing is known as rent seeking, a largely parasitic activity.

lods wrote: »

Large institutional landlords such as banks , pension funds & Insurance companies are not reducing rents. Pension funds argue they need the money to pay the pensions , which is a valid point

Some earnings over no earnings. Of course they'll drop the rent.

Welease wrote:

And a lot of those landlords may not be in a position to reduce.. The centres were built during the celtic era so cost top dollar, and those loans now need to be serviced. Dropping rents across a centre might crystalize a monthly ongoing loss for the developer which ends up in the taxpayer picking up the tab, while Argos (for example) continue to make profits

Commercial property hasn't taken nearly as bad a hit as residential property, it's very important not to get those two mixed up. Sure there have been some headline drops, but the important difference is that commercial property is almost always a going concern, there aren't any ghost estates in that sector.

So in a properly Darwinian fashion, those who gambled and lost need to go under, and someone else needs to come in and take over, and they will. If not the bank that loaned the money will take over, and they have a) already gotten quite a few repayments on their front loaded loan, and b) don't need much of a profit margin over the low rates they paid on the loan.

Of course rents need to drop, the sooner the better. They are a complete economic deadweight.

Gumbo

gigino wrote: »

Local authority rates are too high....businesses resent paying huge amounts of money to councils, whosse employees are paid, cossetted, holidayed and pensioned often considerably better than most of the employees of the business / shop.

Commercial rates have been dropping in 2009 and 2010 and IIRC remained static in 2011 (DCC).

It's the rents that are killing business, private sector landlords still wanting top money for rent same as people with section 23 property owners trying to overcharge people to cover the repayments.

Welease

Amhran Nua wrote: »

Commercial property hasn't taken nearly as bad a hit as residential property, it's very important not to get those two mixed up. Sure there have been some headline drops, but the important difference is that commercial property is almost always a going concern, there aren't any ghost estates in that sector..

But this is not about the retail value of those units.. Its about the loans taken to buy/develop the land and build the outlets.. The developer "may" (some will some won't) have had to pay premium prices in the celtic years to develop those units. Some may not be in a position to drops rents to accomodate their clients. If they need to make €X a month to cover the loans, then they need to get €Xminimum from their clients.

Amhran Nua wrote: »

So in a properly Darwinian fashion, those who gambled and lost need to go under, and someone else needs to come in and take over, and they will. If not the bank that loaned the money will take over, and they have a) already gotten quite a few repayments on their front loaded loan, and b) don't need much of a profit margin over the low rates they paid on the loan.

Of course rents need to drop, the sooner the better. They are a complete economic deadweight.

Agreed, rents do need to drop and the system does need to be reset.. But many who point out the "simple" fix of dropping rents, don't factor in the the likely hood that the tax payer will pick up the bill IF the developer goes bust.. Do they still support such a decision if the client renter is continuing to make profits via higher margins than they leverage in their home countries? (for example)

A fix does need to be found, but there is no "simple" fix that won't potentially add further burden to the state.

lods

Rents are too high, but I wouldn't give argos a rent reduction if I was their landlord. It's s straight forward contract between landlord and tenant .

ei.sdraob

lods wrote: »

Rents are too high, but I wouldn't give argos a rent reduction if I was their landlord. It's s straight forward contract between landlord and tenant .

Why? is it just because they are Brittish??

Welease

ei.sdraob wrote: »

Why? is it just because they are Brittish??

I believe he was referring to their profits, which while down were still in the region of £250 million (Home Retail).

ei.sdraob

Welease wrote: »

I believe he was referring to their profits, which while down were still in the region of £250 million (Home Retail).

So because they make a profit in another country it should be ok to rip em off here thats insane

Welease

ei.sdraob wrote: »

So because they make a profit in another country it should be ok to rip em off here thats insane

I don't think that what he was saying at all... It's a mix of the fact they do make profits and are nowhere near going broke, and that the have destroyed the British High Street and wiped out local business's.. Giving them more leverage to do so might not be good in the long term..

(I'm guessing, cos I dont necessarily agree or claim to speak for the previous poster )

ei.sdraob

Welease wrote: »

I don't think that what he was saying at all...

you should read his posts then in this thread

http://www.boards.ie/vbulletin/showpost.php?p=71497733&postcount=13
http://www.boards.ie/vbulletin/showpost.php?p=71497774&postcount=15

he thinks its ok to rip Brittish companies off since in his own words "they destroyed Irish fashion retailers"

of course these companies closing shop and leading to unemploment amongst the Irish does not enter his equation