Upward Only Rents

MadsL

Korky's on Grafton St is closing after years of the owner campaigning for the right of tenants to seek proper rent reviews. His landlord, a major international pension fund, has never once blinked in its steadfast insistence on keeping rents increasing.

Hundred of businesses in Ireland have gone out of business as a result. How have we not fixed this yet?

Here's his statement today.

John Corcoran of Korkys who is closing down his Grafton Street store having failed to get a reduction on his rent of €450 thousand per year. The rent on his shop in Grafton Street was reviewed to €140k in 1995 increasing to €210k in 2000 and to €450k per year in 2005. Mr. Corcoran has been trying since 2005 to get a reduction as he knew this figure was unsustainable in 2005. Other tenants in the same boat got behind him and this resulted in the banning of upward only rent clause in all future leases in March 2010. However all current tenants the length and breath of Ireland are prisoners of their UORR leases. The Government promised to deal with current leases but broke their promise as soon as they were elected.

In 2010 Mr. Corcoran speaking on behalf of the Grafton Street Tenants Association stated: “Over the past ten years rents on Grafton Street have surged to a level where they are now the fifth highest in the world. These absurd rents are unsustainable in a small country like Ireland. We have seen many well regarded retail businesses fail in recent times as a result of intransigent landlords and excessive rents, including O’Brien’s Sandwich Bars, 3G, Vero Moda, Adams childrens, Guess, la Senza, In store, Hughes and Hughes and many more. All these companies cited rents as the primary reason for their closure.

The UORR lease clause played a very substantial role in bubble rents which in turn created bubble commercial property prices, which ultimately led to our current economic collapse. Those large institutions that used this notorious lease clause, which no other euro zone member state would tolerate, must take responsibility for their actions. The directors of these companies should immediately agree the removal of these clauses from existing leases or make way for Directors who are capable of moving with the times and have the flexibility and capability to follow the Government’s lead. The UORR clause is an aberration which must go.”

Mr. Corcoran urged the Government with the support of the opposition, to finish the job, complete the task and devise a mechanism to oblige the landlord to accept a market rent in all existing leases. There is still no sign of any action from the Government who are happy to let good businesses close down every day with the loss of thousands of jobs.

Manach

I've been told by an expert on this, that a the Government under Nama are landlords in such situations it would immicible to do so. Also there is the issue of interfering in a private contract between two parties.

kodoherty93

All new leases no long have a upward rent only clause. The clauses were abolished recently. Apparently the only reason why existing rents have been reduced is that it would push existing property owners into difficulty and therefore default on their mortgages.

But also it would result in massive declines in values of the building a lot of which are in NAMA would make it difficulty to sell these buildings. Who is going to buy a expensive building with low return on it.

Also the people in Government are teachers, farmers etc. They have no idea of how a business works or how to deal with matters like this. How is some one who taught a class of 10 years for 30 years going to understand what its like to pay the wages of dozens of workers, pay expenses and still try to earn a profit.
They have no idea and majority have no desire to make the country more business friendly

murphaph

kodoherty93 wrote: »

How is some one who taught a class of 10 years for 30 years going to understand what its like to pay the wages of dozens of workers, pay expenses and still try to earn a profit.

...our glorious leader doesn't even have that much experience in the classroom! "Experience" as a TD itself is worthless experience. It only teaches you how to get re-elected, not to do what's best for the country or create conditions that allow business to thrive.

Scortho

You'd have to ask what John Corcoran was thinking in the first place. That's a **** load of shoes that one has to sell!
I do have sympathy for him however as he is a genuine business man who is stuck between a rock and a hard place.
However there is nothing stopping him from reopening a store at a lower rent elsewhere!
What we have seen is some stores sign rediculous rent agreements at unsustainable prices. Now the common consensus seems to be 10% of turnover which is much more sustainable rent!
While upward only rent is rediculous and I'm glad it's being removed, so to is signing a contract for upward rents.

thebman

Scortho wrote: »

You'd have to ask what John Corcoran was thinking in the first place. That's a **** load of shoes that one has to sell!
I do have sympathy for him however as he is a genuine business man who is stuck between a rock and a hard place.
However there is nothing stopping him from reopening a store at a lower rent elsewhere!
What we have seen is some stores sign rediculous rent agreements at unsustainable prices. Now the common consensus seems to be 10% of turnover which is much more sustainable rent!
While upward only rent is rediculous and I'm glad it's being removed, so to is signing a contract for upward rents.

Do you think other landlords on the same street would give him a better deal? Most probably wouldn't even talk to him to keep up a cartel I would imagine.

This is Ireland afterall.

Scortho

thebman wrote: »

Do you think other landlords on the same street would give him a better deal? Most probably wouldn't even talk to him to keep up a cartel I would imagine.

This is Ireland afterall.

I'd say if you had a vacant building you would!
That is if his books are good and capable of sustaining a 2013 rent on grafton st. If its not capable then the upward only rent wouldn't have been his only problem. An example of this is the dolls house.

MadsL

He's been tireless with this campaign, and won a victory for businesses across Ireland. I find it very sad that he has become a victim of the lies of FG.

Scortho

MadsL wrote: »

He's been tireless with this campaign, and won a victory for businesses across Ireland. I find it very sad that he has become a victim of the lies of FG.

While he has become a victim, he was and still is a very good business person! One of the key characteristics of a good business person is their ability to pick themselves up after a set back!
If we look at the closure from a positive side, would he not have the ability to reopen a premises with reduced rents! As well as that you have to look at the amount of free publicity that Korku's have gotten as a result of the campaign. It could be there blessing in disguise.

AlmightyCushion

Scortho wrote: »

While he has become a victim, he was and still is a very good business person! One of the key characteristics of a good business person is their ability to pick themselves up after a set back!
If we look at the closure from a positive side, would he not have the ability to reopen a premises with reduced rents! As well as that you have to look at the amount of free publicity that Korku's have gotten as a result of the campaign. It could be there blessing in disguise.

Didn't Peats do the same thing? Closed down saying rents were too high then re-opened with different or fewer stores a few days later. It's a pretty crap way to get around sky high rents but if it works I don't blame them.

Scortho

AlmightyCushion wrote: »

Didn't Peats do the same thing? Closed down saying rents were too high then re-opened with different or fewer stores a few days later. It's a pretty crap way to get around sky high rents but if it works I don't blame them.

They closed some of the stores and reopened the profitable ones with rent reductions. Think the Parnell st one was owned by family members. However by getting out of the unsustainable leases and closing unprofitable stores, they have now rebounded as a Leaner and meaner company! Not to mention the free publicity!
Korkys can reopen and become more successful, their owner just needs to find the drive to do so.

AlmightyCushion

Scortho wrote: »

They closed some of the stores and reopened the profitable ones with rent reductions. Think the Parnell st one was owned by family members. However by getting out of the unsustainable leases and closing unprofitable stores, they have now rebounded as a Leaner and meaner company! Not to mention the free publicity!
Korkys can reopen and become more successful, their owner just needs to find the drive to do so.

Yeah, I thought it was something like that. Like I say it's a crap way to get around it, it would be so much better if landlords would be willing to renegotiate rents. Even if it was a short term reduction (e.g. XX% reduction for the next 5 years then it goes back to it's normal price).

Scortho

AlmightyCushion wrote: »

Yeah, I thought it was something like that. Like I say it's a crap way to get around it, it would be so much better if landlords would be willing to renegotiate rents. Even if it was a short term reduction (e.g. XX% reduction for the next 5 years then it goes back to it's normal price).

Definitely! If i was a landlord and faced with the loss of a tenant for a couple of months and a new tenant paying a significantly reduced rate or the current tenant at say a 40% reduction I'd go for the current tenant! Obviously if the current tenant would be paying less than the new tenant I'd go for the new one, but even if it was the same level, I'd go for the current one as it means the unit wouldn't be empty!

What you'll probably see now is the Korkys unit being rented at a price less than the price Corcoran was willing to pay! It's happened all across town with a lot of companies closing down due to high rents!

SeanW

Manach wrote: »

Also there is the issue of interfering in a private contract between two parties.

Normally I am libertarian and would be cautious of doing this, but I think these are exceptional circumstances. (i.e. a property crash that noone could see coming :rolleyes::rolleyes: ) From a macroeconomic perspective, the choice is between allowing gov't to cancel those clauses in contracts and give the tenant businesses a lifeline, while ensuring the property owner get some money, or allow the business to fail with a loss off jobs+tax and leave the property owner with a vacant building where they will only have to find a new tenant at lower rates anyway.

Scortho wrote: »

However there is nothing stopping him from reopening a store at a lower rent elsewhere!

I'm not sure of the ins and outs of these contracts, but I imagine that the only way out of some of them is for the business to declare bankruptcy.

Sometimes the owners will be able to start again with a clean slate. But sometimes not.

While upward only rent is rediculous and I'm glad it's being removed, so to is signing a contract for upward rents.

During the boom time, I imagine that's the only kind of contract you could get!

Farmer Pudsey

During the boom tenants were expected to give personell gaurantee's for the rent. This has lead to the situtation that if you renage on the lease they will chase your other buisness or even you personelly. Not sure if Korkys in Grafton St was a seperate company or that there was no gaurantee given. Big intutitions might not be as fast to take your house but some independant landlords have treatened this.

I think part of the problem is that a lot of multinationals have given company gaurantee's about these leases and NAMA et al do not want them to be released.

Robbo

AlmightyCushion wrote: »

Didn't Peats do the same thing? Closed down saying rents were too high then re-opened with different or fewer stores a few days later. It's a pretty crap way to get around sky high rents but if it works I don't blame them.

Examinership was used quite successfully to save a portion of Peats. Xtravision and many others have availed of it as a mechanism to stop the group collapsing because one of it's features is essentially tearing up your existing lease and renegotiating it. Perhaps if Mr Corcoran had spent a little more of his resources exploring examinership instead of the full page ads in the Phoenix, he might be in a much better position at present.

Marcusm

Robbo wrote: »

Examinership was used quite successfully to save a portion of Peats. Xtravision and many others have availed of it as a mechanism to stop the group collapsing because one of it's features is essentially tearing up your existing lease and renegotiating it. Perhaps if Mr Corcoran had spent a little more of his resources exploring examinership instead of the full page ads in the Phoenix, he might be in a much better position at present.

The absence of any disclosed corporate name on their website would lead me to believe that Mr Corcoran is operating an unincorporated business (sole trader or partnership) and thus examinership would not be available.

Farmer Pudsey

Marcusm wrote: »

The absence of any disclosed corporate name on their website would lead me to believe that Mr Corcoran is operating an unincorporated business (sole trader or partnership) and thus examinership would not be available.

This is the nub of the issue sole traders are in the unfortunate position where they can be personnelly chased for rents unless they have a break clause. If not they are wholly responsible and landlords can chase them and some landlords have voiced this to tennants.

This is not like Johnny renting a house, leaving and giving the two fingers to the landlord

hmmm

Tenant makes offer, landlords rejects, tenant finds different premises, landlord finds different tenant. What's the problem here?

Farmer Pudsey

hmmm wrote: »

Tenant makes offer, landlords rejects, tenant finds different premises, landlord finds different tenant. What's the problem here?

This is not what happens unless you have a break clause you are responsible for the premise's rent for the duration of the lease. Up until now all leases had an upward only clause this never envisaged that rents would become uneconomic as happened during the noughties. What happens if you have 5or10 years left on a lease and you are a sole trader you are responsible.

Scortho

Marcusm wrote: »

The absence of any disclosed corporate name on their website would lead me to believe that Mr Corcoran is operating an unincorporated business (sole trader or partnership) and thus examinership would not be available.

Which leads to the question why bother being a sole trader?

murphaph

Scortho wrote: »

Which leads to the question why bother being a sole trader?

Even when incorporated companies rent a premises, the landlord will usually request the personal guarantees of the directors that the rent will be paid (probably not the case with big anchor tenants in shopping centres or factories etc. but almost the norm for smaller operators). We do anyway (having had an incorprated company screw us over once..during the boom, when all was well).

However, we are realistic (small time, 3 commercial units) operators who can SEE the levels of trade our tenants are experiencing and we can and do respond to that with rent reductions. It's not in our interests to see our tenants ruined because of rents set at unrealistic levels.

Many landlords are corporate themselves, so are somewhat out of touch with their tenants.

Edit: being a sole trader is much less onerous than being a company director. There are a heap of laws which govern the behaviour of directors and failing to make returns etc. can be punished severely. Sole traders by comparison have far fewer "hoops" to jump through.

liammur

This is a more complicated issue that you would think. The government looked at it, and quickly saw that it was far more complicated than they had initially thought.

How people are shopping is changing we do more shopping on line, we can compare prices on line, clothes and shoes use to be supper profitable as a business its getting more cutthroat now, The real test is how quickly the unit on Grafton st is re let, if I ever saw shops on Grafton st boarded up the way they are in a lot of towns then I would get worried about whats happening.