| Checklist of top ten property law issues for commercial investors |
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| Christina McGuckian, winner of the Butterworth’s prize for best performance in property for both sittings of the 1998 final Law Society exams first part, gives a brief resume of a selection of key areas of law for property development. |
1. Investment
Section 23 relief is still available in designated areas and provides a tax deduction to an investor for the expenditure incurred on the construction of residential premises or the refurbishment of a building for residential use (provided that the premises satisfies the conditions in the legislation). Section 23 Relief has expired for the country in general on 31 July 1992, however, there are still some designated areas that retain the relief and the owners of the properties are entitled to set their Section 23 deductions against all Irish Rental income.
2. Charges payable
Unlike residential property, under the Valuation Act 1986, it is worth noting that commercial property attracts rates payments. Rates are determined by multiplying the rateable valuation of the property by the annual rate in the pound which is fixed each year end at the end of January.
3. Tax reliefs
The stamp duty payable by a purchaser can be reduced by approximately 25% of the full amount normally payable if, at the exchange of contracts the building is not deemed to be substantially completed and there are separate contracts for the site and the building agreement.
4. 1999 Planning and Development Bill
The Bill proposes that as a condition of development up to 20% of residential land should be made available for social/affordable housing. The Bill will force the Local Authority to look carefully at the re-zoning of lands from the perspective of the provision of affordable housing. This may impact on the developer as there will be less land available for commercial development. The unfortunate side effect of this is that the 80% residential land left to the developer may ultimately become known as non affordable housing.
5. Landlord & Tenant Act (Amendment) Act 1994
Those intending to lease property or taking a commercial lease should be aware of the provisions of the above named Act. This act amends the Landlord & Tenant (Amendment) Act 1980 and provides that a tenant will now have the right to a new tenancy with business equity only after five years of continuous occupation, which was previously three years Where leases created before 1994 expire after 1994 the old rules apply and the tenant will be entitled to any term between one and 35 years. Post 1994 leases on their renewal will be a minimum of 5 years and a maximum of 20 years. There is also provision for an improvement equity where the value of the improvements carried out by the tenant are not less than one half of the letting value of the tenement at that time. The long possession equity for continuous occupation by tenants or their predecessors of private property arises as before after 20 years occupation.
6. Warranties
Purchasers of commercial units should ensure that they obtain collateral warranties from the owner of developments. This is because the warranties are generally in the first instance between the developer and the owner of the site. As it will be the ultimate purchaser who will be seeking to enforce such warranties, there should be collateral warranties put in place and in particular with the Site Supervisor, Electrical Engineer, the Surveyor and Mechanical Engineer.
7. Rent review
Most standard commercial leases will contain a rent review clause. It is essential when drafting or signing up to a lease to ensure that this clause reflects the intentions of both parties to the lease and that the review is enforceable. This clause ensures that a lessor can provide a long commercial lease that keeps abreast of inflation but normally now it will always be an upward only review.
8. Break clause
Break clauses very much reflect market trends and in this climate can be difficult to obtain. Tenants however should always seek one and a landlord will often relent at the end of the day. A long break clause (7-10 years) is better than none at all, and could suit the tenant at that time and save having to pay a reverse premium to the landlord. It also makes the lease much more assignable.
9. Leasing/buying
It is worth considering the merits and demerits of buying commercial property as opposed to leasing. The great advantage of leasing is that there is a lot more freedom to manoeuvre depending on change in the circumstances of the company. However, commercial premises from an investment perspective can prove to be an essential fixed asset on a company’s balance sheet.
10. Insurance
The Lessor of a lease will normally effect the Insurance in order to protect his capital investment. However he will usually insist that he recovers the premium of such insurance from the lessee. A lessee should ensure that he is a party to the insurance policy to avoid subrogation. Subrogation can occur in circumstances when the insurer and lessor attempt to recover damages from the lessee by whose negligence the insured premises has been destroyed or damaged. The best policy is to obtain a waiver of subrogation rights.
The above is a very brief outline of a number issues in relation to commercial property law. A crucial step in any property transaction is, from the very outset, to obtain the advice of an experienced commercial property law practitioner. |
Christina McGuckian is an apprentice at Eugene F. Collins Solicitors.
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| Article appeared in the May 2000 issue.
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