A company of developer Johnny Ronan has won its High Court case aimed at ensuring the annual rent for the Medical Council's new headquarters in Dublin does not fall below €820,000, although the market rent for the property is about €374,100.
Mr Justice Iarflaith O’Neill ruled yesterday the upwards- only rent review clause in the council’s 20-year lease for its Kingram House headquarters off Fitzwilliam Square is not affected by a law banning upward-only rent reviews for business premises.
The 20-year lease dates from January 2013 but provision for it was part of a complex series of transactions agreed in 2008 between Tanat Ltd and the council concerning the premises. The council had argued it was entitled to the benefit of section 132 of the Land and Conveyancing Law Reform Act 2009, the law banning “upward-only” rent review clauses in leases for business premises which came into effect in February 2010.
The judge said section 132 was not intended to have retrospective effect and accepting the council’s arguments would mean it would be insulated from losses it would have experienced, following the collapse of the property market, under the agreements between it and Tanat.
Those agreements had valued Kingram House at about €20 million when valuations based on market rents in December 2012, with upward and downward review clauses, were about €5 million.
Upholding the council’s arguments would interfere in a very material way in the complex set of contractual arrangements made between the sides aimed at the council acquiring Kingram House and amount to “impermissible retrospective interference” with existing and vested property rights, the judge ruled.
A 2008 agreement between Tanat and the council concerning options for the property included a put-and-call option agreement for a 20-year lease dating from January 2013.
Section 132 states that the ban on upwards-only rent reviews does not apply to agreements for property leases for business purposes entered into before the section came into effect in February 2010.
Mr Justice O'Neill ruled that the put option in the 2008 Kingram House agreement amounted to an agreement for such a lease and therefore section 132 did not apply. Earlier, he noted that Kingram House was the only asset of Tanat, whose shareholders are Mr Ronan and Peter Conlan.
Tanat bought Kingram House in 1989 for €883,000 and carried out significant redevelopment costing €2.5 million and retaining the original Georgian building to the front, which had been a school attended by Oscar Wilde.
The council was in 2006 seeking a new headquarters and wanted to buy Kingram House but Tanat was unwilling to sell, mainly because that would involve a capital gains tax liability of €2.7 million. Distribution of sale profits to the shareholders would also mean a substantial income tax liability for them and Tanat also preferred to hold on to the building and let it on a long lease.
An alternative proposal to sell the shares in Tanat instead of the building had significant tax advantages for both sides as the Tanat shareholders would avoid income tax liabilities, while the council also stood to make €3.45 million tax savings. After it emerged that the council would have no power until a new law came into effect in July 2008 to acquire the Tanat shareholding, the sides in March 2008 entered into an agreement.
