Paul McCutcheon & David Mullins
This trend has not been limited to any particular clause or element of the lease. We have seen changes and engagement in relation to a whole range of matters such as the extension of terms, amendments of rent terms, rents altering to turnover rent, postponement of rent reviews, postponement and removal of break options or altering the demise.
In agreeing any variation, it is important to ensure that there are no unintended consequences as in some instances, as a matter of law, the varying the terms of a lease by the landlord and tenant could inadvertently be deemed a surrender of the existing lease and a regrant of a new lease.
For example, should a lease predate the prohibition of upward only rent reviews (introduced in 2010 by the Land and Conveyancing Law Reform Act 2009), the variation of the lease could be deemed a surrender and regrant which may in turn mean that the rent is now subject to upwards or downwards reviews. A renunciation of tenant renewal rights on the original lease might not apply to any regrant. An unintended re-grant may trigger a requirement for third-party consents, such as those of a superior landlord or funder.
Tax, and in particular stamp duty and VAT consequences, also need to be considered. Where the arrangement amounts to a surrender and re-grant, the deed of variation will be stampable as a new lease. The Revenue’s own guidance, published in July 2020, places considerable emphasis on the intention of the parties in determining whether the variation constitutes a surrender and re-grant.
Unfortunately, the law in Ireland is not definitive as to whether the intention of the parties is paramount in determining whether a surrender and re-grant has occurred or not. In English law, the position on whether a surrender and re-grant has occurred is a matter to be determined on the objective interpretation of the facts, and not just on the intention of the parties. It is not possible to be definitive in providing guidance in this area but, in general terms, where the area being demised is being altered, it is more than likely that the arrangement will be ‘objectively interpreted’ as a surrender and re-grant, regardless of the intention of the parties. A better approach might be to grant a supplemental lease of the additional area. Likewise, care should be taken in extending the term, which again might be ‘objectively interpreted’ as a surrender and re-grant. A better approach might be to grant an option to enter a renewal lease or to grant a reversionary lease. In general terms (but without being definitive), variations that do not alter the demise or extend the term, are likely to be ‘objectively interpreted’ as simple variations without triggering a surrender and re-grant.
The inclusion in the deed of variation of an express provision to the effect that the parties’ intention is simply to vary certain terms of the lease and not to create a new lease by surrender and re-grant should assist, although the law in Ireland is not definitive as to whether the intention of the parties is a determining factor.
This Article is not intended as legal advice. For specific queries, please liaise with Paul McCutcheon or David Mullins whose details are set out below.
Paul McCutcheon, Partner
M: 087 632 2591
David Mullins, Senior Associate
M: 087 700 7480