Courtroom detailNIALL MICHEL and LAURA RATTIGAN examine the constitutionality of a retrospective undoing of upwards only rent review clauses.

Background
For the purposes of this article, we will define an “upwards only rent review clause” (a UORR clause) as a clause in a lease that gives the landlord the right to cause the rent under the lease to be higher (by whatever margin) than the original rent, and higher than any rent that may subsequently have become payable under the lease on foot of any previous review.

From March 1, 2010 onwards, section 132 of the Land and Conveyancing Law Reform Act 2009 has neutralised any attempt that might be made to include an effective UORR clause in any lease of a premises that is to be used wholly or partly for the purpose of carrying on a business (that is to say, in any ‘commercial lease’). Any such clause will, by virtue of section 132, be read as if it provided for any type of review, and not merely a review upwards.

The Government is proposing to introduce further legislation, which will have the effect of neutralising UORR clauses contained in commercial leases that pre-date March 1, 2010. This is what is referred as the “retrospective undoing” of such clauses.

While a Bill proposing such reform has not yet been published, the Tánaiste and Minister for Foreign Affairs, Eamon Gilmore TD, stated on May 12, 2011, that the “…matter [was] being considered for inclusion in the Property Services Bill” (http://debates.oireachtas.ie/dail/2011/05/12/00004.asp#N85). Furthermore, Minister for Justice, Equality and Defence Alan Shatter TD confirmed that this was the case in a written answer to a parliamentary question (http://debates.oireachtas.ie/dail/2011/05/12/00089.asp).

Whatever shape the legislation will take, it seems clear that it will seek retrospectively to alter the existing, agreed arrangements between landlords and tenants that come within the purview of the measures, to the benefit of the tenant and the detriment of the landlord.

Beyond noting that the detail underlying the introduction of these measures may be determinative of the overall issue of their constitutionality, we do not propose to discuss the substantive policy considerations that underlie the debate concerning these measures. These have been, and will be, rehearsed elsewhere, and are not legal matters.

Applicable principles
In considering the constitutionality, or otherwise, of any legislation that would seek retrospectively to undo UORR clauses, the following principles and matters must be borne in mind:

• In Article 43 of the Constitution, the State acknowledges the right to private ownership of property. It further recognises, however, that the exercise of the right to private ownership of property ought to be “…regulated by the principles of social justice…” and, accordingly, permits the State, “…as occasion requires [to] delimit by law the exercise of [that right] with a view to reconciling [its] exercise with the exigencies of the common good”.

• In Article 40.3, the State guarantees in its laws to respect and, as far as is practicable, by its laws to defend and vindicate the personal rights of the citizen (which include property rights). In Article 40.3.2, the State must “…in particular, by its laws protect as best it may from unjust attack and, in the case of injustice done, vindicate the … property rights of every citizen.”

• It is clear, therefore, that there is no guarantee of unfettered enjoyment of private property rights and that, while these rights and their exercise will be protected and vindicated in the case of unjust attack, the State may interfere with them in appropriate cases, and to the appropriate extent.

• In constitutional cases, the Superior Courts tend to read Articles 40.3 and 43 in conjunction with one another. Therefore, in considering whether the retrospective undoing of UORR clauses constituted an unjust attack on the property rights of a citizen, or citizens, they would likely consider whether the measure accorded with the principles of social justice and delimited the exercise of relevant property rights in a manner required by the exigencies of the common good.1

• Were the matter to come before the courts (the constitutionality of a legislative measure may be questioned either under Article 26 of the Constitution by means of a reference by the President to the Supreme Court of a Bill passed by the Oireachtas, or, if enacted as an Act, by means of a person bringing proceedings to that effect in the High Court), it would first have to be established that there was, properly speaking, a property right at issue, as well as there being a material impairment of such a right.2 We do not think that there would be any serious question as to whether any property rights were at issue, and perhaps even as to whether the impairment of such rights was material (although in an Article 26 reference, this might be considered in the abstract to a greater degree than in a challenge by person affected).

• Next, it would have to be determined whether the impairment constituted an unjust attack on property rights.

• In that regard, a number of principles ‘insulate’ legislative measures from a finding of unconstitutionality by the courts before they even engage with the ‘merits’ of a particular case:

 – First, the courts are bound by the so-called “presumption of constitutionality”, so that their starting approach is not a neutral one, but one in which they require the party arguing against the constitutionality of a measure to rebut the presumption enjoyed by the measure to the effect that it is constitutional.

– Secondly, the so-called “separation of powers doctrine” requires the courts not to trespass into the legislative domain, and the courts therefore take care not to “…second-guess a reasonable policy-balancing judgment on the part of the Oireachtas…”, including in circumstances involving “…controversial economic matters…”3 Accordingly, even aside from the presumption of constitutionality, they require clear cases to be made out before they will interfere with the policies and fruits of the legislative process. For example, in Dellway Investments Limited v NAMA, [2011] IESC 13, the Supreme Court affirmed the High Court’s approach to the constitutionality of Acts of the Oireachtas, and, more particularly, asserted that it was not for the Court to express approval or disapproval of a policy decision of the Oireachtas.

 – Thirdly, the onus is in any event on the party challenging or arguing against the legislation to make out the case that it is invalid or repugnant to the Constitution. It is not for the State to seek to justify the legislative measure. However, if a sufficient case is made out by the party arguing against its constitutionality, the State will, of course, have to respond to that case, and then seek to justify the measure.

• The matter to be inquired into by the Court is whether (bearing in mind the foregoing principles), in light of the arguments and material adduced by the parties to the proceedings, the measure in question can objectively be determined to be required in the interests of the common good.4

• The Court will have to be convinced that the objective sought to be achieved by the legislation in the interests of the common good is of sufficient importance to warrant the overriding of a constitutionally protected right. The objective must relate to concerns that are “…pressing and substantial in a free and democratic society”, and the means chosen must pass a proportionality test. That test requires the means chosen to:

“(a) be rationally connected to the objective and not be arbitrary, unfair or based on irrational considerations;
(b) impair the right as little as possible; and
(c) be such that their effects on rights are proportional to the objective…”5

Conclusion
All of the foregoing considerations will need to be borne in mind (and particularly the obstacles that lie in the way of litigants involved in constitutional challenges). However, it will be seen from the final bullet point above that, in the event of the constitutionality of a retrospective undoing of UORR clauses being questioned in proceedings before the High Court or the Supreme Court, the eventual determination of the matter could come down to whether the party arguing against such undoing can convince the Court that the proportionality test is not satisfied. In this regard, such a party would have to seek to adduce a large amount of cogent information and analysis from a variety of fields of expertise (and, in a case not comprising an Article 26 reference, strong evidence relating to his own facts and circumstances). He would then have to deploy that material in such a way as to demonstrate that the proportionality test was not satisfied, and, further, submit that any countervailing material and submissions of the State were insufficient to undermine that proposition to the extent required for the case to be lost.

NiallMichelNiall Michel
Niall is a Partner with Mason Hayes+Curran Solicitors.

 

 

 

LauraRattiganLaura Rattigan
Laura is a Senior Associate with Mason Hayes+Curran Solicitors.

 

 

 

References
1. Article 26 and Part V of the Planning and Development Bill 1999 [2000] 2 I.R. 321.
2. Dellway Investments Limited v. NAMA, [2010] IEHC 364; Chestvale Properties Ltd. v. Glackin,[1992] ILRM 221; J& J Haire & Company Ltd. v. Minister for Health and Children [2009] IEHC 562.
3. Dellway Investments Limited v NAMA, [2010] IEHC 363.
4. Article 26 and the Health (Amendment)(No.2) Bill 2004, [2005] 1 I.R. 105.
5. Article 26 and Part V of the Planning and Development Bill 1999, [2000] 2 IR 321 at p. 349.  Supreme Court approved Heaney v. Ireland [1994] 3 I.R. 593.