Court finds landlord cannot force tenant to take new lease under 1980 Act

In a recent decision, the Circuit Court (the Court) (O’ Connor J) confirmed that Part II of the Landlord and Tenant (Amendment) Act 1980 (the 1980 Act) gives tenants the right, not the obligation, to take a new tenancy.

In particular, the Court emphasised that a tenant who initially applies for a new tenancy is later entitled to withdraw this application (albeit that it will face the usual costs consequences of withdrawal), provided there has been no abuse of process in making the claim for a new lease. In other words, provided the tenant has not misbehaved or sought to issue proceedings to obtain the benefit of Section 28 with no real desire to take a new lease.

In addition, the Court considered whether a tenant who withdraws their application is required to discharge mesne rates, or a recoupment or readjustment for market rent from the expiry of its lease to the date of withdrawal. The Court found that a withdrawal by a tenant has the normal consequences of legal costs and liability for the existing passing rent up to the date they vacated the premises only.

In this article, we consider the decision and explore the relevant legal principles.

Background

The proceedings arose from a 10-year lease of a factory premises which expired on 12 August 2018. A Notice of Intention to Claim Relief was served on the plaintiffs on 7 August 2018 shortly before the existing lease was due to expire. Following the expiry of the lease, the defendant remained in occupation of the premises but the parties ultimately failed to agree the terms of a new tenancy and a Civil Bill issued seeking an order fixing the term of the tenancy and the rent payable.

In November 2022, the defendant withdrew its claim for a new tenancy and vacated the premises the following month. From the date of the expiry of the lease until the date of its vacating the premises, the defendant had been paying to the plaintiffs the rent payable under the lease. The plaintiffs claimed that the rent paid was considerably less than the market rental value.

Legal Principles

Section 16 of the 1980 Act provides that a tenant which qualifies for a new lease under the 1980 Act “shall be entitled to a new tenancy” on terms agreed between the parties or, in default of agreement, as fixed by the court on determination of the original tenancy. Section 23 of the 1980 Act sets out the manner in which a court is to affix the terms of the new tenancy.

Section 28 of the 1980 Act permits a qualifying tenant to remain in occupation of a premises subject to the terms of the original tenancy pending the resolution of an application for a new tenancy or to fix the terms of a new tenancy under Part II of the 1980 Act.

Recoupment or readjustment of rent on Withdrawal

When considering whether or not the tenant should have to pay market rent, i.e. that the landlord should be entitled to a recoupment of the difference in rent between the passing rent paid by the tenant since the expiry of the lease to the date of withdrawal, the Court took into account the consideration of Section 28 of the 1980 Act by the High Court (McKenchie J) in Harrisrange v Duncan [2003] 4 IR 1. In this case, it was held that a tenant whose claim for a new tenancy was unsuccessful would not be considered a trespasser and as a result could not be liable for mesne rates during the period of their adjustments. Nor could such a tenant be liable for recoupments and readjustments under the 1980 Act, as these were tied to the granting of a new tenancy. Ultimately the Court determined that the landlord’s claim in this case against the former tenant for rent during the period of post-lease occupation was determined to be limited to the rent payable under the former lease only.

In making its argument for market rent to be awarded, the plaintiffs also asked the Court to consider the principle of estoppel by reference to the Supreme Court judgment (Charleton J) in Ulster Investment Bank Ltd v Rock Rohan Estate Ltd [2015] 4 IR 37. In this case, it was the plaintiffs’ submission that the tenant remained in occupation of the premises following the expiration of the lease and on foot of a Notice of Intention to Claim Relief and an application for a new tenancy. In these circumstances, the plaintiffs argued, it was implicitly represented that on granting a new tenancy, they would pay the difference between a formal lease and market rent. It was the plaintiffs’ contention that by issuing the proceedings, it brought section 28 of the 1980 Act into play and further gave rise to the doctrine of estoppel.

In this regard, O’Connor J held that there was “no promise or conduct” on the part of the defendant which would give rise to a finding of estoppel in this case.

Decision

In rejecting the plaintiffs’ application for the Court to fix terms of a new tenancy, the Court clarified that while the provisions of the 1980 Act give certain tenants the right to a new tenancy on satisfaction of certain conditions, the 1980 Act does not impose an obligation on a tenant to take a tenancy. Significantly the Court agreed with the submission of the defendant that the bringing of an application for a new tenancy is “simply a means by which the process can be progressed”. Once a tenant decides not to pursue the application, there is no longer a tenancy to be fixed.

Turning to section 28 of the 1980 Act, the Court held that the mere fact that a tenant remains in occupation while awaiting the determination of an application for a new tenancy or to fix the terms of the new tenancy does not infer the creation of a new tenancy where a tenant does not wish to avail of one. While acknowledging that section 28 of the 1980 Act cannot be used by a tenant to circumvent the Act, O’Connor J did not identify any evidence that the defendant in this case had “misbehaved”.

The Court did however note that where a tenant withdrew an application for a new tenancy, it is exposed to an adverse costs order in the normal course.

In addition, a tenant is also liable for the existing rates up until the date they vacated the premises. O’Connor J further noted that where a claim for a new tenancy is pending before the court, a tenant should apply to the court for leave to discontinue their claim unless consent is agreed by the parties.

Appeal

Please note that the decision of the Court is currently being appealed to the High Court, the outcome of which appeal will be watched with interest.

Key Takeaways

This case brings welcome clarification to landlord and tenants regarding the practical mechanics of the withdrawal of a lease renewal claim. Tenants will welcome the confirmation that the issuance of proceedings seeking a new lease does not mean that they are obliged to take this lease should their requirements change. Equally landlords will welcome the confirmation that the Courts will not tolerate the issuance of proceedings where there is no genuine intent to take a new lease and the tenant is merely seeking to take advantage of Section 28 of the 1980 Act.

For further information, please contact Tom Casey,  Hannah Shaw or Caroline Murphy, or your usual ALG Disputes & Investigations team contact.

Many thanks to Ivan Rakhmanin for his assistance with this article.