Ground Rents Legislation Expanded

More people will be entitled to buy out what are known as 'ground rents' courtesy of an Act signed into law by President Michael D. Higgins on  21 December 2019.

The Act requires further commencement orders before it comes into effect.

The Landlord and Tenant (Ground Rents) (Amendment) Act 2019 (the Act) ends what was seen by many as the harsh consequences of a 2012 Supreme Court interpretation of  eligibility criteria for buying out ground rents.

Ground Rents

Ground rents is not a defined term. It generally applies to rent paid by someone who owns the buildings but pays a relatively low amount of rent to a landlord for the land underneath. The landlord is often a historical absentee landlord.

It has long been public policy to enable people to purchase these landlords' interests and therefore eliminate the rent and uncertainty that comes with having superior ownership interests in the land.

Eligibility

The primary piece of legislation used for this purpose is the Landlord and Tenant (Ground Rents) (No. 2) Act 1978 (the 1978 Act). This Act sets out the conditions a tenant must meet to be eligible to purchase their landlord's interest. Any person who wishes to qualify under the legislation must satisfy all of the following four elements, as set down in section 9 of the 1978 Act:

1. That there are permanent buildings on the land
2. If the buildings have been altered or reconstructed, that the alteration or reconstruction did not cause the buildings to lose their original identity
3. That the buildings were not erected in contravention of a term of the lease
4. That at least one of the seven criteria in section 10 is satisfied

One of the commonly used criteria in section 10 requires, in part, that none of the permanent buildings on the land were erected by the landlord or the landlord's predecessors. Typically, this requires a previous tenant to have built the buildings. The remainder of the subsection requires that the lease be for greater than 50 years and that the rent is less than the rateable valuation of the property

Many had interpreted the part of the subsection relating to the construction of the permanent buildings to mean that if any previous tenant of the land had built the said buildings (as opposed to the landlord or a previous landlord) then this part of the condition was satisfied.

Supreme Court Decision

However, in 2012, the Supreme Court, in Shirley & ors v A. O'Gorman & Co. Ltd & ors [2012] IESC 5, interpreted the subsection to mean that if the landlord or their predecessors had ever entered into possession of the land since the construction of the permanent buildings, then the condition was not satisfied.

The reasoning of the Court was that the landlord, by taking possession, inherited all previous tenant interests in the property. Under this interpretation, the persons who built the buildings were, from that point on, the predecessors of the landlord.

The interpretation was seen by some as causing injustice to persons in occupation of land who would have, save for the Supreme Court's interpretation of this section in the 1978 Act, been able to buy out ground rents and enlarge their interest.

New Provisions

The Oireachtas has passed the Landlord and Tenant (Ground Rents) (Amendment) Act 2019 to address the issue.

It amends the 1978 Act so that, for the purposes of the subsection discussed above, a prior tenant cannot equate to a predecessor of the landlord.

This amendment is designed to enable those presently subject to ground rents to enlarge their interest in the property and eliminate the obligation to pay a ground rent. The Act provides some clarity around technicalities contained in the ground rent legislation. This is likely to be welcomed by those in the property sector.

Contact

For more information, please contact Tony O'Sullivan, Cian Nihill or your usual Beauchamps contact.