The High Court declared that section 132 of the Land and Conveyancing Law Reform Act 2009 applies to a new lease entered into after a landlord exercises a contractual option requiring a guarantor to take over from a defaulting tenant. The section allows rent reviews to result in an increase, a decrease or no change.
Mr Justice Charleton delivered the judgment on 26 July 2012 in proceedings brought by Reox Holdings plc against David Cullen and Simon Davidson. The dispute concerned a retail unit at Barrow Valley Retail Park in Carlow. Cullen was the landlord and Davidson had been appointed receiver of the premises.
A 25-year lease dated 16 April 2007 was made between Cullen and 4 Home Wholesale Services Limited, with Reox as guarantor. The lease provided for upwards-only rent reviews every five years. The tenant later changed its name to Wholeserve Limited and entered voluntary winding up. Its liquidator disclaimed the lease on 23 December 2010.
Cullen then gave notice requiring Reox to accept a new lease under a clause in the guarantee. Reox agreed to enter the lease on the same terms, subject to its position that section 132 applied. The receiver later sought confirmation that the new lease would retain the upwards-only review provision. Reox declined. It sought a declaration that the 2009 Act applied.
The receiver argued that the guarantee, made with the original lease, was already an agreement for a lease and therefore fell outside the 2009 law, which excludes leases and agreements for leases entered into before the relevant provision commenced. The court rejected that argument. The guarantee’s option depended on a later event and the landlord’s choice; no agreement for a new lease existed until the option was exercised.
The court also rejected the receiver’s alternative claim that the general indemnity clause entitled the landlord to compensation for losses caused by a downward rent review after the option was exercised. It held that the lease’s specific options—to require a new lease or seek a limited period of rent payments—governed the situation and were mutually exclusive. The general indemnity did not override the option to require the guarantor to take the lease, though it could preserve liabilities already accrued, such as back rent.
The order was a declaration that section 132 applies to a new lease entered into by the guarantor and landlord after the landlord exercises the option. The judgment did not set a new rent or determine any particular rent review amount.