New Ground Rent Legislation – Increased Certainty for Tenants

A new law clarifying the rights of certain ground rent tenants to acquire the freehold title to their properties has now come into effect in January of this year. The buying out of ground rents remains a very technical area of property law.

First, what is a "ground rent"?

The term 'ground rent' is not defined but refers to a rent paid by a tenant where the tenant has built the buildings and the landlord has provided the lands only. The rent reserved reflects this arrangement e.g. €10 per year. In most cases, these leases are long-term leases for 500 or 999 years. In many cases the landlords' successor in title cannot be traced and the rent has not been paid for many years.

The Shirley Case – works carried out by previous tenants could undermine the current tenant's right to the freehold

The Landlord and Tenant (Ground Rents) (Amendment) Act 2019 was brought into law as a response to a Supreme Court decision in Shirley and JES Holdings Ltd –v- A O’Gorman & Co Ltd [2012] IESC 5 ("the Shirley case"). This decision involved a somewhat restrictive (from the tenant's perspective) n interpretation of the Landlord and Tenant (Ground Rents) (No. 2) Act 1978 (the “1978 Act”). The 1978 Act sets out the conditions to be met by a tenant to buy out their ground rent and attain freehold title to their property.

In order to be eligible to purchase the freehold, a tenant has to meet a number of conditions. These are set out in Section 9 of the Act ("the essential conditions") and Section 10 ("alternative conditions").

The essential conditions are as follows, and a tenant must meet all of them to be eligible to attain freehold title to their property as of right:

1. 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. Examples of some of these conditions include situations in which the permanent buildings were built by the lessee; the permanent buildings were built by a builder, the lease was one for 50 years or more and involved payment of a sum or expenditure on the premises; or that the lease is a reversionary lease

In the Shirley case, the Supreme Court dealt with one of the section 10 alternative conditions. This condition required that the buildings on the land were not erected by the landlord or his predecessor in title and the term of the lease must be 50 years or greater. The presumption that the buildings were not erected by the landlord or his predecessors can be rebutted by the landlord. Further, the rent must be less than the rateable value of the property. (Rateable value, broadly speaking, is the annual rental value that a property could be let for at a specified valuation date.)

In the Shirley case, the Supreme Court took the view that the definition of predecessors in title should be interpreted broadly to include works by all previous owners. This included not only the landlord receiving the ground rent but also any earlier tenants of the property in cases in which the landlord had taken back possession of the property between tenancies.

2019 Act – welcome changes for ground rent tenants

The new Act provides that a prior tenant cannot equate to a predecessor in title. The Act also clarifies that buildings cannot be held to have lost their original identity simply because only a part or parts of the original buildings remain identifiable. These provisions strengthen tenants' rights to assert their entitlement to the freehold.  It is also a welcome piece of legislation for landowners and developers in terms of clarifying the rules in relation to ground rents, however, it does not entirely reduce the complexity in this important area of property law.

A copy of the Act can be found here.

Written by Paddy Smyth & Aideen Farrelly