One of the biggest property deals in Ireland, for Liffey Valley in west Dublin, has collapsed amid concerns over Fine Gael/Labour plans to halt all upward-only rent reviews between landlords and retailers.
The sellers of the shopping centre -- the Duke of Westminster, who is one of the UK's richest landowners, and Aviva Investors -- were hoping to sell the property to F&C Reit and Area Property Partners, two international fund managers, for €350m.
But according to UK reports the uncertainty over the rental landscape in Ireland has scuppered the deal. New rules allowing all lease agreements to adjust downward would have made owning Liffey Valley a far less valuable opportunity.
While the Fianna Fail/Green Party Coalition amended the upward-only rent review rules to cover leases from February 2010 onwards, leases before that were not impacted by these changes. But the two opposition parties are looking at proposals to allow all lease agreements to be amended downward, subject to some exemptions.
Recent decisions from the Dublin Circuit Court has established a benchmark that means that in certain cases rents could drop by 53pc, providing huge relief to retailers but hurting yields on property for investors and pension funds.
Other sources, including the Irish Society of Chartered Surveyors, believe rents would fall by up to 20pc as opposed to the higher figure ordered by recent court cases where retailers went to law to get better deals.
'Property Week' reported yesterday that the deal to buy Liffey Valley has been close to completion on several occasions, but the changing political debate over upwards-only rent reviews has been creating uncertainty. A deal was signed off provisionally in January of last year, but bank finance was not available due to the uncertainty over what rental income can be driven from Liffey Valley.
It has been reported that Aviva and the Duke of Westminster, who controls the Grosvenor property portfolio, are not prepared to sell at prices below their own valuation.
Retailers have been pressing hard to allow rental rules to be more flexible across the market, with some even withholding rents in disputes over leases. Others have threatened to go out of business rather than concede to new rental increases.
But equally vociferously, those who invest in property have resisted the changes, saying that such a move will halt any new foreign investment coming into the market. The retrospective nature of the Fine Gael/Labour changes has particularly caused concern among professional property investors.
- Emmet Oliver Deputy Business Editor
This will be a hugely contentious issue for the commercial property market.