PRECEDENT AND PITFALLS IN ESTABLISHING THE VALIDITY OF INFORMAL RENT REDUCTION AGREEMENTS, BY AIDEEN VEALE PUBLISHED IN THE IRISH LAW TIMES JOURNAL – (2023) 41 I.L.T. 285–288 BY THOMSON REUTERS, ROUND HALL.

The article ‘Precedent and Pitfalls in Establishing the Validity of Informal Rent Reduction Agreements’ was published in the Irish Law Times – at (2023) 41 I.L.T. 285–288 by Thomson Reuters, Round Hall. The article is available on www.westlaw.ie or alternatively in print via email TLRUKI.orders@thomsonreuters.com

The article examines the issue regarding the enforceability of informal rent reduction agreements. Whilst variations to rents are most commonly dealt with by way of a rent review clause in a lease, the ongoing economic challenges, increasing inflation and the impact of the COVID-19 pandemic have resulted in many tenants struggling to meet rental payments and thereby often seeking to renegotiate a suspension of, or reduced, rent with their landlord outside the terms of their lease. However, the enforceability of these agreements has been the subject of numerous cases before the Irish and English courts and was most recently the subject of an Irish Court of Appeal (Court) judgment in the case of Karen Egerton and Andrea Tighe v Edgeform Metals Limited and Aidan Boylan (Edgeform case).

Background

In the Edgeform case, Edgeform Metals Limited (Company) entered into a lease of a commercial premises with Mr. Brian Egerton, whose successors in title are Karen Egerton and Andrea Tighe (Appellants) for a term of four years and nine months from 1 January 2010 at a yearly rent of €20,000 (Lease). Upon the expiration of the Lease, the Company continued to occupy the demised premises, however, it was unable to maintain the rental payments and fell into arrears. The Company began paying a reduced rent in May 2013 on foot of an alleged verbal agreement on a telephone call held between the second named respondent (Mr. Boylan) and the second named appellant’s husband (Mr.Tighe). The Appellants issued proceedings in 2015 against the Company and Mr. Boylan (Respondents) seeking rent in arrears and interest thereon.

In its defence, the Company sought to rely on the doctrine of promissory estoppel arguing that the Appellants were estopped from demanding repayment of the full rent arrears where Mr. Tighe had represented to Mr. Boylan during the telephone call that the Company would accept a reduced rent. Although Mr. Tighe accepted that he was aware that the Company was in financial difficulty and that it did pay a reduced rent, he alleged that the telephone call did not take place until November that year and that he had no authority to make any agreement on behalf of the Appellants.

Court of Appeal Decision

The Court considered the relevant case law on, and application of, the doctrine of promissory estoppel which required the following six ingredients (i) a pre-existing legal relationship between the parties (ii) an unambiguous representation (iii) reliance by the promisee (and possible detriment) (iv) some element of fairness and unconscionability (v) that the estoppel is being used, not as a cause of action, but as a defence and (vi) that the remedy is a matter for the court. It found that the Respondents had failed to demonstrate that they had relied on the verbal agreement, nor did they claim that they altered their position or suffered any detriment as a result of this. Accordingly, the Respondents had no defence to the claim of the Appellants and therefore the Court upheld the appeal.

Conclusion

The Edgeform case highlights problems that can arise when informal, unwritten and uncertain terms are put in place between a landlord and tenant which purport to vary, suspend or reduce rental payments. The main difficulty in these types of cases regarding part payment of a debt includes the requirement for consideration (as set out in the Rule in Pinnel’s Case) or proof that the landlord or “promisor” derived a collateral advantage from the agreement. In the absence of consideration, a tenant or “promisee” may have grounds of defence under the doctrine of promissory estoppel, however, there is an onerous burden on them to provide evidence and satisfy the court that each of the key ingredients of this equitable remedy have been established.

In contrast, the preferred approach is to legally formalise any agreement regarding a suspension or reduction of rent (for example, by way of deed of variation or side letter) in order to provide certainty in terms of the obligations of the parties and duration of that arrangement.

This Moran & Ryan LLP material is not intended to provide, and does not constitute or comprise, legal advice on any particular matter and is provided for general information purposes only. You should not act or refrain from acting on the basis of any information contained in this material, without seeking appropriate legal or other professional advice.

Aideen Veale
Senior Associate
T: + 353 1 8725622
E: aveale@moranryan.com