Real Estate Guide
Principles of ownership
Freehold/Ownership - ownership is unlimited by time. The freeholder may choose to occupy the property or grant a lease enabling someone else to occupy it.
Leasehold - ownership has a fixed time period. If the term is long (eg 99 years or upwards), the rent is commonly nominal and a premium (lump sum) may be paid on the grant of the Lease. If the term is short (eg one to 35 years), then an annual rent is usually paid at market rates subject to review generally on a five yearly basis.
Common hold/Usufruct - not applicable.
Condominium ownership - not applicable.
Utilisation right - not applicable.
Joint/Co-ownership - not applicable.
Restrictions on foreign ownership
Since 2005, there have been no restrictions on ownership based on nationality.
Title to real estate
Investigation of title - not applicable.
Transfer of title - not applicable.
Registration - there are two systems of registration in Ireland: registration of deeds and registration of title. In the Registry of Deeds any document relating to land may be registered. The Register of Deeds shows that a document exists but it does not give any guarantee of its validity. The registry of title system is operated by the Property Registration Authority. Unlike the Registry of Deeds, it is conclusive evidence of title. Compulsory registration of title has recently been extended to all counties in Ireland so that most dealings in the future with titles which are not yet registered will require the registration of those titles. The system of registering deeds should become obsolete as all titles become registered over time as a result.
Information on the register - not applicable.
Commercial leases - not applicable.
Structure of a real estate transaction
Negotiation of terms/Agreement - most of the commercial terms are usually negotiated between the parties and the principal agreed terms are then provided to the parties' lawyers so that the transaction documents can be drafted. The details which have not already been agreed between the parties are usually negotiated by the parties through their lawyers. Care should be taken that any pre-contract written communication is clearly marked "subject to contract/contract denied" and includes an appropriate disclaimer to ensure the parties are not deemed bound by a deal before the formal legal documents are agreed.
Heads of terms – not applicable.
Pre-Contract: The principle of “caveat emptor” (let the buyer beware) applies so that, unless otherwise agreed, the buyer/tenant will take the property as it is. The buyer/tenant usually commissions its own surveys and makes its own financial arrangements. The lawyer for the buyer/tenant will also review the title of the seller/landlord and investigate the seller/landlord’s documents relating to a number of other matters relevant to the property such as compliance with planning laws, access to and services for the property.
Investigation of title - not applicable.
Purchase deed - where the property is part of a recently constructed multi-unit development the seller's lawyer will usually provide a standard form of purchase deed. Otherwise the buyer's lawyer usually drafts the purchase deed for approval by the seller's lawyer.
Contracts - once the parties sign and "exchange" a formal contract/agreement for lease they are committed to complete the transaction at a specified future date.
Completion/closing - completion may sometimes be conditional on other events such as landlord's consent, planning permission or the completion of building works. A 10% deposit is usually paid by a purchaser when contracts are signed. Completion takes place when all pre-conditions have been satisfied, the parties have executed the transfer/lease and the balance of any monies due has been paid. At this point the buyer/tenant is usually entitled to take possession.
Post completion - after completion of a purchase/sale transaction the buyer's lawyer usually processes payment of the buyer's stamp duty, files a stamp duty return on behalf of the buyer and registers the buyer's title with the Property Registration Authority. After completion of a lease transaction the landlord's lawyer usually processes payment of the stamp duty received from the tenant and files a stamp duty return on behalf of the landlord. Registration of the tenant's title, if applicable, is usually done by the tenant's lawyer. The seller's lawyer also deals with the removal of mortgages or charges over the property post completion.
Leases - not applicable.
Transfer of ownership of leased property (alienation) - not applicable.
Language requirement – not applicable.
Governance of lease signature/administration – not applicable.
Usual commercial lease terms
Summary of available lease types - not applicable.
Alterations/modifications - the written consent of the landlord is usually required for alterations but many landlords are more permissive towards internal non-structural alterations and it is usually agreed that the landlord's consent to carry out alterations cannot be unreasonably withheld.
Assignment and sub/under letting - leases normally prohibit assignment or subletting of part of the property but permit assignment or sub-letting of the entire of the property subject to obtaining landlord's consent, which cannot be unreasonably withheld. Tenants frequently negotiate more flexibility including sub-lettings of parts of the property, licence arrangements and sharing with group companies. Tenants can seek the assistance of the courts if the Landlord acts unreasonably or unduly delays consent.
Destruction/reinstatement - commercial leases usually provide that in the event of damage or destruction of the property, the landlord will reinstate the damage or restore the building to its previous condition and if the landlord cannot do so within a set period (usually three or four years), for reasons outside of the landlord's control, either party may terminate the lease. The period usually coincides with the period for which the landlord has insured against loss of rent during which the tenant's obligation to pay rent is suspended. The landlord is not usually obliged to reinstate following uninsured damage caused by the tenant or where the landlord's insurance has been invalidated by the tenant. Short term leases usually allow for more flexibility for either party to terminate the lease if the property is materially damaged or destroyed.
Duration of lease - terms are usually either short term (up to five years) or long term (20/25 years) but due to recent changes in landlord and tenant and VAT laws there is now greater freedom to agree different lease lengths and the trend is towards leases for ten or 15 years. The tenant's obligations with regard to repair, decoration and other matters are usually less onerous in short term leases.
Forfeiture/irritancy - commercial leases usually provide that if the tenant has failed to pay rent or other sums due under the lease on time or has failed to comply with the tenant's covenants the landlord may terminate or "forfeit" the lease and repossess the property. Most leases also provide for forfeiture by the landlord in the event of tenant insolvency. In circumstances where a tenant can pay the outstanding rent or can remedy whatever breach of the lease is outstanding the Irish courts tend to allow the tenant relief against forfeiture so that the Lease will continue.
Insurance - the landlord usually assumes the obligation to insure the property against usual property risks and against loss of rent for three or four years. In most leases the tenant is obliged to reimburse the costs of insurance to the landlord.
Rent review - in new leases for ten years or more rents are commonly reviewed every five years based on the open market rental value of the property. In leases created before 28 February 2010 such rent reviews were usually upward only to the higher of the passing rent or the market rent but since that date upwards only rent reviews are prohibited. Leases normally provide for a form of independent dispute resolution (generally by arbitration) if the open market rent cannot be agreed between the parties. Index-based rent formulas and turnover rents have become more common in the current market.
Repair/decoration/furnishing - in a short term lease the repairing covenant will normally apply to the interior of the premises only. However, in long term full repairing and insuring (FRI) commercial leases, subject to negotiation, the tenant will normally be obliged to repair both the interior and exterior of the demised premises. In a multi-unit building or estate the tenant is usually indirectly responsible for the cost of the exterior repairs and maintenance and the costs of maintaining plant, machinery and areas shared with other occupiers, such as lift lobbies and reception areas, through a service charge. Service charge provisions require careful review by both parties.
Service charges - not applicable.
Tenant’s duties - not applicable.
Termination/break clauses - commercial leases frequently contain provisions entitling the tenant (and sometimes the landlord) to determine the lease prior to the expiry of the term on certain specified dates. Such provisions usually specify a notice minimum period which must be given before terminating the lease and may provide for payment of a penalty or impose other conditions.
Increasing covenant strength
Lease deposit - not applicable.
Surety - not applicable.
Warranty - not applicable.
Rent deposit/bank guarantee - rent deposits are becoming increasingly common for short term leases but bank guarantees for rent are less common. In longer term leases where the covenant strength of the tenant is not acceptable to the landlord a parent company guarantee or personal guarantees may be sought by the landlord. These can be limited in time or to a capped amount, or in some cases may be released when the tenant satisfies a specified financial test.
Security of tenure
A business tenant has a statutory right subject to certain conditions to remain in occupation after his lease expires provided that the tenant and its predecessors have continuously occupied the property for business purposes for five years or longer. The landlord can only oppose an application for a new lease on limited grounds. The most commonly used ground is the landlord’s intention to redevelop the property. It is possible for all business tenants to waive the statutory right to renew a business lease and this is now common practice.
On sale/acquisition of real estate - stamp duty is a one off payment made by the buyer/tenant to the Revenue Commissioners within 30 days of completion. The rates of duty vary occasionally and currently (as at June 2011) range from 1% - 6% of the purchase price for most purchases of non-residential property and 1% of the annual rent plus small fixed duties for leases.
Where a seller realises a gain on the sale of real estate, ie sells property for a higher amount than the cost of acquisition, the gain can be subject to Capital Gains Tax for individuals or Corporation Tax for companies.
Immovable property tax - not applicable.
Income tax - not applicable.
Land tax - not applicable.
Lease tax - not applicable.
Local tax - most commercial properties are liable to pay local authority rates each year based on a valuation of the property. Rates vary from year to year and are calculated by the local authority by reference to the value of all properties within the area and the total cost of providing services to that area.
Mortgage - not applicable.
Other taxes - not applicable.
Property lease tax - not applicable.
Value added tax - Value added tax (VAT) on property is complex and differs from transaction to transaction depending on a number of factors including the nature of the property and its VAT history as well as the business carried on by the parties. For leases in particular, specialist VAT advice should be sought at the outset as it can impact on the structure of the transaction and the commercial terms.
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