Ireland ’s minister for justice, equality and law reform Dermot Ahern has signed legislation, in a move widely condemned by the Irish property industry, that bans upward-only rent review clauses in business leases from 28 February 2010.

Ahern said: "The practice of including upward only review clauses in business leases is a deeply entrenched one. I look forward to more equitable business arrangements being put in place in the future which take account of the reality facing many business owners and retailers.”

CB Richard Ellis (CBRE) denounced the move as occupiers of commercial property in Ireland are facing huge cost pressures. It stated: ‘The amendment initially appears positive, but it will do absolutely nothing to help existing tenants in the short-to medium-term and is potentially very harmful to the Irish investment market.’

CBRE believes it would be extremely difficult to obtain funding for investment purchases where new leases apply as banks fund and investors buy property investments on the basis of projected cash flows. This would be reduced by the new ban and would also place Ireland at a competitive disadvantage to the UK which has upward only rent reviews. According to CBRE, a two tier investment market would emerge with investors paying a premium for properties on existing leases and having limited appetite for properties let on leases after February 2010.

Guy Hollis, managing director at CBRE - Ireland, said “The net effect of this legislation will be to reduce the attractiveness of Ireland to investors and banks, which will in turn further undermine property values at a time when stabilisation was just starting to emerge. Pension funds and investors generally, as well as the lending banks, have seen commercial property values fall by as much as -60% since 2007. This proposal will further erode value without any benefit to existing tenants, which is supposedly the reason it is being introduced in the first place.”