OPW: Office of Public Works
Oifig na nOibreacha Poiblí
OPW Statement on Leased Accomodation Costs
Thursday 15th July 2010
PRESS RELEASE
Minister of State at the Department of Finance with special responsibility for the Office of Public Works, Dr. Martin Mansergh T.D. today clarified some recent statements in the media with regard to expenditure on leases in the State sector. Minister Mansergh said: "some of the statements being made at the moment regarding the cost to the Exchequer for properties leased around the country do not represent the full position. Statements regarding the track record of the OPW are unacceptable and based on a poor understanding of the commercial office market. I have no hesitation whatsoever in defending the record of my office in its property dealings."
A key part of OPW’s remit is to provide office accommodation for Civil Service Departments and Agencies such as local offices for the Department of Social Protection, Revenue Commissioners, Garda stations in every county in addition to central Government Departments. To accomplish this OPW manages a portfolio of 2,000 owned and leased property holdings. OPW has in the region of 460 leases of office premises.
Minister Mansergh continued: "In recent years, there has been substantial increased demand on OPW to provide additional office accommodation. This has resulted in the need to lease additional accommodation at a time when the rental market was very strong. As a result there was an increase in rental payments. For a considerable number of years, upward only rent review clauses have been standard in commercial leases for both public and private sector organisations. Most of OPW's long term leases would have upward only rent review clauses. Rents can only be renegotiated where a lease provides for such a review, the norm is every five years. Therefore at rent review the rent could not decrease below that which applied for the previous five years."
OPW does not pay inflated rents. At the height of the property market in 2007, prime office rents in Dublin were approximately €673 per Sq. M. OPW set a limit of €409 per Sq. M.which it was prepared to pay for office space.
In any given year, only about 10% of OPW leases fall due for review – about 40 per year. OPW actively pursues these reviews. However, if a new review cannot be agreed, the matter is referred to arbitration, which is binding on the parties. Speaking about this eventuality Minister Mansergh stated: "To give an example, there was a rent review due on a leased property in Galway in January 2008 and while it was an upward only rent review the OPW maintained throughout the negotiations with the landlord's agents that the market indicated that no rent increase was merited, whereas the agent acting for the landlord maintained that a rent increase should apply. In the absence of agreement, it was necessary to refer the matter for determination by legally binding arbitration, as provided for under the lease. The Arbitrator's determination, delivered in December 2009, provided for an annual increase of €177,425 that was backdated to January 2008. This ruling is binding on the OPW as it would be for any tenant."
Leases are legally enforceable contracts and if OPW refuses to pay the passing rent, it could be sued by the landlord and end up paying the rent and the landlords court costs. In the commercial rental market, any organisation that is solvent, and especially the State, will not get significant rental reductions if their leases provide for upward only rent reviews. In most cases, a "no-increase" rent is negotiated. The situation is different in the retail sector where businesses have been able to get reductions as their turnover is down. From a landlord’s perspective, a reduced rent is better than no rent. OPW is not in the retail sector.
OPW is currently in a process of rationalising its leased office space, particularly in Dublin. A number of major leases are being surrendered this year yielding considerable savings in rent, (approximately €5.8 million in 2010) and subsequent years. For example, the surrender of Pinebrook House will yield savings of €1.6million each year for the next five years. It should be noted, however, that leases can only be surrendered when there is a break clause.
As OPW has the largest office portfolio in the State, our rental costs will be a significant figure. It is important to notice that expenditure has been countered in recent years by savings of over €300m raised by the disposal of surplus State assets.
Ends.
For further information contact Neil Ryan, OPW Press Officer, (046) 942 6128 or (087) 947 5552