McDonald’s to get 47% reduction in Grafton rent

McDonald’s fast food chain is to have its rent reduced by 47 per cent on Dublin’s

Grafton

Street less than two weeks before the

Supreme Court

is

due to review a separate High Court ruling that the rent on another Grafton Street café, Bewley's, must be allowed to fall in line with the depressed open market rate.

The background to the two rental arrangements are entirely different. McDonald’s has negotiated a lower rent under a new lease agreement while the Bewley’s lease is still subject to five yearly upwards-only reviews.

McDonald’s had been paying an overall rent of €1.15 million under a 35-year lease which ran out at the end of 2011. That figure has now dropped to €600,000 and with upwards-only clauses no longer allowed, five yearly reviews are now based primarily on open market rental values.

The landlords in this case – Royal London Mutual Life and Pension Fund – had indicated in advance of the review that it would also be looking for a premium of at least 30 per cent on the rent to take account of the scarcity value of having a round-the-clock food business on the city’s premier high street and also because of the sheer size of the building – it extends to 1,858sq m (20,000sq ft).

Natalie Brennan of CBRE said the issue of the premium "was factored into the discussions and was taken on board".

Grafton Street earned a reputation during the property boom for being one of the most expensive high streets in the world.

McDonald’s is the latest of a large number of traders on the streets to have had their rents reduced because of the recession.

However, some landlords – particularly pension funds – have refused to cut rents because their tenants failed to show that their turnover had fallen so dramatically that the viability of their business was under threat.

For McDonald’s the fall off in its Zone A rents from €10,085 per sq m (€937 per sq ft) to €4,843 per sq m (€450 per sq ft) is broadly in line with rental movements on the street.

The rent on the recently opened Massimo Dutti store was cut from €1.7 million to €865,000 while Ecco shoes is to benefit from a reduction from €445,000 to €210,000 on its new store on the street.

The Supreme Court's planned review on March 31st of the High Court ruling in the Bewley's case will be closely watched by the banks, investors, traders and Nama which is funding the appeal. The owners of Bewley's café, Johnny Ronan's Ickendel Ltd, are due to challenge Mr Justice Peter Charleton's interpretation of the five-yearly upwards-only lease on the famous café dating back to 1987.

The test case is expected to hinge on the interpretation of a key but ambiguous clause in the lease agreement.

Ickendel accepted that should there be deflation, the rent could remain at the same level as that fixed in 2007 – €1,463,964.

However the judge said the rent review clause could only reasonably be constructed so as to allow for a fall in rent but never below the rent initially agreed in 1987. The High Court was told that Bewley’s was losing about €700,000 a year because of the high rent it had to pay.

Nama's involvement in the case stems from its decision to take over responsibility for Ickendel's €21 million Bank of Ireland loan.