The future of Eircom's headquarters on St Stephen's Green may be determined by the courts, writes Gretchen Friemann
A €6 million-plus bid by developers David Courtney and Jerry O'Reilly for the leasehold interest on Eircom's St Stephen's Green headquarters has triggered a row between the communications company and its landlord, the Royal College of Surgeons (RCOS).
In February last year, Eircom accepted the unusually high price for its lease but the medical institution stalled the deal by failing to accept the two high-profile developers as its new tenants.
Although the RCOS stopped short of actually rejecting the transfer of the leasehold into Courtney and O'Reilly's name - as this would most likely have prompted immediate legal action from Eircom - its decision to withhold consent has resulted in a stand-off between landlord and tenant.
After 12 months of stalemate, Eircom is seeking to resolve the impasse in the courts. It is understood that both parties have contacted their legal representatives in preparation for a possible High Court action.
According to sources close to the dispute, the communications company will argue that the RCOS is "unreasonably" withholding its consent to the deal. By law, a landlord must assent to an assignment of a lease if the new tenant is deemed "reasonable" and complies with conditions in the lease.
The developer-as-tenant is a relatively new phenomenon in the Irish market although many industry experts claim it is becoming a growing trend due to the shortage of suitable development sites in the city centre.
As one source pointed out: "By purchasing a lease on a building the developer is effectively gaining equity in that property", and he said this "aggressive strategy" was a "win-win" for the developer.
"If the landlord wants to develop the property himself he needs to come to some financial arrangement with the tenant. That could mean either a pay-off to vacate the building or an offer of a joint venture. So in both cases the developer-as-tenant is in a good position."
When Courtney and O'Reilly offered Eircom between €6 million and €7 million for the lease, it was viewed by the market as a move to gain control of the site and exploit its development potential. Frequently a tenant is forced into paying a reverse premium to exit a rental contract.
The Ardilaun centre, where Eircom currently rents 11,260sq m (121,200sq ft) of space, is one of the college's most important properties, generating an annual income of €4.2 million.
However, the building's age, combined with its prestigious location, makes the scheme ripe for redevelopment.
Courtney and O'Reilly are part of the consortium that purchased the Shelbourne hotel and are also shareholders in Select Retail Holdings, which bought the Superquinn chain and Jury's Montrose hotel. Most of the ventures they are involved in include the prominent developer Bernard McNamara. The builder has a long-running relationship with the RCOS and is a member of its international development board, which advises and assists the college in securing private funding. However, it is understood that McNamara is not directly involved in this deal.
A separate dispute over the rent is further souring the relationship between Eircom and the RCOS. Eircom currently pays €382 per sq m (€35.5 per sq ft) for its St Stephen's Green premises, which is almost half the new market rate of €646 per sq m (€60 per sq ft) for prime office space. A recent move by the RCOS to increase that rate to €430.5 per sq m (€40 per sq ft) on two of the three blocks that Eircom occupies at the Ardilaun centre has been referred to arbitration after Eircom refused to accept the hike.
Eircom is set to move into new headquarters near Heuston Station next spring. The company recently pocketed €190 million after it sold the new headquarters to Quinlan Private in a sale and leaseback arrangement.
Lambert Smith Hampton is acting for Eircom in its negotiation with the RCOS. Nobody from the agency or from Eircom was available to discuss the deal.
The RCOS was also unavailable for comment.
