Doing a deal with Dublin Port remains South Wharf's best option, writes John McManus.

On March 31st last Dublin Port served an eviction notice on one of its oldest tenants, South Wharf, formerly Ardagh plc, formerly Irish Glass Bottle.

It brought to a head a long running dispute between the two parties over the future of the 25-acre site at the base of the Poolbeg peninsula in Ringsend.

South Wharf, headed by Paul Coulson, has been seeking to renegotiate its lease with Dublin Port, run by Enda Connellan, since July 2002 when it ceased manufacturing glass bottles on the site. The lease, granted in the early 1970s, had around 50 years left to run and the company wanted to redevelop general warehousing on the prime site.

Dublin Port opposed the changes and South Wharf initiated legal action. Judgment was not given until February this year. It went against South Wharf and the next month the eviction notice was served.

South Wharf held the site under three leases. Dublin Port claimed - with the backing of the court judgment - that one of the leases had run out in 1997 and South Wharf had no right to renew. The eviction notice was served in respect of this lease on March 31st.

Around six weeks later, on May 16th, forfeiture notices were served in respect of the other two leases. Dublin Port claimed that the covenants on the other two leases had been broken because the company had ceased manufacturing and storing glass containers on the site.

This was a specific clause in the lease and also the explanation for why Dublin Port granted long leases on very generous terms. The business model adopted by Dublin Port in the 1970s centred on leasing out land near to the port to manufacturing businesses on very favourable terms, such as the €50,000 a year for 70 years lease granted to South Wharf.

In theory the port would make its money on the various charges and dues levied on the raw materials imported by its tenants via the port and the finished goods they exported.

By ceasing production and storage on site it looked as if South Wharf had played into Dublin Port's hands and it would be able to rely on this clause to evict its increasingly troublesome tenant.

Then, on May 19th news broke that the Minister for Enterprise Trade and Employment, Micheál Martin, was rushing emergency legislation through the Dáil to close a loophole under which long-standing IDA tenants could buy out their freeholds for 15 times the annual rent. The legislation in question was the Landlord and Tenant Act of 1972, brought in to protect small and medium-sized businesses that had invested heavily in plant and buildings.

Within days of the news, the balance of power had shifted back in South Wharf's favour. On May 31st the company put in place the necessary structures to avail of the loopholes - sub-letting the property to a subsidiary - and on July 1st it informed Dublin Port that it wished to buy out the freehold under the act.

It was some four weeks later, June 28th, before the Department of the Marine - the parent Department of Dublin Port - moved to close the loophole in respect of port companies.

South Wharf would appear to be home and dry and set to pick up a €300 million site for something in the region of €750,000. But it can look forward to a couple of trips to the High Court before it gets its hands on the deeds. Dublin Port is expected to challenge both the legality of the structure put in place to avail of the loophole and the company's entitlement to buy out the freehold under the act.

In reality, the issue is far from settled and both sides may yet negotiate a settlement, something that they have singularly failed to do to date.

South Wharf sources were claiming this week that the company has been trying to engage Dublin Port in joint venture negotiations since 2002. They said Coulson was aware as early as 2004 that South Wharf could try to avail of the Landlord and Tenant Act to buy out the freehold but had a preference for doing a deal with Dublin Port.

They said that negotiations took place between advisers to both sides in 2003. Initially Dublin Port had sought 50 per cent of the development in return for the freehold. South Wharf claimed that 25 per cent was a more realistic figure. The talks went nowhere and South Wharf went to court in February 2004 seeking to change the terms of the lease.

Another round of discussions took place in November 2004. Dublin Port repeated its 50 per cent demand once again, according to South Wharf sources. This time Coulson offered 35 per cent of the site value and 35 per cent of the development profit. Again the talks came to nothing.

In March 2005, following South Wharf's defeat in the High Court, Coulson wrote again to Connellan trying to restart negotiations. He got no reply and instead Dublin Port commenced eviction proceedings at the end of the month.

South Wharf can and do argue that they are more than justified in trying to avail of the Landlord and Tenant Act loophole given Dublin Port's refusal to enter into meaningful negotiations with them. By not negotiating, the port company was refusing to recognise their legitimate economic interest in the prime development site.

Things, however, are not that simple, according to Dublin Port. Sources close to that company point out that there were no formal negotiations and no written offers. Connellan may have had a couple of cups of coffee with Coulson but that was about the extent of it. "There was nothing even approaching common ground," they claim.

They prefer to see the dispute in the terms of a State company acting to protect State assets. They point out that South Wharf has been trying to get its hands on the freehold to its Poolbeg site since 1996, when it sought to buy it out on the pretext that it was a prerequisite for a refinancing. In the end, the refinancing went ahead without the freehold being bought out.

Dublin Port also argues that the sort of development South Wharf has in mind may not be the most advantageous from the port's perspective. Fundamentally it wants to encourage activities that generate business for the port.

For this reason, the port company opposes the framework plan for the area proposed by Dublin City Council and Dublin Docklands Authority, which calls for a large amount of residential development. South Wharf wants to avail of the rezoning.

As of this week, it is hard to see a reconciliation being effected between the two sides. Coulson may have regained the initiative, but he also knows that ultimately doing a deal with Dublin Port is still the most sensible option.

The State - in its many forms - is unlikely to forget or forgive the man and the company which bests it to the tune of €299 million and change.