Wednesday, March 1, 2017
The Planning and Development (Housing) and Residential Tenancies Act 2016 (the “2016 Act”) was signed into law by the President on 23 December 2016 as part of the Governments “Rebuilding Ireland – Action Plan for Housing and Homeless”. The fourth pillar of the action plan is aimed at improving the functioning of the rental sector and addressing the current housing supply shortage.
The 2016 Act makes several amendments to the Residential Tenancies Act 2004 (the “2004 Act”).
The key changes include:
1. The introduction of rent predictability measures;
2. Additional security of tenure for tenants;
3. Restrictions on landlords terminating tenancies;
4. An obligation on landlords to provide certain information to new tenants.
1. Rent predictability measures
The 2016 Act introduced rent predictability measures designed to moderate rent increases in specific urban locations. These locations are known as Rent Pressure Zones (“RPZ’s”) and where a property is situate within an RPZ, rent increases can only be implemented by applying a prescribed formula set out in the 2016 Act which takes into account the time difference between the setting of the new rent and the date the current rent (or previous rent in the case of a new tenancy) was set, up to a maximum of 4% annually. The existing requirement that the rent set must be in line with local market rents for similar properties still applies.
The measures were immediately applied to the four Dublin local authorities (Dublin City Council, South Dublin County Council, Dun Laoghaire/Rathdown County Council and Fingal County Council) and Cork City Council.
Subsequently however, Simon Coveney T.D, the Minister for Housing, Planning, Community and Local Government (the “Minister”) announced that these RPZ locations would be extended with effect from 27 January 2017 to the following Local Electoral Areas:
• Cork – Ballincollig-Carrigaline,
• Galway – City Central, City East and City West,
• Kildare – Celbridge, Leixlip, Naas and Newbridge,
• Meath – Ashbourne, Laytown-Bettystown and Ratoath and
• Wicklow – Bray and Wicklow Town.
There are 26 towns included in these local electoral areas including Sallins, Rathangan, Slane, Julianstown, Duleek, Dunboyne, Dunshaughlin, Enniskerry, Douglas and Passage West.
Whilst the above areas have been designated as RPZ’s for a period of 3 years, rents nationwide are being monitored by the Housing Agency who may, following consultation with the relevant local authority, propose an area to the Minister for inclusion as a RPZ.
For an area to be designated as a RPZ, the annual rate of rent inflation in the area must have been 7% or more in the last four of the last six quarters and the average rent for tenancies registered with the Residential Tenancies Board (the “RTB”) in the previous quarter must be above the average national rent in the quarter.
Although the rental cap applies to both rent reviews in all existing tenancies in RPZs and all new tenancies in RPZs, the rental cap does not apply to properties in RPZs where the property is newly let and has not been let at any time in the two years preceding the RPZ designation.
An exemption also applies where there has been “a substantial change in the nature of the accommodation” since the setting of the last rent, which would effect a substantial change in the market rent for the property (e.g. major refurbishment). The 2016 Act further provides that for new tenancies in RPZs the two year rental review limit will not apply and will cease to apply to existing tenancies once the next two year rent review has taken place, after which reviews are permitted annually.
2. Additional security of tenure for tenants
The 2004 Act first introduced security of tenure provisions for residential tenants in the form of ‘Part 4’ tenancies. In simple terms, these provisions meant that once a tenant resided in a property for six months or more, they automatically acquired a statutory right to continue to reside there for a further three and a half years. The 2016 Act now extends the Part 4 tenancy cycle from four years to six years and applies to all new tenancies that come into operation on or after 24December 2016, including ‘Further Part 4’ tenancies coming into existence after that date. A further Part 4 tenancy is a tenancy that comes into being when a Part 4 tenancy continues to the end of the four year period (for new tenancies this will be a six year period) without being terminated.
Once a Part 4 tenancy comes into existence it can only be terminated on specified grounds:
• There has been a failure to comply with obligations under the tenancy
• The dwelling is no longer suited to the needs of the occupying household
• The landlord intends to sell the dwelling within 3 months of the termination date
• The landlord requires the dwelling for own or family member occupation
• Vacant possession is required for substantial refurbishment of the dwelling
• The landlord intends to change the use of the dwelling
Under the 2004 Act, if a landlord wished to prevent a Further Part 4 tenancy from coming into existence, they had the option of serving a termination notice on the tenant during the currency of the Part 4 tenancy with the relevant notice period expiring on or after the end of the tenancy. Additionally, if a landlord wished to terminate a Further Part 4 tenancy in the first 6 months of the Further Part 4 tenancy they could do so freely without having to specify a reason or rely upon one of the grounds above. The 2016 Act alters this position however and where a landlord now wishes to terminate a Further Part 4 tenancy in the first six months, they are required to rely upon one of the six grounds referred to above.
3. Restrictions on landlords terminating tenancies
Section 34 of the 2004 Act allows for the termination of a Part 4 tenancy where the landlord intends, within 3 months after the termination of the tenancy under this section, to enter into an enforceable agreement for the transfer to another, for full consideration, of the whole of his or her interest in the dwelling or the property containing the dwelling. The Residential Tenancies (Amendment) Act 2015 introduced a requirement that a landlord sign a statutory declaration confirming their intention to sell the property within 3 months after termination.
Under the 2016 Act however, where a landlord proposes to sell 10 or more units within a development at the same time or within a six-month period, the landlord will not be entitled to terminate the tenancies on the grounds of intending to sell the properties.
This restriction is subject to a market value exemption and will not apply where the landlord can show that the price to be obtained by selling the dwellings subject to the tenancy is:
• more than 20 per cent below the market value that could be obtained for the dwelling with vacant possession; and
• that it would be unduly onerous or would cause undue hardship on the landlord.
Reference to the market value of the dwelling is a reference to the estimated amount that would be paid by a willing buyer to a willing seller in an arm’s-length transaction after proper marketing (where appropriate) where both parties act knowledgeably, prudently and without compulsion.
4. Landlords obligation to provide certain information to new tenants
The 2016 Act creates a new obligation on landlords to provide certain information to a tenant where a tenancy commences on or after 24 December 2016 and is located in a RPZ. The landlord is obliged to furnish written information to the tenant on:
1. the amount of rent that was last set under a tenancy for the dwelling;
2. the date the rent was last set under a tenancy for the dwelling;
3. a statement as to how the rent set under the tenancy of the dwelling has been calculated having regard to the RPZ formula.
Where a prior tenancy existed the landlord is required to provide the information at (i) and (ii) above and also to provide a statement under (iii) relating to the rent predictability formula.
Where a new tenancy (i.e. where no tenancy existed in the dwelling for a period of at least two years prior to the area being designated as an RPZ) comes into existence in an RPZ, the landlord will have to show that the rent applicable to this new tenancy complies with the maximum increase allowable under the legislation. As this is a new tenancy the information supplied will not be in the form of a rent review notice but it will be necessary for the landlord to set out, in writing, how the new rent differs from the previous level having regard to the formula.
Whilst it remains to be seen as to whether the recent legislative changes will achieve the government’s objectives in its Housing Action Plan, in theory at least, residential tenants should benefit within the next three years from the rent caps in areas with high demand for accommodation. On the other hand, the perception that the changes unduly restrict landlord’s freedom to set or increase rent or their ability to dispose of 10 or more properties in one transaction may have the negative effect of deterring investors from the residential letting market. If the latter proves to be the case, the end result may be the continued shortage of residential rental accommodation.