Update on the Planning and Development (Housing) and Residential Tenancies Act 2016

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  1. Rent Predictability

A. Rental Pressure Zones

The cornerstone of the government’s rent predictability measures is the establishment of “rent pressure zones” (RPZs) in Dublin and Cork City whereby limitations will be imposed on the level of rent increases allowable on residential properties in these zones. As a result of negotiations with Fianna Fail, The Government agreed to ask the Residential Tenancies Board (RTB) to examine trends in Waterford, Limerick, Galway and the commuter counties of Louth, Meath, Wicklow and Kildare. The RTB will be asked to report back by the end of January and a decision will be taken then on whether the package should be extended to those areas. In general, in order for an area to be declared an RPZ it must satisfy the following criteria.

  • The annual rate of rent inflation in the area must have been 7% or more in four of the last six quarters, that is, over the previous 18 months
  • The average rent for those tenancies registered with the RTB in the previous quarter must be above the average national rent in the quarter

B. Calculating Rental Increases

In accordance with current market practises, the rent should not be set above the local market rents for similar properties and three examples of rents for similar properties in the locality must be presented to demonstrate this. When calculating a rental increase in an RPZ, the amount cannot be greater than the amount determined by the formula below:

R x (1 + 0.04 x t/m)

R = The amount of rent last set under a tenancy (current rent)

t = The number of months between the date the current rent came into effect and the date the new rent amount will come into effect.

m = you must enter 24 or 12. Whether you use 24 or 12 will depend on the following:

  • Landlord has not reviewed the rent in previous 24 months – In accordance with rental measures introduced by the previous government in December 2015, for existing tenancies a review is only permitted 24 months after the tenancy started or 24 months from the date the rent was last set. In this scenario m = 24. For this initial rent review a maximum rent increase of 4% will apply. This amounts to 2% per annum applied pro-rata for the period since the rent was last increased. Following on from this review, a landlord will be entitled to review the rent in an RPZ every 12 months.
  • New tenancies from 24th December 2016 – Landlords of all new tenancies, including Further Part 4 tenancies (detailed below), within an RPZ which started on or after 24th December 2016 are entitled to review the rent annually. In this instance m = 12.

If rent reviews take place annually the permissible rent increase in each case will be 4%. If, for example, a landlord opts to review the rent after 18 months the allowable increase will be 6% (4% per annum pro-rata for 1½ years). Landlords cannot review the rent to market rent when looking for a new tenant. The above formula must be used when calculating the new tenants rent.

The new tenant must be given the following, in writing, when entering the tenancy:

  • The amount of rent that was last set under a tenancy for the dwelling
  • The date the rent was last set under a tenancy for the dwelling
  • A statement as to how the rent set under the tenancy of the dwelling has been calculated having regard to the rent pressure zone formula.

C. Exemptions

Some residential properties within the newly created RPZ are exempt from these regulations. Exemptions include:

  • Properties that are new to the rental market, that is, properties that have not been the subject of a tenancy at any time in the previous two years. It should be noted, however, where the property is vacant but has been let at any time in the 24 months before the area is designated an RPZ, the cap on rental increases does apply
  • Properties which have been substantially refurbished can be exempted from the measures. A substantial refurbishment is not detailed specifically in the Act, however it must represent a major change to the property resulting in an increased market value of the tenancy. For example, simple redecoration or replacement of electrical goods or furniture would not qualify for an exemption.

2. Security of Tenure

The tenancy cycle has been increased from four years to six years. If a tenant has been residing in a property for six months, the tenant is permitted to stay in the property for an additional five and a half years according to the new measures. This applies to new tenancies created on or after the 24th December 2016, including “further” Part 4 tenancies.

If you remain in your tenancy for the full period of your Part 4 tenancy, a new cycle automatically begins called a ‘Further Part 4 tenancy’ which allows the tenant to remain in the property for a further six year period. If you do not have a current lease then your landlord can terminate a ‘Further Part 4’ tenancy in the first 6 months without depending on one of the six grounds set out in the Residential Tenancies Act but they should give you a reason for ending the tenancy. This provision will be removed in the near future and thereafter the landlord can only end the tenancy on one of the six specific grounds.

3. Restriction on landlords terminating tenancies

If a situation arises whereby a landlord wants to sell 10 or more units within a multi-unit development at the same time or within a six-month period, the landlord will not be allowed to terminate the tenancies on the grounds of intending to sell the properties. It should be noted, however, that there are exemptions. This amendment will not apply where the landlord can demonstrate that the price to be achieved by selling the property subject to the tenancy meets both of the following criteria:

  • More than 20% below the market value that could be obtained for the dwelling with vacant possession; and
  • That it would cause undue hardship on the landlord.

This section of the Act has not yet commenced. No termination notices served before the commencement of this section of the Act will be affected.

4. Appeal Periods

Currently a party has a period of 21 days to lodge an appeal beginning on the date the RTB serves the party in question with the Adjudication report. This period will be reduced to 10 working days upon commencement of the amendment.

 

 

Knight Frank

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