Laws confuse tenants and landlords

Marguerite Gallagher answers some of what tenants need to know about the new rental laws announced just before Christmas.

The Planning and Development (Housing) and Residential Tenancies Act 2016, announced before Christmas, aimed to bring a greater level of predictability to the rental market. However, confusion remains for both tenants and landlords.

Housing Minister Simon Coveney last month announced an extension of the existing list of rent pressure zones (RPZs). The list now includes most of Galway City as well as 23 smaller commuter towns, including Cork City suburbs such as Douglas and Ballincollig.

While tenants will welcome the new measures in a climate of rapidly rising rents, many landlords see them as curtailing their potential rental income and their ability to manage their properties.

What does it mean if I live in a RPZ?

For those properties now located within a RPZ, rent rises are capped at 4% per year for three years. There is also a set formula which landlords must use when calculating the reviewed rent. This cap doesn’t apply if the property was vacant (before the current new letting), and was not let at any time in the 24 months before the area became an RPZ. The cap also won’t apply where there has been a substantial change in the nature of the accommodation since the rent was last set. For example, if major refurbishment works have been undertaken which would change the market rent applicable for that property.

How often will landlords be able to review rents?

The Residential Tenancies Amendment Act 2015 had restricted a landlord’s ability to review rents to once every two years, so many tenants may now be confused as to when their rent can next be reviewed. The new legislation means that, in the case of existing tenancies within RPZs, the cap on rent rises will apply when the next rent review falls. So, if you are currently within a rent review freeze, the RPZ designation will become relevant once those two years are up. When that next review occurs, rent reviews will then be allowed annually, rather than every two years.

What happens when I have rented a property for six months or more?

Once you have lived in a property for more than six months, a part 4 tenancy occurs, entitling you to remain for a further three-and-a-half years. This right is separate to any lease agreement with the landlord, so even if you have a one-year lease, after six months, you also have part 4 tenancy rights. After four years, if you remain in the property, a further part 4 tenancy begins.

The landlord can only terminate a part 4 tenancy on certain specific grounds, for example, if they require the property for their own use, for that of a family member, or if they plan to substantially refurbish the property.

Two main changes have been introduced to give tenants greater security of tenure.

The first is the extension of the cycle from four to six years, for tenancies that began after December 24, 2016. For any part 4 tenancy beginning before that date, a four-year cycle remains but, as soon as that ends, the further part 4 tenancy will be a six-year cycle.

The second change relates to how a part 4 tenancy can be terminated. Previously, once the first cycle was up, a landlord was entitled to terminate the tenancy at any time in the first six months of the further part 4 tenancy, without needing to fall within one of the above termination grounds.

That six-month window has now been removed. For all tenancies, which began after December 24, 2016, once the further part 4 tenancy commences, the stated reason for termination must also be one as set out in the legislation. This is expected to be extended shortly, to tenancies which commenced on or before that date.

Landlords who wish to avoid having to give specific grounds will need to time the termination correctly so that it falls before a further part 4 tenancy begins.

To achieve this, they will have to serve notice before the current part 4 tenancy ends, with the notice period expiring on, or after, the tenancy’s end-date. This ensures that a further part 4 tenancy does not occur.

Anything else we should know?

A further provision, which has not yet commenced, is a restriction on landlords seeking to terminate tenancies on the grounds of “intention to sell”. This is where they propose to sell ten or more units within the same development, either at the same time or within a six-month period. This will be of interest given recent media attention around “vulture funds” buying up loans from banks. As they now wish to sell off properties they hold as security, these vulture funds are serving notices on multiple tenants within the same development of “intention to sell”.

Landlords will soon only be able to rely on these grounds if they can prove that selling the property with the tenant still remaining will reduce the market value by 20% below what it would be, if sold with vacant possession. They also need to prove it would cause undue hardship on the landlord.

Marguerite Gallagher is a senior associate of O’Flynn Exhams Solicitors, specialising in property and banking law



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