Rule changes on renting: what they mean for tenants and landlords

The final act of the Oireachtas before the Christmas recess made significant changes to the positions of landlords and tenants of residential properties.

What are the changes to current rents?

As of December 24th, 2016, the administrative areas of Cork City Council, Dublin City Council, Dún Laoghaire-Rathdown County Council, Fingal County Council and South Dublin County Council have been designated as rent pressure zones. With limited exceptions, landlords in these zones may not set a rent in excess of that determined by a statutory formula.

Take Jim. Jim rents in Dublin 6 from Harry. On March 1st, 2016, his rent was increased and set at €2,300 per month, with effect from May 31st, 2016. This marked a 25 per cent increase since Jim started his tenancy in 2013.

The earliest Jim will now have to pay an increased rent is May 31st, 2018, and the highest that new rent can be set at is €2,392. If, in 2018, rent of €2,392 is deemed to be in excess of market rent, Harry won’t be able to increase it to that level. A maximum 4 per cent increase in a two-year period is allowed.

It may be certain, but it is not simple. The formula is R x (1 + 0.04 x t/m). Harry applied the formula as follows. R is the rent last set (€2,300); t is the number of months between the date the last rent came into effect and the date the reviewed rent will come into effect (24); and m is the number of months the landlord has been required to wait before carrying out the rent review, as dictated by statute. In this case, m is 24 because the rent for a tenancy in existence on December 24th, 2016, is being reviewed for the first time after that date.

Following the first review, rent may be reviewed every 12 months. The next but one rent increase for Jim could take effect on May 31st, 2019. The most that new rent could be is €2,487.68. In this second review, Harry applied the same formula, resulting in a maximum increase of a little more than 8 per cent between 2016 and 2019.

What if rent was below the market rate?

No exception is made for landlords who were charging below the market rent on December 24th, 2016. All landlords in rent pressure zones are now tied to percentage increases of the most recent rent, with two exceptions. Rent may be increased up to market levels if a review was commenced before December 24th, 2016, and carrying out substantial works on a dwelling may also mean the landlord can charge a market rent, but only if the landlord can establish that the market rent is higher by virtue of the changes made. To avoid the formula, a landlord must already have acted or must now spend a large sum of money.

What about new tenancies in rent pressure zones?

If a dwelling had been let within the two years before December 24th, 2016, the formula applies. Otherwise, the landlord may set the rent at market level. The landlord must inform new tenants of how the rent has been set in accordance with the formula, or why the formula does not apply. New rent pressure zones may be designated in the future.

What changes are there to security of tenure?

Take Sue. Sue rents from Helen. Helen has one rental property. Sue’s tenancy commenced on January 1st, 2017. Once Sue has been in the dwelling for six months, she will acquire a six-year tenancy – what is known as a Part 4 tenancy – by operation of law. Had Sue’s tenancy been created before December 24th, 2016, her Part 4 tenancy would have lasted four years.

What is Sue’s Part 4 tenancy worth?

Part 4 tenancies are rolling in nature. When Sue’s Part 4 tenancy ends on December 31st, 2022, a new Part 4 tenancy will commence, and so on, until terminated. Landlords used to be allowed to serve a notice of termination in the first six months of a further Part 4 tenancy without giving a reason. On January 17th, 2017, this right was repealed. Landlords must always give a reason to terminate a Part 4 tenancy.

To terminate Sue’s tenancy, Helen must correctly follow a complicated procedure and, with one exception, rely on one of six reasons: breach of Sue’s obligations; the dwelling is unsuitable to Sue’s household needs; Helen intends to sell; Helen or a family member requires the dwelling; or Helen intends to refurbish or change the use of the dwelling.

If she cannot establish one of these reasons, Helen can only terminate if, before the end of Sue’s Part 4 tenancy, she serves a notice of termination which expires after the end of Sue’s Part 4 tenancy. How much notice of termination Sue must receive is fixed by statute. If Helen serves notice of termination on December 1, 2022, Sue is entitled to at least 140 days’ notice of termination.

What restrictions are there on landlords with large portfolios?

If a landlord is seeking to sell 10 or more dwellings in a development within a six-month period, a Part 4 tenancy may not now be terminated. Landlords will escape this restriction if they can show that the price to be obtained by selling the dwellings at market value is more than 20 per cent below the market value that could be obtained if the dwellings were sold with vacant possession, and that applying the restriction is unduly onerous or causes undue hardship to the landlord.

Laura Farrell BL is a barrister specialising in property law, and author of Residential Tenancies (Bloomsbury Professional, summer 2017)