Recent changes to the Residential Tenancies Act 2004

The Government has recently enacted changes to the Residential Tenancies Act 2004 (“the 2004 Act”) with the commencement of the Planning and Development (Housing) and Residential Tenancies Act 20161 (“the 2016 Act”).

The headline changes cover:

  • Rent Pressure Zones and a Rent Predictability formula for these zones
  • Changes to tenancy cycle periods and grounds to serve Notices of Termination
  • Additional Landlord Obligations
  • Reduction in Appeal to Tribunal time periods

The provisions of the 2016 Act covering rent pressure zones, rent predictability formula, changes to tenancy cycle periods and additional landlord obligations commenced on 24 December 2016. The provisions relating to a reduction in appeal to tribunal time periods, the Tyrrelstown amendments and changes to specific notices of termination are expected to be commenced during the week of 16 January 2017. As these changes are extensive and either commenced, or expected to commence shortly, I have set out a detailed examination of the amendments.

Rent Predictability

The recently published Strategy for the Rental Sector2 introduced rent predictability measures which are new provisions intended to moderate rent rises in specific urban locations across Ireland. In these areas, called Rent Pressure Zones (“RPZ”), rents may only rise according to a prescribed formula3. The measures will be applied immediately 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.

Who decides what areas are Rent Pressure Zones?

The Housing Agency, following consultation with the relevant local authority, may propose an area to the Minister for Housing for consideration. Within 1 week the Minister will request the Residential Tenancies Board (“the RTB”), which monitors data on rents, to assess whether the criteria4 apply to the area. The RTB will confirm the position within a period of 2 weeks and thereafter the Minister will make the relevant order. An RPZ designation order will be for a specified period of time not exceeding 3 years5.

Are all rental properties covered?

No, there are certain exemptions for properties within an RPZ. 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 or properties which have been substantially refurbished can be exempted from the measures. However, the existing requirement that the rent be set in line with local market rent remains.

A ‘substantial refurbishment’ is not defined but it must be a significant change to the dwelling resulting in an increased market value of the tenancy. For example, simple redecoration or replacement of white goods would not be sufficient. Substantial refurbishment should involve significant alterations or improvements which add to the letting value of the property.

If I want to raise the rent on my dwelling in an RPZ, what do I need to do?

Where a landlord is setting the rent in an RPZ, the amount cannot be greater than the amount determined by the rent predictability formula (discussed in detail below).

Additionally it cannot be set above the local market rent for similar properties in the area and three comparable examples for similar properties in the locality must be presented to demonstrate this. The RTB is now obliged, under section 24A(9) of the 2004 Act, to publish notice of the making of an RPZ order by the Minister. This will confirm whether a particular address is located within an RPZ.

Rent Predictability Formula6

R x (1 + 0.04 x t/m)

calculate working from right to left

R = The amount of rent last set under a tenancy for the dwelling

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 (see below)

Existing Tenancies — Landlord has not reviewedthe rent in previous 24 months For tenancies that are already in existence a review is only permitted 24 months after the tenancy first commenced or 24 months from the date the rent was last set. In this scenario m = 24. After the 24 month period a maximum rent increase of 4% will apply. Following on from this review, a landlord will be entitled to review the rent in an RPZ every 12 months.

New tenancies from 24 December 2016 Annual rent reviews will be permitted for all new tenancies within an RPZ, including Further Part 4 tenancies, which commence on or after 24 December 2016. In this instance m = 12.

Example 1 (new tenancy)

A new tenancy commenced in an RPZ on 29 December 2016; the landlord is entitled to serve a rent review notice on 29 December 2017 providing a minimum of 90 days notice. The new rent will come into effect on 5 April 2018.

R = €1300, the current rent amount t = 15 months (29/12/16 to 5/04/2018) m = 12 months, as this tenancy commenced after 24 December 2016 the landlord is entitled to review the rent annually.

Therefore:

1300 x (1 + 0.04 x 15/12) 15/12 = 1.25 then x 0.04 = 0.05 then + 1 = 1.05 then x 1300 = 1365

€1,300 x (1 + 0.04 x 15/12) = €1,365 (the new rent)

Example 2

The tenancy commenced in an RPZ on 1 November 2014, over 24 months ago. The landlord intends to serve a rent review notice on 1 January 2017, providing a minimum of 90 days notice and indicating that the change will take effect from the 3 April 2017. The following formula is used to ascertain the permitted increase:

R = €1,200.00 (the current rent amount) t = 29 months (period between 1/11/14 to 3/04/2017) m = 24 months, as the tenancy was already in existence prior to 24 December 2016 this landlord was only entitled to review the rent 24 months from the date the rent was previously set.

Therefore:

1200 x (1 + 0.04 x 29/24) 29/24 = 1.21 then x 0.04 = 0.05 then + 1 = 1.05 then x 1200 = €1,258

€1,200 x (1 + 0.04 x 29/24) = €1,258 (the new rent)

Example 3 (future rent review)

The tenancy commenced in an RPZ on 1 January 2015; the landlord served a rent review notice on 1st January 2017, with the new rent coming into effect on 3 April 2017. The landlord will now be entitled to serve a new rent review notice on 1 January 2018 by serving a minimum 90 days notice of rent review indicating that the change will take effect from the 3 April 2018.

R = €1050, the current rent amount t = 12 months (3/04/17 to 3/04/2018) m = 12 months; as initial 24 month rent review had already taken place the landlord is now entitled to review the rent annually.

Therefore:

1050 x (1 + 0.04 x 12/12) 12/12 = 1 then x 0.04 = 0.04 then + 1 = 1.04 then x 1050 = 1092

€1,050 x (1 + 0.04 x 12/12) = €1,092 (the new rent)

Example 4 (future rent review)

The tenancy commenced in an RPZ on 1 January 2015; the landlord served a rent review notice on 1 January 2017, with the new rent coming into effect on 3 April 2017. The landlord will now be entitled to serve a new rent review notice on 1 January 2018 by serving a minimum 90 day notice of rent review. However, the landlord decides not to serve the rent review notice until 1 June 2018 indicating that the change will take effect from the 3 October 2018.

R = €1100, the current rent amount t = 18 months (3/04/17 to 3/10/2018) m = 12 months, as initial 24 month rent review had already taken place the landlord is now entitled to review the rent annually.

Therefore:

1100 x (1 + 0.04 x 18/12) 18/12 = 1.5 then x 0.04 = 0.06 then + 1 = 1.06 then x 1100 = 1166

€1,100 x (1 + 0.04 x 18/12) = €1,166 (the new rent)

Security of Tenure and Changes to Probationary Period

The 2016 Act extends the Part 4 tenancy cycle from 4 years to 6 years7. This will apply to all new tenancies that come into operation on or after 24 December 2016, including a Further Part 4 tenancy coming into existence on or after this date. A tenancy may be terminated within the first six months without giving a reason. Once a Part 4 tenancy comes into existence it can only be terminated by using one of the Section 34 grounds in the 2004 Act.

In summary those grounds are:

  • 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

If a fixed term lease is in place, the termination of a Part 4 tenancy, which also has the benefit of a fixed term lease, can only occur where:

  • There has been a breach of obligations by either landlord or tenant;
  • The landlord has refused a sublet or assignment request from the tenant;
  • The fixed term lease provides for specific grounds for termination and those grounds comply with the terms of the 2004 Act.
  • As the law currently stands, if a landlord wishes to stop a Further Part 4 tenancy coming into existence they may serve a notice during the Part 4 tenancy with the notice period given to the tenant expiring on or after the end of the tenancy. A notice served in this way should provide a reason for termination but the reason does not need to be one of the grounds above. If a landlord wishes to terminate during the first six months of a Further Part 4 tenancy they may serve a notice during that period without providing a reason or needing to rely on one of the grounds above.
  • However, this method of terminating a Further Part 4 tenancy will change very soon. Sections 41, 42 and Part 2 of the Schedule to the 2016 Act will commence these changes. The effect of these provisions is to repeal section 42 and amend section 62 of the 2004 Act with the result that where a landlord is seeking to terminate a Further Part 4 tenancy in the first six months (the probationary period), they will be required to rely upon one of the Section 34 grounds (the fixed term lease termination restrictions continue to apply).

Additional Landlord Obligations

Section 33 of the 2016 Act inserts an additional landlord obligation under Section 12 of the 2004 Act. The new obligation, at section 12(1)(i), requires a landlord to provide certain information to a tenant where a tenancy commences on or after 24 December 2016 and is located in an 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 rent predictability formula.

There are two scenarios to be considered. The first is where the dwelling was previously the subject of a tenancy. The second is where no tenancy existed in the dwelling for a period of at least two years prior to the area being designated as an RPZ.

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 comes into existence in an RPZ on or after 24 December 2016, 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.

Exemptions and No Prior Tenancy There are exemptions to the rent certainty measures introduced and these will apply in respect of this new landlord obligation. The rent review formula does not apply to a dwelling in an RPZ where a prior tenancy did not exist in the previous two years, or if there was a substantial change to the nature of the accommodation which would affect the level of market rent. However, a landlord remains obligated to comply with section 12(1) (i) in respect of a tenancy that comes into existence on or after 24 December 2016.

In circumstances where there has been a substantial change in the nature of the accommodation, the landlord is required to provide a new tenant with the information at (i) and (ii) above. In respect of (iii) above, the landlord will have to state that the formula does not apply as there has been a substantial change in the nature of the accommodation affecting the level of market rent last set for the tenancy.

Where no prior tenancy existed for a period of two years prior to RPZ designation, a landlord will be entitled to rely on the exemptions but will still be required to comply with their obligations. To address the obligation under (iii) above, the landlord is required to confirm in writing that the formula does not apply.

Notices of Termination and the ‘Tyrrelstown’ amendment The ‘Tyrrelstown’ amendments relate to a restriction on the sale of 10 or more units, the subject of tenancies, in a development. This provision will be commenced soon. The content of the Notice of Termination has not changed but an amended statutory declaration is required under these circumstances. An individual statutory declaration will have to accompany each individual notice of termination.

The 2016 Act has inserted a new section 35A into the 2004 Act which restricts the termination of certain tenancies and requires additional information to be inserted into the statutory declaration where an exemption to the Tyrrelstown amendment is being relied upon. Section 35A confirms that a Part 4 tenancy shall not be terminated on the grounds of an intention to sell where the landlord is seeking to sell 10 or more dwellings within a development during the relevant time.

The section defines a development as being a building or buildings comprising a unit or units where it is intended that amenities, facilities and services are shared. The section also defines ‘relevant time’ as meaning any period of 6 months within the period beginning with:

  • the offer for sale of the first dwelling, and
  • ending with the offer for sale in the development of the last dwelling.

The restriction on the selling of 10 of more units is subject to a market value exemption. The restriction does not apply where the landlord can show, to the satisfaction of the RTB, 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 sold with vacant possession, and, that applying this restriction would, having regard to all the circumstances, be unduly onerous on the landlord, or would cause undue hardship on the landlord.

It should be noted that a notice of termination on the grounds of an intention to sell, which is served prior to the commencement of the relevant sections, will operate under the previous rules. It should also be noted that the provisions, once commenced, will apply to all tenancies, including those created before the commencement of the relevant sections.

Appeal Periods – changes to time period in appeals to a Tribunal This amendment will shortly be commenced. Section 43 of the 2016 Act amends section 100 of the 2004 Act in respect of the time period to lodge an appeal to a Tribunal of the RTB against a determination of an Adjudicator.

The current position is that a party has a period of 21 days to lodge an appeal from the date the RTB serves on the party the Adjudication report. Upon commencement of this amendment, the period of 21 days will be reduced to a period of 10 working days. The 2016 Act has significantly amended the legislative environment landlords and tenants currently operate under, with further amendments due shortly.