The Planning and Development (Housing) and Residential Tenancies Act 2016 (the 2016 Act) introduces a number of new measures to control the rising rents for residential tenancies.
The 2016 Act designated certain areas where rents were at their highest as “Rent Pressure Zones” and placed a limit on the ability of landlords to increase rents in these areas. Below are some of the questions which Beauchamps is frequently asked by landlords:
1. What is a Rent Pressure Zone?
A Rent Pressure Zone (RPZ) is an area which has been designated by the Minister for Housing as one in which rents are at a high level and are rising quickly. The criteria used to assess whether an area falls within an RPZ are as follows:
- The annual rate of inflation in the area is 7% or more in four of the last six quarters
- The average rent registered with the Residential Tenancies Board in the previous quarter exceeds the average national rent
Dublin and Cork city were the first areas to be designated as an RPZ. This measure has now been extended to 14 other areas in Cork, Wicklow, Galway, Kildare and Meath. Further areas may be designated in the future if they are found to fit the above criteria.
2. How often can rent be reviewed in a Rent Pressure Zone?
For new tenancies that commenced on or after 24 December 2016, the landlord is entitled to review the rent annually. The maximum rent increase under the Act is 4% if applied annually. If the landlord does not review the rent annually and chooses a longer period of time, this percentage will be applied pro-rata. For example, where a landlord reviews the rent after 18 months the allowable increase will be 6%.
Where a tenancy was already in existence prior to 24 December 2016, a landlord may only review the rent 24 months after the start of the tenancy or 24 months from when the rent was last set. Thereafter, the landlord may review the rent annually.
3. How is the rent increase calculated?
The rent increase is calculated using the following formula:
R x (1 + 0.04 x t/m)
R = the current rent amount
t = the number of months between the date the current rent came into effect and the date the new rent will apply
m = either 24 or 12 months depending on the commencement of the tenancy (see question 2 above)
The rent must not be above market rents for similar properties in the area. The notice given to the tenant by the landlord must show how the increase in rent was calculated using the above formula and the landlord must provide 3 examples of equivalent properties where similar rents were applied.
4. Are there any exceptions to the cap on rent increases?
Yes, where a property has not been let at any time in the previous two years, the landlord will not be subject to the 4% rent cap.
In addition, an exemption applies where there has been “substantial change” in the property since the previous tenancy which would result in an increased market value. There is no precise definition of “substantial change” in the legislation. However, this is likely to mean significant work and a simple redecoration of the property will not suffice.
5. What information must the landlord provide to a new tenant in respect of the rent?
The landlord must furnish the following information at the start of a new tenancy:
- The amount of rent paid by the previous tenant
- The date that the rent was last set under the previous tenancy
- A statement setting out how the new rent has been calculated using the formula set out above
6. How long will these rent measures be in force?
The new planning measures will apply until 31 December 2019. However, the measure may be lifted from a designated area by the Minister prior to 31 December 2019 if the rent pressure is alleviated in that area by this date.
7. Are there any rules on rent reviews for properties outside of the Rent Pressure Zones?
The 2016 Act introduces new rules for RPZs but existing legislation continues to apply to properties outside of these areas.
A landlord can only review the rent of a property outside of a RPZ every 24 months save in limited circumstances.
The landlord is not permitted to increase the rent above the market value of the tenancy and must inform the tenant in writing of the increase in the rent 90 days before the new rent is due to apply. The legislation sets out the requirements of a valid notice.