The Residential Tenancies Board (RTB) has published guidelines for landlords and tenants seeking to rely on the “substantial change” exemption to increase rents in a rent pressure zone (RPZ) and “substantial refurbishment” exemption when seeking to terminate a tenancy.
This follows recent reports of a supposed loophole in Irish legislation allowing landlords to abuse the legislation by carrying out minor works to the property with the intention of terminating tenancies or tenancies or increasing rent.
The Planning, Development (Housing) and Residential Tenancies Act 2016 introduced a measure in December 2016 to cap rent increases at 4% per annum for properties in RPZs. However, the legislation also provides that the rent cap in a RPZ does not apply if, since the rent was last set, there has been a “substantial change in the nature of the accommodation" which affects the letting value of the property.
There is no definition in the legislation of substantial change in the nature of the accommodation. This term is often confused with a similar provision under the Residential Tenancies Act 2004 (the RTA), which allows a Landlord to terminate a Part 4 tenancy where there has been “substantial refurbishment” to the property. Again, there is no definition of substantial refurbishment provided in the legislation.
Following a direction by the Minister for Housing, Planning and Local Government (Minister), the RTB published guidelines on the meaning of these terms on 23 November 2017 (Guidelines).
Meaning of substantial change in accommodation
The RTB guidelines set out the following five guiding principles to assist landlords in understanding the meaning of substantial change in accommodation:
- Changes to the property – improvements which do not change the nature of the accommodation will not qualify. Landlords should ask themselves whether there is a change to the nature of the property, whether it has been structurally changed or has it been extended or reconfigured in some way eg addition of a new bedroom.
- Minimum standards – works which the landlord completes to ensure the property meets minimum standards will not be considered a “substantial change”
- Ongoing repairs and maintenance – landlords will not be permitted to rely on the exemption for carrying out ongoing repairs and maintenance which they are already obliged to carry out to ensure that the property is in a good state of repair and safe to live in.
- Evidence of the change in the letting value – the work carried out to the property must have a significant effect on the letting value of the property, over and above any changes to rent due to market inflation.
- Substantial changes – the landlord should consider whether the works are substantial taking into account factors such as the value of the works undertaken and whether the accommodation has increased in size. The landlord might be wise to seek certification from an architect or structural engineer to prove that the works are substantial.
Meaning of substantial refurbishment
The Guidelines also deal with the meaning of substantial refurbishment. The following factors should be considered:
- Duration of the works - the landlord should consider the nature and duration of the works. A critical factor is whether the tenant will be required to move out so that the works can be completed. If the tenant will not need to leave the property or will only need to vacate for a short period, this would not be sufficient to fall under the exemption
- Minimum standards & ongoing repairs – the exemption will not apply to works, which the landlord is already legally obliged to carry out to ensure the property meets minimum standards or on-going repairs which the landlord is responsible for.
Importantly, under the RTA 2004 (as amended), a landlord must offer the tenant the opportunity to re-let the property under a new tenancy if the works to the property are complete within 6 months
Future for landlords
The Minister has previously noted that it may be necessary to put the Guidelines under statutory footing in order to close the loophole completely. In the meantime, landlords should ensure they familiarise themselves with the Guidelines and seek legal advice if in doubt. Where a tenant disputes the issue, the matter can be brought before the RTB for determination. This may result in significant delays for a landlord in carrying out the works or availing of increased rent along with reputational damage for large property owners who may find the matter reported in the media.
The Guidelines can be found here.