Client Alert – Changes to Probationary Period for a Further Part 4 Tenancy Under the Residential Tenancies Act 2004 (AS Amended)

Update

Since I issued my previous news alert, the Residential Tenancies Board has now issued further clarification on a change introduced by the Planning and Development (Housing) and Residential Tenancies Act 2016. This change relates to the probationary period for Further Part 4 Tenancies.

Changes to a Part 4 Tenancy

The 2016 Act extends the Part 4 Tenancy from a four year term to a six year term. The six year term now applies to all new tenancies created on or after 24 December 2016. This includes a Further Part 4 Tenancy which comes into existence on or after this date. The law has now introduced a clear distinction between the First Part 4 Tenancy and any further or subsequent Part 4 Tenancy. In a First Part 4 Tenancy there is a probationary period of six months, within which time the landlord can effectively terminate the tenancy without reason. The Part 4 Tenancy then comes into effect after the initial probationary period of six months has expired.

Grounds for Terminating a Part 4 Tenancy

During the remainder of the Part 4 Tenancy, a landlord can only terminate by using one of the grounds set out in Section 34 of the Residential Tenancies Act of 2004 (“the 2004 Act”). These grounds are as follows:-

1. There has been a failure to comply with obligations under the tenancy.
2. The dwelling is no longer suited to the needs of the occupying household.
3. The landlord intends to sell the dwelling within three months of the termination date.
4. The landlord requires the dwelling for their own use or family member occupation.
5. Vacant possession is required for substantial refurbishment of the dwelling.
6. The landlord intends to change the use of the dwelling.

Probationary Period

However, if a Further Part 4 Tenancy comes into existence after the expiry of the First Part 4 Tenancy, a probationary period will no longer apply. This means that during the six year term of the Further Part 4 Tenancy, the landlord can only terminate the tenancy for one of the grounds listed above in Section 34 of the 2004 Act. Accordingly, a landlord can no longer terminate a further or subsequent Part 4 Tenancy during the first six months of the new Part 4 term without providing a reason.

This clearly is a significant change. Previously, at the expiration of the Part 4 Tenancy, i.e. after the expiration of four years, a Landlord had a further 6-month window within which to terminate a residential tenancy without having to provide a reason. This is no longer the case.

Landlords should be aware that many tenants will now be entitled to occupy a residential property for terms up to 12 years and possibly longer. Aside from the six month probationary period which arises when a First Part 4 Tenancy is created, henceforth for the remainder of the term of the First Part 4 Tenancy, and if a Further Part 4 Tenancy comes into existence, then the landlord can only terminate the tenancy for a good and substantial reason, as set out above (see Section 34 of the Residential Tenancy Act 2004).

Fixed Term Tenancy

What is the effect of a fixed term tenancy?

Most landlords, when creating a new tenancy, issue a Letting Agreement for a minimum term of 12 months or more. It is important to note however, that it is not possible to contract out of the provisions of the Residential Tenancies Act 2004, as amended. The provisions of the 2004 Act override any contractual provisions which may be agreed by the landlord and tenant.

Indeed it can be argued that a landlord, by entering into a fixed term Letting Agreement, compromises his/her right or ability to terminate a Letting Agreement during the first six months of the term. If the landlord agrees to a fixed term tenancy, then the probationary period in a Part 4 Tenancy does not arise. Therefore during the term of the fixed term tenancy, the landlord cannot terminate the Lease unless the tenant is in breach of its obligations under the Letting Agreement. Additionally, a landlord cannot terminate a fixed term tenancy unless it incorporates the provisions of Section 34 of the RTA 2004 into the Letting Agreement.

What should a landlord do?

Should a landlord wish to put a Letting Agreement in place, I would recommend that the term should not exceed one year. A Part 4 Tenancy arises, after the expiry of six months, under the 2004 Act, they should therefore incorporate into the Letting Agreement the six months probationary period and the provisions of Section 34 of the 2004 Act.

As outlined in my previous note, it is essential that landlords are both well organised and vigilant. In particular, a landlord should put in place alerts to inform him/her when the First Part 4 Tenancy expires. This is necessary as they may wish to serve a termination notice on a tenant to ensure that the First Part 4 Tenancy expires after six years(Note in the case of a Part 4 Tenancy created prior to 24 December 2016 the term is 4 years) and the landlord obtains vacant possession of the property. Naturally, this is a decision for individual landlords, but one should appreciate that if a landlord does not terminate the tenancy on the expiry of the First Part 4 Tenancy, that a Further Part 4 Tenancy for a term of six years will arise. The landlord can then only terminate the Tenancy on one of the grounds specified in Section 34 of the 2004 Act, which are quite restrictive.

For further information on this topic, please contact Tom Marren at tmarren@reddycharlton.ie