Client Alert – The Provisions of the New Planning and Development (Housing) and Residential Tenancies Act 2016

The provisions of the new Residential Tenancies Act 2016 (“the Act”) have slipped under the radar and were passed into law on 24 December 2016. We had been expecting some significant changes but some of the amendments and regulations now introduced which govern residential tenancies are fairly complex. They will require careful work and consideration from a landlord’s point of view. My own view is that the provisions of the new Act will certainly herald in a new era of the Professional Landlord. Henceforth a landlord will need to be well organised, will have to maintain data on comparable rents in the area where the residential unit is located, be in a position to serve rent increase notices, and where appropriate, to serve termination notices on residential tenants.

How will this affect me?

Both landlords and tenants will be affected by the provisions of the Act. The significant amendments introduced by the Act are as follows:-

1. Rent Pressure Zone
   The Act now introduces the concept of a Rent Pressure Zone. In a Rent Pressure Zone the rent cannot be increased by more than 4% per annum. This measure has been applied immediately to Dublin and Cork cities. It covers 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. These areas are now deemed to be Rent Pressure Zones. Henceforth when a landlord is setting the rent in a Rent Pressure Zone the amount cannot be greater than a formula set out in the Act. This equates essentially to a maximum increase of 4% per annum. The existing requirement that the rent set is not above the local market rent for similar properties in the area still applies. Landlords must produce three examples of rents for similar properties in the localities with the notice of rent increase to demonstrate this.
2. Rent Reviews
   For residential tenancies already in existence, a review of the rent is only permitted 24 months after the tenancy came into existence or 24 months from the date the rent was last set. Accordingly, for landlords in a Rent Pressure Zone where a tenancy exists as of 24 December 2016, it will not be possible to increase the rent for the 24 month period from the date of creation of the tenancy. For the first rent review after the 24 month period has elapsed, a maximum rent increase of 4% will apply. However, following on from the first review of the rent after 24 months, a landlord is now entitled to review the rent every 12 months subject to the proviso that the rent set must not be above the local market rent for similar properties and subject to the 4% annual cap.
3. Creating a New Tenancy
   A significant amendment has been introduced in relation to the creation of new tenancies in a Rent Pressure Zone created after 24 December 2016. Where a landlord is creating a new tenancy in a Rent Pressure Zone, a landlord is required to furnish the tenant in writing with the following information at the commencement of the tenancy:-
   • The amount of rent that was last set under a tenancy for the dwelling or residential unit.
   • The date the rent was last set under a tenancy for the dwelling.
   • A statement as to how the rent set under the tenancy of the dwelling has been calculated, having regard to the Rent Pressure Zone formula set out above.

   This requirement effectively places a cap or limit on the amount of rent which a landlord can charge when it is granting a new tenancy of an existing residential unit. The rent in effect must be similar or comparable to the rent which the landlord previously charged in relation to that residential unit. From a landlord’s perspective this is a very significant imposition and will curtail its ability to obtain a premium rent from a new tenant on the creation of a new tenancy as the rent must be comparable to the rent previously charged for the residential unit by the landlord.

4. Properties outside a Rent Pressure Zone
   There is no change in relation to residential units which are not located within a Rent Pressure Zone. The existing regulations continue to apply, namely that the rent set must not be above the local market rent for similar properties and when seeking rent increase, a 90 day notice should be served on the tenant together with three examples of rents for similar properties in the locality must be presented to demonstrate the landlord’s entitlement to a rent increase. The landlord is only entitled to seek a rent increase 24 months after the tenancy came into existence or 24 months from the date the rent was last set.
5. Security of Tenure
   The new Act extends tenancies from four years to six year tenancies. This provision will apply to all new tenancies that come into operation after 24 December 2016 which include a further part 4 tenancy that came into existence after 24 December 2016. Landlords currently can terminate within the first six months of a tenancy without giving a reason. Once a part 4 tenancy comes into existence it can only be terminated for a certain specified and limited reasons as set out in the Residential Tenancies Act 2004 as amended.
   The legislation is intended to, and in fact does give, security of tenure to residential tenants. In relation to new tenancies, tenants henceforth after the expiry of the initial six month probationary period will be entitled to occupy a residential unit for a period of six years. If the landlord does not serve the appropriate notice to terminate the tenancy on the expiry of the part 4 tenancy then a new part 4 tenancy for a further six years will commence.
6. Key Recommendations
   Very significant changes have been introduced and landlords need to familiarise themselves with the provisions of the new legislation and also to maintain accurate records. Henceforth on creating a new tenancy, I would recommend that a landlord should set up a separate file for each tenancy. This should record when they are entitled to seek a rent increase, when the probationary period expires, when the part 4 tenancy will expire (with appropriate alerts in place to advise the landlord when a notice of rent increase should be served), when a notice should be served on the tenant informing them that the part 4 tenancy expires and, if necessary, that the landlord intends to take back possession of the unit upon the expiry of the part 4 tenancy.

It is my understanding that further changes are proposed in relation to the format of a notice of termination and the limited reasons when a notice of termination may be served. Further briefing notes will follow once we are notified of these proposed amendments by the Residential Tenancies Board.

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