Changes to Residential Rent Reviews
Landlords and tenants should be aware of recent legislative changes to the Residential Tenancies Act 2004 (the Principal Act) regarding rent reviews. The Planning and Development (Housing) and Residential Tenancies Act 2016 has sought to address the housing supply shortage and issues facing the rental sector. It introduces the concept of “Rent Pressure Zones”.
What is a Rent Pressure Zone?
The Minister for Housing may designate an area a Rent Pressure Zone if the area is one where rent increases have been at 7% or higher in four of the last six quarters and where the levels of rent are above the national average. The 2016 Act restricts landlords’ ability to increase rent for residential properties in these zones. Rents can only rise in accordance with a prescribed formula up to a maximum of 4% annually.
Where are the Rent Pressure Zones?
The following areas have been designated as Rent Pressure Zones:
- Ballincollig – Carrigaline, Co. Cork
- Galway City Central
- Galway City East
- Galway City West
- Celbridge – Leixlip, Co. Kildare
- Naas, Co. Kildare
- Kildare – Newbridge
- Ashbourne, Co. Meath
- Laytown – Bettystown, Co. Meath
- Rathoath, Co. Meath
- Bray, Co. Wicklow
- Wicklow, Co. Wicklow
- Dublin City Council
- South Dublin County Council
- Dun Laoghaire/ Rathdown County Council
- Fingal County Council
- Cork City Council
An area may be designated a Rent Pressure Zone for a specified period not exceeding 3 years. A designation may subsequently be revoked by the Minister if the pressures on rent are deemed to have eased.
Reviewing rents for new and existing tenancies in Rent Pressure Zones
For a new tenancy, one that has commenced after 24 December 2016, the rent may be reviewed annually with a maximum increase of 4%, if applied annually. If rent is reviewed after a longer period, the percentage cap is applied pro-rata. So, for example, if a review is carried out after 18 months, the allowable increase is 6%.
For existing tenancies, those that commenced before 24 December 2016, a review is only permitted 24 months after the tenancy came into existence or 24 months from the last review. Following this initial review, the landlord is then entitled to review the rent annually.
How is the increase determined?
Increases of rent in Rent Pressure Zones are determined using the formula:
R x (1 + 0.04 x t/m)
R = the amount of rent last set under a tenancy for the dwelling (i.e. the current rent amount)
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 = 24 or 12*
* For existing tenancies, on the initial 24 month period review described above, m will equal 24. For subsequent annual reviews of existing tenancies and for annual reviews under a new tenancy, m will equal 12.
Landlord’s must include in the new rent review notice a statement as to how the rent set under the tenancy has been calculated, having regard to this formula. In addition, the rent must not be greater than market rents for similar properties in the area and three examples of this must be supplied to the tenant when the landlord seeks to increase the rent.
Are there any exemptions?
There are certain exemptions available to properties that are located within Rent Pressure Zones. A property that has not been let at any time in the previous 2 years or that has undergone a “substantial change” can be exempt from the measures. A substantial change would entail significant improvements or alterations that increase the market value of the property.
Additional information to be provided for new tenancies
At the commencement of a new tenancy in a Rent Pressure Zone, a landlord must also provide the tenant with the following information:
- The rent paid under the previous tenancy for the property
- The date the rent was last set under the previous tenancy
- A statement setting out how the new rent for the dwelling has been calculated using the Rent Pressure Zone formula above
Properties outside of Rent Pressure Zones
For properties outside of Rent Pressure Zones, a landlord can only review the rent once in any 24 month period, and cannot review within 24 months of the commencement of the tenancy except in limited circumstances. This will remain in force until 3 December 2019, after which a rent review may be carried out every 12 months. A landlord is obliged to give proper notice of the proposed new rent and the date from which it is to take effect. A landlord must give at least 90 days’ notice of a rent review. As in Rent Pressure Zones, the rent must not be greater than market rents for similar properties in the area and three examples of this must be supplied to the tenant when the landlord seeks to increase the rent.
For more information, please get in touch with your usual Whitney Moore contact, Rory McDonald or any member of our Real Estate team.