A guide to the Rent Predictability Measures and Rent Pressure Zones introduced on 24th December 2016
This is to confirm a substantial amendment to the RTB legislation that was passed on 24/12/2016 regarding Rent Pressure Zones.
The RTB legislation enacted initially in 2004 governs the legal rights of landlords and tenants on a range of matters. These include rents, leases, notice periods, and other relevant areas.
The amendment passed on 24th December 2016 is addressed at imposing restrictions regarding rent increases. For landlords this means adhering to certain rules within certain defined areas.
IMPLICATIONS OF THE NEW RENT CONTROL LEGISLATION
The changes to the Residential Tenancies Act enacted on 24th December 2016 can be summarised as: A very clear piece of legislation which ensures that Landlords can only raise rents in designated rent pressure zones according to specific rules. The rent pressure zones (RPZs) are currently limited to Dublin and Cork cities. However other areas will be added over the coming months.
AM I IMPACTED BY THE NEW RULES?
You can determine if you are affected by this new legislation by clarifying which of the following categories apply to you.
- If you have NEVER rented the property before you are NOT impacted. You can charge the current market rent.
- Where it is a brand new property you are NOT impacted.
- If your property has been vacant for the past 24 months then you are NOT impacted.
- Where you have carried out a substantial refurbishment (new floors and painting wouldn’t qualify) then you are NOT impacted and you can charge market rents.
- If you (or a previous owner) have received rents in the last 24 months THEN you ARE impacted and you ARE subject to the new rules.
APPLYING THE NEW RENTAL CONTROL RULES
If you fall into category 5 above then the following applies to your rental property as regards the rules for determining the rents that can be charged.
The key aspects of the new legislation applying to RPZs are:
- Rents cannot be increased by more than a certain amount (as determined by a formula on RTB website) from the most recent rent review within the last 24 months.
- In general the maximum permitted increase will be about 4% from the current rent in force. Rents set for longer periods than 24 months will result in higher permitted rent increases as determined by the formula.
- Rents may be reviewed every 12 months from 24 December 2016 unless the tenancy is still subject to the 24 month restriction.
- For new tenancies and lease renewals the lease must state the basis on which the rent was calculated. This must have regards to the new RPZ formula.
NON COMPLIANCE RISKS
In our view, the legislation is designed to ensure that it cannot be bypassed, even if landlords and tenants choose to do so, by agreeing rents which do not comply with the new rules.
If a landlord charges a rent higher than permitted, then he will have to put incorrect information on the lease.
This incorrect information can ALWAYS be challenged by the tenant at any time in the future. The risk is being forced to pay back the excess rent charged and possible penalties.
See the following example to illustrate:
Ø Last rent was €1,200 set 12 months ago
Ø Lawful increase is to €1,248
Ø Market rent is €1,500
Ø Landlord and tenant agree new rent will be €1,400
The lease has to state one of the following reasons as a basis for the new rent of €1,400:
- The property was not rented during the previous 24 months OR
- It is a brand new property OR
- It was never rented OR
- b) Substantial refurbishment has taken place since the previous letting OR
- c) The previous rent was €1,346 (therefore adding 4% gives €1,400)
All of these reasons are untrue, but one of them will have to be written into the lease as a basis for the rent calculation.
The risk is that a tenant agrees with a landlord to ignore the legislation and agree a higher rent because he is desperate to get the property. Subsequently, the tenant takes a dispute to the RTB because he is being charged more than the permitted 4% increase. The RTB has access to the declaration on the lease and the previous rent records. The likely outcome of the dispute is that the Landlord will have to repay all the rent paid above the legal maximum. Penalties may also be imposed on the landlord.
An overcharge of €150 per month adds up to €1,800 per annum and this could rise to a significant liability for the landlord.
It is essential that landlords adhere completely to the new legislation. The risk of not doing so could give rise to significant liabilities and penalties.
More detailed information about the new legislation and the formula to be used in calculating rents is available on the RTB website www.rtb.ie
Contact us now on 01-4953001 for further information.