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BLOG – Rent predictability and how it works in practice…

Blog post by Amy Carpenter and Owen Reilly, February 14th 2017 

The shortage in Dublin of affordable rental properties may in part be addressed when the student accommodation under construction removes a lot of students from the market, while the crisis faced by the government in connection with social housing will be solved when the new supply becomes available. In the meantime, caught in the crossfire are the private landlords who face increasing political intervention. The Planning and Development (Housing) and Residential Tenancies Act 2016 that came into effect on December 24th last provides, among other things, for ‘rent predictability’ for tenants; in all things but name, this is rent control and property professionals have drawn attention to an intervention whose unintended consequences are causing havoc in the private property market. We are seeing our landlord clients forced to market properties at below market rent, we are seeing landlords plan to exit the market and we are seeing some investors pull out of sales.

The legislation is complex but, having digested it, we have tried to provide some clarity for landlords on how rent predictability will work in practice.

Rents are associated with properties – not tenants – and are nothing to do with market dynamics

Monthly rent, in the case of a new letting, must relate now to the previous tenancy’s rent, with an addition of up to 4% allowed – in cases where this may be applied. In the case of a rent review, a maximum annual increase is allowed of 4%. Where an investment property is sold, the previous / current rent will be passed on with the property and the onus will be on the purchaser to know what it is; the already existing provision that rents should not exceed market rents still applies. A formula to calculate rent increases is provided on the RTB website and a tool calculator (presumably in Excel) is promised. At the heart of this, rents are no longer a matter of agreement between landlord and tenant and no longer anything to do with market dynamics.

Exceptions are few and may be onerous

Properties new to the rental market are not covered in the legislation and properties which will have undergone a ‘substantial change’ are to be counted as exempt. ‘Substantial change’ is defined as a significant change that would increase the capital value of the property and therefore market value of the tenancy. In actual fact this is quite unclear: we are advised by the RTB that this would imply more than a lick of paint and landlords should ‘take a common sense approach’; before and after photos are recommended…

Enforcement of legislation

The onus is on landlords to ensure they comply with the legislation. While landlords will only be investigated when a tenant raises a dispute, based on our experience and based on the fact that tenants cannot sign away their rights, we would advise landlords to follow the letter of the law…

Finally, no allowance has been made for landlords who have rented below market rent. Our information is that the RTB have recommended to the government that landlords should be able to bring the rent up to market level when letting to a new tenant. We are advised that the Minister for Housing, Simon Coveney TD, has promised a review of this section of the legislation in June. From our observation of the turmoil created in the residential investment market, this review cannot come soon enough.

Blog post by Amy Carpenter and Owen Reilly, February 14th 2017