Rent Pressure Zones & Rent Reviews

| James Sherwin

Rent Pressure Zones

On 24 December 2016 The Planning & Development (Housing) & Residential Tenancies Act 2016 (“the Act”) was signed into law.

The Act aims to provide greater stability and protections for residential tenants. One of the primary changes implemented buy the Act is the introduction of Rent Pressure Zones (RPZs) and Rent Caps.

Rent Pressure Zones

Dublin and Cork City were immediately designated RPZs for a period of three years from 24 December 2016. Additional locations can be recommended as RPZs to the Minister for approval if the average rent for an area is above the national average and rates of increase over a period of time exceed a specified threshold

Rent Reviews

For existing tenancies in RPZs, the previous limit on rent reviews to every two years will cease to apply when the next two year review takes place. After that, annual rent reviews will be permitted. For new tenancies in RPZs, specifically those commencing on or after 24 December 2016, the two year rent review restriction will not apply and rent reviews can take place annually.

Where a rental property is located in a RPZ the landlord must apply a formula dictated by the Act when reviewing the rent. This effectively equates to a maximum increase of 4% per annum but the exact percentage by which rent can be increased will depend on;

  1. the timing of the rent review; and
  2. the time period between the commencement date of the existing rent or, where it is a new tenancy, the rent that was last set under a tenancy for the property and when the new rent will come into effect.

The existing requirement that the rent cannot exceed local market rent for similar properties in the area still applies. When proposing a rent increase landlords must produce three examples of rents for similar properties in the locality with the notice to demonstrate the market rent.

Where the property is newly let and has not been let at any time during the two years before the date the area is designated an RPZ the cap on rental increases does not apply.

Where the property is vacant but has been let at any time in the 24 months before the area is designated an RPZ, the cap on rental increases does apply. However, the cap will not apply where there has been a ‘substantial change in the nature of the accommodation’ since the period the rent was last which would trigger a change in the market rent for the property. This could include major refurbishments works.

The formula that must now be applied when increasing rent is as follows:

R x (1 + 0.04 x t/m)

R= The amount of rent last set under a tenancy for the dwelling (the current rent amount)

T= The number of months between the date the current rent came in to effect and the date the new rent amount will come in to effect.

M= the number of months since your last rent review (either 12/24 months)

For tenancies that are already in existence a review is only permitted 24 months after the tenancy came in to existence or 24 months from the date the rent was last set.

Once this first rent review has taken place, all reviews thereafter are permitted every 12 months. For subsequent rent reviews in relation to the property the permissible rent increase will be 4% per annum applied pro rata for the period since the rent was last increased.

The rental cap provisions will not retrospectively affect any notice of new rent served on a tenant before 24 December 2016 or where the rent review concerned had commenced before that date.

If a property has been let at a rate under market value and the rent was not increased in line with local market rent (or the rent review process initiated) before 24 December 2016 landlords must now apply the prescribed formula even where the property will remain let at below market value

For Example

A landlord has not reviewed the rent since 1 November 2014, over 24 months ago. The landlord plans on serves the rent review notice on 1 January 2017 giving a minimum of 90 days’ notice of rent review indicating that the change will take effect from the 1 May 2017.

R = €1000, the current rent amount

t = 30 months (1/11/14 to 1/05/2017)

m = 24 months (the landlord has not reviewed the rent for a minimum of 24 months)

R x (1 + 0.04 x t/m)

€1000 x (1+0.04 x 30/24)

€1000 x (1+0.04 x 1.25)

€1000 x (1+0.05)

€1000 x 1.05

1000 x (1 + 0.04 x 30/24) = €1050 is the new rent amount permitted

Landlords must serve a notice of rent review in the prescribed form including a statement as to how the rent set under the tenancy was calculated having regard to the rent cap formula. In practice, and particularly where a property has been sold since it was last occupied, it may prove difficult to establish the last rent paid by a tenant and it may be the case that market rent will be considered in these circumstances.

Rent Reviews for 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.

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