Rent Pressure zones

Redo91

I just have a query from the point of view of a landlord and rent pressure zones. My parents are renting an apartment in Galway city. It’s current rent is well below the market value. It’s a 2 bed apartment for only €700 p/m when the market value is much higher. Their letting agent has advised them that they are stuck at the current rate. Considering it is so far below the market value and the rent is going towards paying off the mortgage on the property it seems very unfair that they are stuck at such a low return and can only increase it by 4% per annum.

Is there any way to get around this? I’m a trainee solicitor with a very basic knowledge of landlord and tenant law (hence the thread) and I know for part IV tenancies subject to the relevant notice period being observed that there are grounds for terminating such a tenancy. They don’t want to terminate this tenancy but similarly to that are there certain grounds under which you can increase the rent by more than 4% per annum?

davindub

Redo91 wrote: »

I just have a query from the point of view of a landlord and rent pressure zones. My parents are renting an apartment in Galway city. It’s current rent is well below the market value. It’s a 2 bed apartment for only €700 p/m when the market value is much higher. Their letting agent has advised them that they are stuck at the current rate. Considering it is so far below the market value and the rent is going towards paying off the mortgage on the property it seems very unfair that they are stuck at such a low return and can only increase it by 4% per annum.

Is there any way to get around this? I’m a trainee solicitor with a very basic knowledge of landlord and tenant law (hence the thread) and I know for part IV tenancies subject to the relevant notice period being observed that there are grounds for terminating such a tenancy. They don’t want to terminate this tenancy but similarly to that are there certain grounds under which you can increase the rent by more than 4% per annum?

Not really with an apartment, but there is a calculator on the rtb website, you can see the max increase allowed based on the last review date.

Redo91

davindub wrote: »

Not really with an apartment, but there is a calculator on the rtb website, you can see the max increase allowed based on the last review date.

Thanks for the reply!

Ya my dad did mention to me about some calculation. I’m guessing this is the 4% permitted?

davindub

Redo91 wrote: »

Thanks for the reply!

Ya my dad did mention to me about some calculation. I’m guessing this is the 4% permitted?

It's actually 4% for 2 years (or prorate) on the first review after the RPZ took effect, then 4% PA thereafter.


As I remember its: current rent * (1.04 * (#yrs since last review/24))


And thereafter: current rent * (1.04 * (#yrs since last review/12))

boege

Unfortunately your parents have few options. One could say that the introduction of RPZ's was well flagged so that LL's could get their rents up to market rate.

I was in this position with a property in Limerick before last years budget. I had a rent review coming up and the rent was well below the market rate. There was a treat of RPZ in the area so we pushed the rent up a good bit, but still below the market rate. Tenant was not a happy bunny!

RPZ in the area came in this year. LL was relieved.

I would wonder how much the treat of RPZ introduction triggered many a LL to push their rent up more than they might otherwise have done. I know two lads in work did the same.

In your parents case the tenants will be slow to move from this gift-horse. The only few options open are pretty drastic ones but keep your eyes open to make sure the tenants don't go subletting.

Jim Gazebo

This is the reason for a rent pressure zone. The market values need to reduce for rent. Think of the people actually renting that place for 700 no?

Redo91

boege wrote: »

Unfortunately your parents have few options. One could say that the introduction of RPZ's was well flagged so that LL's could get their rents up to market rate.

I was in this position with a property in Limerick before last years budget. I had a rent review coming up and the rent was well below the market rate. There was a treat of RPZ in the area so we pushed the rent up a good bit, but still below the market rate. Tenant was not a happy bunny!

RPZ in the area came in this year. LL was relieved.

I would wonder how much the treat of RPZ introduction triggered many a LL to push their rent up more than they might otherwise have done. I know two lads in work did the same.

In your parents case the tenants will be slow to move from this gift-horse. The only few options open are pretty drastic ones but keep your eyes open to make sure the tenants don't go subletting.

Ya I know what you mean. My dad said himself they should have been quicker. They were used to getting so little rent in the downturn they didn’t realise rents had actually gone up that much. As it turns out the letting agent had increased the rent by €50 p/m without saying anything to them which seems strange as surely he should have said something and also it’s a pretty small increase for a two bed.

Edit: I notice you said there are a few options but they are drastic. I know you can’t give legal advice on here but can you PM me what these options are. My parents don’t want to turf anyone out but equally they don’t want to get in trouble with a bank either.

Redo91

Jim Gazebo wrote: »

This is the reason for a rent pressure zone. The market values need to reduce for rent. Think of the people actually renting that place for 700 no?

I appreciate there are two sides to the story but there are some very vulnerable landlords out their too. Like I said my parents are using this rent to pay off the mortgage on the property so it’s not like it’s a cold hard profit machine. The negative consequences can often be far greater for the landlord than the tenant.

The market rent will obviously vary from area to area within a city. To put it into context there is a one bed apartment going for nearly 1k a month in the same block as the apartment my parents are renting. So my parents are getting around €200 p/m less for a 2 bed than a 1 bed in the same block. If these tenants can’t afford the market rent (or even close to it) then they can live somewhere cheaper in the city or move to the outskirts. Market is market rent. I don’t think tenants can expect to pay less than what something is worth. Like I said the negative consequences for a landlord are often greater if you default on a mortgage etc. A tenant can just move somewhere else and don’t have a debt hanging over their head.

hullaballoo

It's not a free market unfortunately and as said above, the RPZ thing was telegraphed for months by the government.

With respect, if the property is costing them money and they are under pressure due to the regulatory environment, they should probably consider selling. Now is probably a good time to sell as prices are still relatively good whereas the market is about to change drastically to the benefit of buyers.

Garibaldi?

They can end the tenancy if they decide to sell, move into the place themselves or have an immediate family member move in. But the point about rents needing to be reduced(made by Jim Gazebo above) is also food for thought.

rightmove

Rent zones have forced ppl to sell or up the rent. Both bad for tenants. But as long as the liberal media like kicking LLs it will continue

Samuel T. Cogley

Constitutional challenged based on rent controls being struck down in the past. Perhaps we've finally the person we need for the job OP?

dudara

The first thing they should do is work out the maximum allowed rent increase. This can be done using the calculator on the RTB website, and you will need to know the date that the rent was last set. Depending on the date, the permitted increase could be well over 4%. In the short term that will increase the cash flow.

Longer term, they will need to decide what to do with the property.

davindub

Samuel T. Cogley wrote: »

Constitutional challenged based on rent controls being struck down in the past. Perhaps we've finally the person we need for the job OP?

It wasn't as generic as rent controls were unconstitutional unfortunately, there was a 3rd act which passed.

On a point of interest, does anyone remember a rent control in Dublin either in the late 90's or early 2000's? As I remember it was per sq foot, but I can't remember if it was a proposal or implemented.

4ensic15

The way to get around it is to remove the current tenant and keep the new tenancy outside the RTA.

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bingbong500

Redo91 wrote: »

I appreciate there are two sides to the story but there are some very vulnerable landlords out their too. Like I said my parents are using this rent to pay off the mortgage on the property so it’s not like it’s a cold hard profit machine. The negative consequences can often be far greater for the landlord than the tenant.

The market rent will obviously vary from area to area within a city. To put it into context there is a one bed apartment going for nearly 1k a month in the same block as the apartment my parents are renting. So my parents are getting around €200 p/m less for a 2 bed than a 1 bed in the same block. If these tenants can’t afford the market rent (or even close to it) then they can live somewhere cheaper in the city or move to the outskirts. Market is market rent. I don’t think tenants can expect to pay less than what something is worth. Like I said the negative consequences for a landlord are often greater if you default on a mortgage etc. A tenant can just move somewhere else and don’t have a debt hanging over their head.

No, they can stay where they are at no more than a 4% increase because they are in a RPZ. Your opinion on it is irrelevant.
This is exactly why we need the RPZ. That apt is not worth hundreds more this month than it was last month. You snoozed and you lost. Tough luck.

blackwhite

davindub wrote: »

It's actually 4% for 2 years (or prorate) on the first review after the RPZ took effect, then 4% PA thereafter.


As I remember its: current rent * (1.04 * (#yrs since last review/24))


And thereafter: current rent * (1.04 * (#yrs since last review/12))

I think you've the formula a little off

current rent * (1.04 * (#months since last review/24))


And thereafter: current rent * (1.04 * (#months since last review/12))

davindub

blackwhite wrote: »

I think you've the formula a little off

current rent * (1.04 * (#months since last review/24))


And thereafter: current rent * (1.04 * (#months since last review/12))

Thanks

dennyk

4ensic15 wrote: »

The way to get around it is to remove the current tenant and keep the new tenancy outside the RTA.

That would be illegal on multiple fronts, and a bad idea in general.

4ensic15

dennyk wrote: »

That would be illegal on multiple fronts, and a bad idea in general.

It is not necessarily illegal. Why is it a bad idea if it is legal?

dennyk

4ensic15 wrote: »

It is not necessarily illegal. Why is it a bad idea if it is legal?

- The current tenant can only be legally removed for a valid reason under Part 4, of which "re-letting the property to someone else" isn't one. Only way around that is a qualifying renovation (which would be very expensive) or waiting until the end of the tenant's Part 4 cycle (which might be years away). Terminating the tenancy under false pretenses would be illegal.

- A new tenancy would be subject to the same RPZ restrictions on the rent amount as an existing tenancy; charging more than the allowed rent to a new tenant would be a violation of the RPZ regulations and therefore illegal.

- Failing to register a tenancy with the RTB is also illegal, so it is not possible to legally "keep a new tenancy outside the RTA". Even tenancies of less than six months fall under the remit of the RTA, including the RPZ rent restrictions, even if the tenants in such tenancies don't gain security of tenure under Part 4 of the Act. Swapping out tenants every few months, while legal, has no impact on the rent that can legally be charged. It would also cost more having to pay to register a new tenancy with the RTB twice a year (though the third one and up each year are free, at least...) and relist the property for let, and it would also significantly increase the chances of ending up stuck with a nonperforming tenant for months or years, hence the "bad idea"...

- If you are not talking about a tenancy at all, but rather short-term lets, because this apartment is not the owner's principal private residence and it is in a rent pressure zone, a change of use planning permission must be obtained to use the property for any short-term lets; letting it out to short-term guests without obtaining such planning permission would be illegal (and obtaining such a planning permission would be very unlikely).

geniejews

Redo91 wrote: »

I appreciate there are two sides to the story but there are some very vulnerable landlords out their too. Like I said my parents are using this rent to pay off the mortgage on the property so it’s not like it’s a cold hard profit machine. The negative consequences can often be far greater for the landlord than the tenant.

The market rent will obviously vary from area to area within a city. To put it into context there is a one bed apartment going for nearly 1k a month in the same block as the apartment my parents are renting. So my parents are getting around €200 p/m less for a 2 bed than a 1 bed in the same block. If these tenants can’t afford the market rent (or even close to it) then they can live somewhere cheaper in the city or move to the outskirts. Market is market rent. I don’t think tenants can expect to pay less than what something is worth. Like I said the negative consequences for a landlord are often greater if you default on a mortgage etc. A tenant can just move somewhere else and don’t have a debt hanging over their head.

You say, a tenant can just move somewhere else, are you not aware that there is a housing crisis in this Country?. Your parents engaged an agent whose job it was to send rent reviews every two years, he did not do so. The RTB have new powers to heavily fine any landlords who serve disingenuous notices of termination. As you are in Law, think hard before you give advice to your parents to terminate on a false reason

dennyk

Redo91 wrote: »

I appreciate there are two sides to the story but there are some very vulnerable landlords out their too. Like I said my parents are using this rent to pay off the mortgage on the property so it’s not like it’s a cold hard profit machine. The negative consequences can often be far greater for the landlord than the tenant.

To be fair, your parents are using the rent to increase their equity in the property; it may not be a cold hard cash flow machine, but it is definitely generating profit for them in the form of capital value, which they will realize if and when they sell the place eventually. Your parents also (presumably) have another home somewhere, while a tenant who can't afford "market rent" may end up homeless.

4ensic15

dennyk wrote: »

- waiting until the end of the tenant's Part 4 cycle (which might be years away).

There you are , nothing illegal there.

dennyk wrote: »

-
- A new tenancy would be subject to the same RPZ restrictions on the rent amount as an existing tenancy.

Not every tenancy is subject to the RTA. Only tenancies subject to the RTA have to be registered and only tenancies subject to the RTA are caught by the rent cap.

dennyk

4ensic15 wrote: »

Not every tenancy is subject to the RTA. Only tenancies subject to the RTA have to be registered and only tenancies subject to the RTA are caught by the rent cap.

I'm not aware of any way that a newly created tenancy involving a private individual letting out an entire residential property which is not their principal private residence to another private individual for a period of longer than 14 days wouldn't be subject to the RTA. Could you provide an example of what sort of tenancy you're thinking of that wouldn't fall under the RTA?

4ensic15

dennyk wrote: »

I'm not aware of any way that a newly created tenancy involving a private individual letting out an entire residential property which is not their principal private residence to another private individual for a period of longer than 14 days wouldn't be subject to the RTA. Could you provide an example of what sort of tenancy you're thinking of that wouldn't fall under the RTA?

I could give an example, but I will leave you in your ignorance. The o/p is a trainee solicitor. There is a solicitor in galway who has a temnplate to do just that.

davindub

4ensic15 wrote: »

dennyk wrote: »

I'm not aware of any way that a newly created tenancy involving a private individual letting out an entire residential property which is not their principal private residence to another private individual for a period of longer than 14 days wouldn't be subject to the RTA. Could you provide an example of what sort of tenancy you're thinking of that wouldn't fall under the RTA?

I could give an example, but I will leave you in your ignorance. The o/p is a trainee solicitor. There is a solicitor in galway who has a temnplate to do just that.

More than a template required...

Redo91

hullaballoo wrote: »

It's not a free market unfortunately and as said above, the RPZ thing was telegraphed for months by the government.

With respect, if the property is costing them money and they are under pressure due to the regulatory environment, they should probably consider selling. Now is probably a good time to sell as prices are still relatively good whereas the market is about to change drastically to the benefit of buyers.

Sorry for the delay in replying.

My dad was self employed when they purchased the apartment (now works for his friend) so it was bought as his pension so it’s not an option to sell. They are hoping they will be close to paying off the mortgage by the time he reaches retirement age (he’s early 50’s now).

Redo91

Garibaldi? wrote: »

They can end the tenancy if they decide to sell, move into the place themselves or have an immediate family member move in. But the point about rents needing to be reduced(made by Jim Gazebo above) is also food for thought.

Do rent pressure zones only apply to ongoing tenancies? As in if new tenants are brought in am I right in saying the rent the previous tenants were paying has no bearing on what the new tenants can be charged.

Also can’t a tenancy be terminated if work needs to be done on the property and the proper notice periods are observed? The property does genuinely need work (a new kitchen) and I’ve suggested this to my dad as an option provided I’m right in what I’m saying in the above paragraph. He said that the letting agent advised that there are €20,000 fines being handed out to landlords if the reason for terminating the lease was not deemed sufficient grounds for doing so and he’s not sure fitting a new kitchen would be deemed sufficient to justify terminating the tenancy. Do these fines actually get handed out in practice?

Redo91

dennyk wrote: »

I'm not aware of any way that a newly created tenancy involving a private individual letting out an entire residential property which is not their principal private residence to another private individual for a period of longer than 14 days wouldn't be subject to the RTA. Could you provide an example of what sort of tenancy you're thinking of that wouldn't fall under the RTA?

I think there are some very limited examples that fall outside of the RTA. Only one I can think of off the top of my head (and even then I’m open to correction) is if the landlord is residing in the same property as the tenants and even then I think it only applies to a specific type of property (I think it might have been apartments).

davindub

Redo91 wrote: »

Do rent pressure zones only apply to ongoing tenancies? As in if new tenants are brought in am I right in saying the rent the previous tenants were paying has no bearing on what the new tenants can be charged.

Also can’t a tenancy be terminated if work needs to be done on the property and the proper notice periods are observed? The property does genuinely need work (a new kitchen) and I’ve suggested this to my dad as an option provided I’m right in what I’m saying in the above paragraph. He said that the letting agent advised that there are €20,000 fines being handed out to landlords if the reason for terminating the lease was not deemed sufficient grounds for doing so and he’s not sure fitting a new kitchen would be deemed sufficient to justify terminating the tenancy. Do these fines actually get handed out in practice?

In the pressure zones, the rent cannot be reviewed until 12 months have passed since the last review and only using the formula regardless of change of tenants.

A new kitchen wouldn't require vacant possession for the works. You would need to review the cases on the RTB website to determine what would be safe. Be careful to distinguish between substantial renovation - an reason to terminate the tenancy and substantial change in nature of the accommodation - required to increase beyond the rent restrictions. The latter wouldn't be possible on an apartment realistically.

You do know the pressure zones are a temp. measure? Hopefully they end in 2021 which is a rather short time in terms of property.