knowledge 16 December 2021 |

The Residential Tenancies (Amendment) Act 2021: Rents Capped at 2% & Security of Tenure Extended

Rent Capped at 2%

Legislation enacted in July 2021, the Residential Tenancies (No 2) Act 2021, had introduced, among other changes,¹ a requirement that rent increases within rent pressure zones (“RPZ”s) could not exceed inflation as recorded in the harmonised index of consumer prices (the“HICP”) published by the Residential Tenancies Board. The intention of the inflation-linked cap was to keep rent increases below the annual 4% cap in operation up to that time. However, an unanticipated high rate of inflation meant that the HICP index for August to October 2021 ran above 4%, leading the Government to take further action.

With effect on and from 11 December 2021, the further measures taken under the Residential Tenancies (Amendment) Act 2021 (the “Amendment Act”) require that annual rent increases for both new and existing tenancies in RPZs in line with the market rent cannot exceed the lower of (i) inflation as recorded in the HICP and (ii) 2% per annum on a pro rata basis.

No changes have been made to the exemptions from rent caps. If a property is new to the rental market and has not been rented at any time in the previous 2 years (or 12 months for a protected structure), rents may be set at the market rent and the caps do not apply. Properties that have undergone a “substantial change” in accordance with the strict criteria set out in the legislation are also exempt from the rent caps. Importantly, however, as before, these exemptions must be applied for in order to be relied upon.

A review of the new 2% cap will be carried out during the period between 12 and 15 months after its commencement and a report prepared within 3 months of the commencement of the review, with that report to be laid before the Houses of the Oireachtas.

Security of Tenure Extended: Tenancies of Unlimited Duration

Subject to the conditions and exceptions provided for in the legislation, including for student-specific accommodation, residential tenants will generally qualify for the protections afforded by Part 4 of the Residential Tenancies Act 2004 (as amended) (the “Principal Act”). For such “Part 4 tenancies” created to date this has effectively meant that the right to remain in possession is protected for six years during which a landlord may only terminate the Part 4 tenancy for the specific reasons set out in the Table to section 34 of the Principal Act (the “s34 Rights”). These limited reasons include for breach, sale and family or own use and are strictly subject to compliance with the conditions set out in the Principal Act as to their exercise. However, at the end of the six year protection period a landlord has had a statutory right to terminate the Part 4 tenancy without reason.

The Amendment Act removes the landlord’s statutory right to terminate all new Part 4 tenancies created on or after 11 June 2022 without reason at the end of 6 years, so that the protection from termination provided for such Part 4 tenancies is of unlimited duration. This means that Part 4 tenancies created on or after 11 June 2022 may only be terminated by the landlord exercising s34 Rights (subject, importantly, to any more favourable terms agreed with a tenant in a tenancy agreement).

For Part 4 tenancies created before 11 June 2022, unless a landlord consents to such a tenancy being of unlimited duration, the landlord will still have a right to terminate those tenancies on the expiry of the 6 year protection period that applied to that tenancy when it was created, but must actively do so by serving the required notice in advance. If the 6 year protection period applicable to such a Part 4 tenancy simply expires without the tenancy being actively and validly terminated by the landlord, a new Part 4 tenancy of unlimited duration will arise on the same terms as the previous tenancy. Importantly, in calculating any termination notice period to be given subsequently in accordance with the landlord’s s34 Rights, the duration of the tenancy under any tenancy of unlimited duration and under any preceding Part 4 tenancy and/or further Part 4 tenancy must be added together.

The Amendment Act makes no changes to the tenant’s statutory rights to terminate a tenancy.

Fee waiver for annual registration of certain tenancies

The Amendment Act also provides for a temporary fee waiver for annual registration fees for certain tenancies once the requirement for annual registration of tenancies provided for under the Residential Tenancies (Amendment) Act 2019 (the “2019 Act”) is commenced. The relevant provisions of the 2019 Act have themselves not been commenced but are expected to commence in early 2022. The waiver from fees provided for under the Amendment Act will only take effect if and when commenced in conjunction with the registration requirement.

Conclusion

Owners, investors, lenders and occupiers in the private rental sector will have learned that nothing stays the same for long. Providing for greater control of rent increases and greater security of tenure for tenants was forecast as part of the aims of the Government for the rental sector in Housing for All.  With certainty restored to expected increases in rents and tenants enjoying protection from termination for longer, those aims appear to be achieved, at least for now.