knowledge | 11 May 2017 |
Being in a Rent Pressure Zone: What this means for you
Maynooth and Cobh have recently been added as designated “rent pressure zones” for the purposes of the residential tenancies legislation. What does being in a rent pressure zone mean for landlords and tenants?
In rent pressure zones, rents for existing tenancies can only be increased by a maximum of 4% per annum, unless:
- a rent review notice has been served on the tenant or a rent review commenced before the date that the designation takes effect; or
- there has been a “substantial change in the nature of the accommodation”, justifying a change in the market rent payable under the tenancy.
The market has always been allowed to dictate the level of rent for a new tenancy. In a rent pressure zone, this now only remains the case for properties that are let for the first time in more than 2 years. Where properties in rent pressure zones have been let within the previous two years, then the rent for any new tenancy can only be increased by a maximum of 4% per annum for the period from expiry of the previous tenancy. The maximum allowable increase is calculated in accordance with a formula set out in the legislation, which factors in the number of months between both tenancies.
The restriction on the setting of rents for new tenancies doesn’t apply if:
- as stated, above, the property has not been let at any time during the period of two years prior to the new tenancy; or
- though let within the previous two years, there has since been a “substantial change in the nature of the accommodation”, justifying a change in the market rent payable, and so breaking the link with the rent paid under the previous tenancy.
Frequency of Review
The Residential Tenancies (Amendment) Act 2015 introduced a temporary restriction on rent reviews to once every 2 years for all existing and new tenancies, no matter where in the country the property was located. The Planning and Development (Housing) and Residential Tenancies Act 2016 then changed how this applies in rent pressure zones.
For tenancies in place at the time of designation as a rent pressure zone, the first rent review after the designation cannot be conducted before the 2 year “freeze” period brought in under the 2015 Act has passed. However rent reviews in rent pressure zones are then permitted annually after that.
For tenancies commencing after designation as a rent pressure zone, the 2 year “freeze” period on rent reviews brought in under the 2015 Act does not apply at all. Rent reviews are instead permitted annually subject to a capped increase of 4%.
Duration and Designation Criteria
For an area to be designated a rent pressure zone, the average rent in the previous quarter must be above the average national rent in the quarter and the annual rate of rent inflation in the area must have been 7% or more in four of the last six quarters. Designation lasts for 3 years. Recent economic data points to the possibility of more designations still to come.
List of Rent Pressure Zones
For convenience the list of areas now designated as rent pressure zones, with their designation date, is set out in the table below. Designations take effect by reference to local electoral area boundaries, which may be more clear-cut in some areas than others. It is important to be aware that further areas that meet the criteria may be designated as rent pressure zones at any time.
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.