COVID-19: Residential Landlords – How to Avoid Potential Rent Pressure Zone PitfallWednesday, 25 March 2020
As the country battles Covid-19, this update focuses on how residential landlords can avoid a potential pitfall in relation to setting the rent in Rent Pressure Zones (“RPZs”). Landlords in a RPZ are prohibited under the Residential Tenancies Acts 2004 – 2019 from increasing rents by more than 4% per annum.
With the temporary closure of many businesses and disruption arising from layoffs and cuts in wages caused by the measures being taken to stop the spread of Covid-19, there will unfortunately be considerably greater financial burden on many tenants. This may lead to a higher incidence of rent default. If a landlord voluntarily agrees to a rent reduction, even if temporary, the landlord could unintentionally create a new rent ceiling. This ceiling could operate to limit any future rent to 4% above the reduced rent as opposed to 4% on the rent prior to the temporary rent reduction.
A simple example is Jack and Jill rent a two bed apartment in Dublin City for €1,600 per month. Jack and Jill work in the hospitality industry and are both laid off with their income immediately reduced to €203 per week each. They immediately contact their landlord Mick and agree a rent reduction to €1,000 per month for this month and they all agree to ‘see how things go’. When the Covid-19 crisis is over, and both Jack and Jill are back working, Mick could potentially be restricted in increasing the rent by more than 4% above the ‘new current rent’ of €1,000.
It is clear that the rent predictability measure in Section 34 of the Planning and Development (Housing) and Residential Tenancies Act 2016 which caps rent increases at 4% per annum in an RPZ, does not cater for a temporary reduction in rent. Section 34 simply refers to the “amount of rent last set under a tenancy for the dwelling" which, in our view, could be interpreted to mean the reduced rent, even if the reduction is on a temporary basis.
Landlords can manage this potential unintended consequence by agreeing a temporary partial deferral of rent with the tenant, rather than a reduction or abatement. This could be documented in a side letter to the letting agreement. Using the example above, the €600 rent reduction would be expressed to be rent that is deferred for a period but the sums deferred would be called up as remaining due and owing at a certain point in the future e.g. in six months’ time. Mick may decide to waive some or all of the deferred rent in the future; however the rent deferral allows Jack and Jill the benefit on a temporary basis but also allows Mick to return the rent at its current level later on if he chooses. If Mick waives any of the deferred rent at the end of the six month period it should be waived for ‘valuable consideration’ e.g. in consideration of the Jack and Jill complying with their obligations under the letting. This is to ensure that that the wavier is not deemed to be a gift from Mick to Jack and Jill.
Please see below for a list of the present RPZs. While rent suspension for the relief of tenants has been signalled, so far no legislation has been brought forward in this regard; however ByrneWallace continues to monitor developments.
For further information on the Residential Tenancies Acts 2004-2019 or any general queries in relation to residential property and tenancies, contact Michael Walsh, Neil Dunne or a member of the ByrneWallace Residential Property Team.
Please note that the content of this summary does not amount to professional advice. Legal and tax advice should be sought in respect of specific queries. The COVID-19 situation is evolving rapidly and this update is provided on the basis of information available as at 25 March 2020.
Rent pressure zones – where are they?
At present, there are 5 Local Authority Areas and 43 Local Electoral Areas which have been designated as Rent Pressure Zones. Please see list below of the areas and when they were designated;
24 December 2016
- Dublin City Council;
- South Dublin County Council;
- Dun Laoghaire/Rathdown County Council;
- Fingal County Council;
- Cork City Council;
27 January 2017
- Ballincollig – Carrigaline, Co. Cork;
- Galway City Central;
- Galway City East;
- Galway City West;
- Celbridge – Leixlip, Co. Kildare;
- Naas, Co. Kildare;
- Newbridge, Co. Kildare;
- Ashbourne, Co. Meath;
- Laytown – Bettystown, Co. Meath;
- Ratoath, Co. Meath;
- Bray, Co. Wicklow;
- Wicklow, Co. Wicklow;
24 March 2017
- Cobh, Co. Cork;
- Maynooth, Co. Kildare;
22 September 2017
- Greystones, Co. Wicklow;
- Drogheda, Co. Louth;
28 March 2019
- Navan LEA, Co. Meath;
- Limerick City East, Co. Limerick;
2 July 2019
- Fermoy LEA, Co. Cork;
- Midleton LEA, Co. Cork;
- Athenry - Oranmore LEA, Co. Galway;
- Gort – Kinvara LEA, Co. Galway;
- Kilkenny LEA, Co. Kilkenny;
- Portlaoise LEA, Co. Laois;
- Graiguecullen – Portarlington LEA, Co. Laois;
- Limerick City West LEA, Co. Limerick;
- Limerick City North LEA, Co. Limerick;
- Dundalk – Carlingford LEA, Co. Louth;
- Dundalk South LEA, Co. Louth;
- Ardee LEA, Co. Louth;
- Kells LEA, Co. Meath;
- Trim LEA, Co. Meath;
- Waterford City South LEA, Co. Waterford;
- Waterford City East LEA, Co. Waterford;
- Athlone LEA, Co. Westmeath;
- Gorey LEA, Co. Wexford;
- Arklow LEA, Co. Wicklow;
26 September 2019
- Macroom LEA, Co. Cork;
- Carlow LEA, Co. Carlow;
18 December 2019
- Sligo Strandhill LEA, Co. Sligo;
- Baltinglass LEA, Co. Wicklow;
- Piltown LEA, Co. Kilkenny; and
- Cobh LEA, Co. Cork.