The RTB have recently published guidelines for good practice on the substantial change in the nature of the accommodation exemption in Rent Pressure Zone areas.
This guide aims to support landlords, tenants, agents and other stakeholders in understanding the requirements
- If a landlord is intending to rely on an exemption from a Rent Pressure Zone 4% rent cap by reason of a substantial change to the nature of the rental property, or
- If a landlord intends to terminate a tenancy for the purpose of a substantial refurbishment or renovation of a rental property
Each individual case will differ, and the guiding principles should be used to help determine if a property meets the substantial change or refurbishment requirements.
What is a substantial change in the nature of the accommodation?
A property may be exempt from the RPZ restrictions if
- There has been a substantial change in the nature of the accommodation; and
- It can be shown that the market rent for the property would be different as a result of this change than at the last time the rent was set or reviewed.
If a substantial change in the nature of the accommodation has occurred which would change the market rent for the tenancy from when it was last set or reviewed, then a property may be exempt from the rent review limits of 4% in a RPZ for the purposes of the rent review.
Once this exemption is used, a further rent review (which can only take place in 12 months) cannot rely on the same exemption unless a further substantial change in the nature of the property has taken place.
It is important to note that where an exemption is used on a property that has undergone a substantial change in the nature of accommodation, it is a limited exemption. This means that a landlord can apply the exemption for either rent setting purposes for a new tenancy or for the purposes of a rent review of an existing tenancy only after the substantial change occurs. The landlord cannot continue to apply this exemption for any further rent reviews.
There are five guiding principles set out in the RTB guidelines for good practice on the substantial change exemption in RPZ areas
Pat plans to carry out works on a house in a RPZ that will alter the internal layout of the property. He will add a downstairs bathroom and change the separate kitchen and dining rooms into an open plan kitchen/ dining room area. He will also redecorate the interior of the house. These works will require the tenant to leave the property for two months and the cost of the works to the landlord will be in excess of €11,000 inclusive of VAT in verifiable expenditure. This work is considered to be substantial change in the nature of the accommodation as the work has materially changed the layout of the property. Work of a lesser extent, in terms of its nature (that is refurbishment with no internal reconfiguration); of lesser duration; or lower costs (the cost of decoration work only) may not be considered a substantial change in the nature of the accommodation and rather a substantial refurbishment.
Tom owns a semi-detached house in a RPZ. The house was part of a new estate when he purchased it in 2005. He lived there for a short while but due to financial circumstances he has been renting the house to tenants since 2007. Tom had the same tenants for six years. They were paying a monthly rent of €1,300. Tom had not really carried out any repairs or maintenance to the house while the current tenants were there. When they leave he notices that the walls are very shabby and the cooker is in need of replacement. Tom also notices that the house is cold even when he puts the heating on. Tom wants to increase the rent when he advertises the house for new tenants and he has heard that he can do so if he carries out some works and changes to the house. Tom carries out the following work: Paints every room in the house; installs a new cooker; services the boiler; replaces one of the windows; buys new furniture. This costs Tom €6,000. However, these works are unlikely to constitute a substantial change to the nature of the dwelling which would entitle Tom to an exemption to the RPZ rent restriction. The majority of the works that are carried out by Tom have been in accordance with his responsibilities as a landlord.
Marie has just inherited a Georgian house in a RPZ from her great aunt. Her great aunt had been letting the house to a family who have told Marie they want to leave. Marie is surprised that they have been paying a monthly rent of €600. When Marie inspects the house she believes that it is need of serious refurbishment to modernise it. Marie decides to undertake a significant modernisation programme and the following works are carried out: Re-wiring of the entire house; installation of insulation; painting of the entire house; installation of new triple glazed windows; removal of load bearing wall and addition of new kitchen area. The works which cost approximately €30,000 are likely to constitute a substantial change and mean that Marie is entitled to an exemption from the RPZ rent restrictions for the following reasons: 1) The majority of the works are over and above Marie's statutory obligations as a landlord; 2) Marie has expended a significant amount of money to substantially change the property which would improve the letting value; and 3) the nature of the accommodation has substantially changed, is now more energy efficient, and/ or has been structurally altered.
What steps are required to use a substantial change in the nature of the accommodation exemption?
There are two steps:
- Ensure that it meets the criteria using the guiding principles above:
- Have the works carried out substantially changed the nature of the accommodation?
- As a result of those works, would the rent level have been different to the market rent level at the time the rent was last set?
- Ensure the tenant is provided with the required information
- For existing tenancies, a landlord is still required to serve a valid rent review notice in a specific format
- For new tenancies of dwellings which have been rented out before a landlord needs to provide the information required in setting up a tenancy
- For tenancies where a substantial change has occured, the landlord should provide a statement noting that they are seeking to rely on an exemption to the RPZ rules
- Where the dwelling is a new build or is new to the market (not let in previous 24 months) this obligation still applies. A landlord should provide the tenant with a statement confirming that the dwelling is a new build or is new to the market and therefore the RPZ formula does not apply to the calculation for the rent being set.