Two ways a 4% rent cap endangers tenancies - earnest

Two ways a 4% rent cap endangers tenancies

4-percent

There are two situations where tenancies are being endangered with the introduction of the rent cap and neither of them are being discussed. Although I will explain in more detail, the two “loopholes” are:

1) Substantial refurbishment
2) The 4 year cycle

Here are two case samples showing how the rent caps may actually encourage evictions.

1) Substantial refurbishment
The Tenant is paying €1250.00 per month since January 2015 and a rent review is due in January 2017. If the review is to market, the new rent would be €1500.00 per month for the next two years.

If the new legislation only allows a 4% increase this would mean the new rent would be €1300.00 per month for the next two years. This is a €250 per month difference or €4800.00 over the course of the two years.

So what if the owner decides they would prefer to get market value of €1500.00 per month, how would they go about doing this?

Well it’s simple really….

A landlord is entitled to terminate a tenancy where the landlord intends to substantially refurbish or renovate the property in a way which requires the dwelling to be vacated for that purpose.

In this case, the Landlord could substantially refurbish their investment to the tune of €4800.00 (which is tax deductible) and fully recover the cost over the following two years.

The law does state that the tenant must be given first refusal on the property when it is refurbished but the rent can be reviewed to market level at that time.

2) The 4 year cycle
A tenant moved into their property in January 2013 and has been in the property for almost 4 years now. The Tenant is currently paying €1500.00 per month but a rent review is due in January 2017. If the review is to market, the new rent would be €1750.00 per month for the next two years.

If the new legislation only allows a 4% increase meaning the new rent would be €1560.00 per month for the next two years.  This is a €190 per month difference or €4560.00 over the course of the two years.

So what if the owner decides they would prefer to get market value of €1750.00 per month, how would they go about doing this?

Again, it’s simple really.

All residential tenancies in Ireland run in 4 year cycles, whether you use Fixed Term or Part 4 agreements and it’s important to note the following:

When the 4-year cycle of the tenancy has ended, a new tenancy starts, known as a further Part 4 tenancy. As at the start of your original tenancy, your landlord may end this tenancy at any time during the next 6 months without having to give a reason.

Although the Landlord must now give 112 days’ notice (16 weeks), the Landlord can end the tenancy without reason any time within the period of 4 years and 4 years 6 months provided that they do not sign a fixed term tenancy agreement covering that period.

In this case, the Landlord will have to decide whether to keep his tenants or to put the property back on the market with the cost to them being €4560.00

Read our blog on why Dublin’s tenants may be in for a big shock

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