Insolvency Update: Ongoing Challenges for Receivers of Residential Investment Properties
30 September 2016
The Residential Tenancies (Amendment) Act 2015 has undoubtedly strengthened the position of tenants and increased the responsibilities and challenges facing receivers appointed by secured lenders over residential investment properties. While the added protections for tenants are to be welcomed, certain provisions of the Act result in relatively onerous obligations on receivers who are already faced with practical difficulties when seeking to deal with and realise the secured asset in accordance with their duties.
Insolvency practitioners who are appointed as receivers over tenanted residential investment properties in this jurisdiction are operating in an increasingly challenging environment in the performance of their statutory and contractual duties. The shortage of residential accommodation across the country, particularly in the Greater Dublin Area, has led to strong pressure on the Government to provide additional protections for tenants. This resulted in the enactment of the Residential Tenancies (Amendment) Act 2015 Act (the "Act"), which amended a number of provisions in the Residential Tenancies Act 2004.
What does the 2015 Act practically mean for receivers?
The 2015 Act extended the restriction on a landlord’s entitlement to conduct a rent review to once every two years. Prior to this, the entitlement was once every year. This extension is of retrospective effect and applies to all existing tenancies as well as those which have not yet been created. This is a temporary restriction and applies until 3 December 2019. From 4 December 2019 onwards, the rent review will revert to being conducted once every year, subject to further legislation. The two year period starts running from either the tenancy’s commencement, provided that no rent review had taken place prior to 4 December 2015, or the most recent rent review date.
Also, the notice period to which a tenant is entitled before a new rent can take effect has been materially increased from 28 days to 90 days.
When increasing the rent, a landlord is now required to:
- notify tenants of the increase;
- provide evidence which justifies the increase having regard to local market rent; and
- inform tenants that they are entitled to challenge this increase.
Venue for enforcing determination orders
Where a determination order of the PRTB has been breached, an application will now have to be made to the District Court instead of the Circuit Court for enforcement of the order.
This change, which has not yet been enacted, is being introduced with a view to minimising costs and time associated with resolving these disputes. Accordingly, whilst it may offer cost savings for the parties, it is unclear if it will expedite the process and it also creates an element of uncertainty for receivers, who may have become familiar with the approach taken by Circuit Court judges in recent years.
Helpfully, if the District Court upholds the determination order and, for example, orders the tenant to immediately vacate the secured property, the receiver will still have recourse to the County Sheriff to execute that order.
The entire process to obtain vacant possession on foot of a determination order can be very protracted once matters escalate to the courts and the 2015 Act would not appear to materially alter or resolve that situation.
Grounds of termination
The 2015 Act requires a landlord to produce additional proofs when terminating a Part IV tenancy. The most material of these from a receiver’s perspective is where the asset is to be sold.
In this regard, where the receiver intends to sell the property within 3 months, a statutory declaration must now accompany the Notice of Termination. Very careful consideration will need to be given to the content of such declarations by receivers, particularly if a mortgagee sale is anticipated.
New notice periods of termination
For tenancies of 5 years or longer, the 2015 Act has increased the notice that landlords must give:
5 or more but less than 6 years 140 days
6 or more but less than 7 years 168 days
7 or more but less than 8 years 196 days
8 or more years 224 days
Importantly, where the tenancy is terminated for anti-social behaviour, the notice period is 7 days. In the case of all other breaches, the period is 28 days.
Where the breach is the non-payment of rent, the landlord must have first served a notice advising the tenant that the rent due has not been paid and 14 days must have elapsed without the arrears having been paid.
The 2015 Act has strengthened the position of tenants by placing restrictions on the frequency of rent reviews and by requiring a landlord to produce more onerous proofs when terminating a Part IV tenancy.
However, it does not appear to have resolved the issues persistently faced by receivers, and other landlords, with problematic tenants nor does it appear to expedite the process of obtaining vacant possession of secured assets for legitimate commercial reasons.
For further information, please contact the Insolvency & Restructuring team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.