The Affordable Housing Act 2021 (the Act) introduces the concept of cost rental housing to Ireland for the first time. This post looks at the relevant provisions of the Act.

What is it?

Part 3 of the Act provides for introduction of a cost rental model. Cost rental is effectively not-for-profit housing, with the rent intended to cover the cost of the construction, management and maintenance of the property.

There is no requirement for this to apply in the private sector / to private investors – they can opt in if they wish but aren’t forced to do so.

If a private developer were to opt in, certain requirements will apply e.g. :

• designation as a cost rental property gets registered as a burden on the title;
• the Minister for Housing (the Minister) can prescribe eligibility requirements in respect of prospective tenants, along with the process landlords have to follow when advertising vacant dwellings and entering into tenancies and a lottery system where applications exceed availability; and
• mandatory lease terms.

The owner / landlord has the final say on whether they proceed with letting to any given tenant, notwithstanding that that tenant is eligible under the scheme.

Term and rent

The minimum designation period as a cost rental dwelling is at least 40 years.

The “initial maximum rent” is to be calculated as the rent that would, over the 40 year designation period (referred to as the cost calculation period) amortise a sum not greater than the estimated total cost to the owner of acquiring, developing and otherwise making available and letting the dwelling. This can include the following costs:

• costs associated with making the dwelling available for rent, including any capital development or acquisition costs involved;
• financing costs, including debt finance costs, interest charges and limited equity returns;
• necessary and appropriate management costs, including letting costs;
• necessary and appropriate maintenance costs; and
• costs of maintaining a prudent contingency surplus in addition to a sinking fund created to meet project maintenance costs associated with the dwelling during the cost calculation period).

Lease terms

As noted above, under the legislation the Minister has the power to prescribe lease terms for cost rental arrangements.

In addition to that, the terms of the residential tenancies legislation will generally apply to cost rental dwellings with some exceptions e.g.:

• in the case of a Part 4 tenancy in a cost rental dwelling, a landlord cannot terminate the tenancy on certain grounds that are generally permitted in the private rental sector, including the sale of the property or its refurbishment;
• a tenant cannot assign or sub-let a cost rental tenancy;
• Part 3 of the 2004 Act (i.e. rent and rent review) won’t apply – the rent can only ever be the cost rental rent.  The rent on the date of the cost rental designation is the ‘initial maximum rent’ recorded in the designation, but the Minister will prescribe formulas for calculating rents at the beginning of new tenancies and when changing a rent during a tenancy through a rent review. These rent calculations will take account of any increase in the Harmonised Index of Consumer Prices, or an alternative index that the Minister may prescribe, during the intervening period. The rents calculated in this way are upper limits, giving landlords the option to charge lower rents as circumstances allow. Rent reviews can’t take place more than once every twelve months.

The Minister may, for the purpose of monitoring compliance with the legislation and the compilation of statistical data, perform audits of cost rental tenancies – owners will need to keep certain records and make them available for inspection on request.

For further information on this topic, please contact Aoife Smyth, Knowledge Lawyer or any member of A&L Goodbody’s Real Estate team.