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The Irish Government has announced plans to draft legislation to support the remediation of apartments and duplexes with fire safety, structural safety and water ingress defects. Any other types of defect i.e. drainage defects or defects with heating systems would appear to be excluded. The plans are to include apartments and duplexes which were constructed between 1991 and 2013. We therefore assume that apartments and duplexes constructed outside this time frame are not covered by the scheme and any issues will have to be dealt with in the normal way.

The scheme is set to go to Cabinet but nothing has been published as of yet and ultimately the devil will be in the detail. However the Government has published a “frequently asked questions” document to provide an idea of how such a remediation scheme may operate.
The intention seems to be to create something similar to the scheme that was previously introduced in respect of properties impacted by pyrite.

What apartments and duplexes will be included?

From the information provided, the Government is intending to take a ‘whole building approach’ in order to improve the safety of all occupants in the building. Therefore, all parts of the building (e.g. the common areas, the individual apartments etc.) will be considered together when addressing defects.

The Government is proposing the scheme will be administered by the Housing Agency on a nationwide basis and that Owners’ Management Companies (OMCs) will be funded to carry out the necessary remediation works on a “whole building” basis and therefore will be responsible for procuring and facilitating the remediation works that affect the common areas of apartments and duplexes as well as the individual apartments.

It appears that commercial owners will be exempt from such a scheme.

What works will be covered by the scheme?

As stated above, the scheme will only cover works to remediate fire safety, structural safety or water ingress defects in purpose-built apartments and duplexes constructed between 1991 and 2013. The defects which are covered by the scheme must relate to defective design, defective or faulty workmanship or defective materials. The defects must have resulted from a contravention of the Building Regulations applicable at the time the building was constructed. All other defects are excluded from the scheme.

Irrespective of this scheme and in accordance with the Fire Services Act, responsibility for fire safety continues to rest with those who control a premises.

When will the legislation be in place?

Subject to the implementation of the legislation, it is intended that the scheme would be in place by 2024.

The Government has also approved the principle of allowing remediation costs already incurred or levied to be covered, within the scope and defined parameters of the scheme.

Notably, and in order to ensure that no life-safety works are paused until the scheme is put in place, remediation works related to fire safety defects which are entered into or commenced from 18 January 2023, will come within the scope of the scheme. It is intended that such works will need to be agreed with the relevant local fire authority. The details of this process will be worked out as a priority and provided in due course.

How much funding will be made available?

The amount of funding will depend on the nature and extent of defects to be remediated. It is estimated that the scheme is worth between €1.5 billion and €2.5 billion.

For further information on this topic, please contact Conor Owens, Partner, Kathy Gilmore, Solicitor, or any member of A&L Goodbody’s Construction and Engineering team.

The European Commission has approved, under EU State Aid rules, the Irish Government’s proposed €450 million scheme to support the construction of apartments to be sold to owner-occupiers. The scheme, know as the Croí Cónaithe (Cities) Scheme, aims to bridge the current “viability gap” where the cost of building apartments is higher than its market sale price.

The scheme aims to support the delivery of up to 5,000 apartments via blocks of at least four storeys in the urban areas of Dublin, Cork, Galway, Limerick and Waterford.

How will the scheme operate?

The aid will take the form of a direct grant covering the difference between the actual price and the development cost of the apartment, up to a certain maximum amount depending on the city. The scheme will be open to developers of apartment blocks that hold an unactivated planning permission and demonstrate the existence of a viability gap.

To be eligible, apartment blocks must be

  • located in Dublin, Cork, Galway, Limerick or Waterford cities;
  • four storeys or higher and have a net density of at least 35 dwellings per hectare;
  • close to public transport;
  • for sale to owner-occupier households only; and
  • be able to demonstrate a viability gap, where the cost of building the apartments is higher than the market sale price.

How much funding will be available?

The maximum funding anticipated for each apartment is €120,000. This may be exceeded by up to 20% in certain cases in regional cities where lower market prices mean that the viability gap is wider.

Who will manage the scheme?

The Croí Cónaithe (Cities) Scheme will be managed and administered by The Housing Agency on behalf of the Department of Housing, Local Government and Heritage. The Housing Agency will receive proposals for developments via e-tenders. It will assess eligibility and carry out detailed due diligence and an open book assessment on eligible proposals.

Beneficiaries will be ranked based on density, date of delivery, the quality of the development, the delivery cost per apartment and proximity to core services and amenities.

Open book accounting will be required for all developments to make sure that the funding support provided only targets the viability gap in question, resulting in a reduction of cost for home-buyers and increased supply into the market. Both delivery costs and market values will be assessed by independent quantity surveyors and valuers appointed by the Housing Agency.

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

Following the publication of the outline of the proposed Planning and Development Bill in December 2022, the Department of Housing, Local Government and Heritage published the draft Planning and Development Bill 2022 (the Bill) on 26 January 2023. The Department has confirmed that the Bill will be subject to pre-legislative scrutiny before it is finalised, and has promised that this new legislation will “bring greater clarity, consistency and certainty to how planning decisions are made.”

The Bill seeks to restructure An Bord Pleanála, to be called An Coimisiún Pleanála or the Commission, and to consolidate and refine Irish planning law. The provisions that will be of particular interest to developers and stakeholders include:

  • The introduction statutory mandatory timelines for consent processes, including Commission decisions on Strategic Infrastructure Development. The specific timeframes have yet to be set out;
  • Changes to the Judicial Review process including the introduction of statutory timelines and prohibition of companies registered for less than one year taking JR proceedings; and
  • Reform of Development Plan content and lifespan. Development Plans will include more detail and amongst other measures, a specific housing delivery strategy.

The Bill was published on the same day that RTÉ News highlighted that 28,786 strategic housing development applications await a decision from the Board, according to Mitchell McDermott’s Annual Construction Sector Report.

It is hoped that, once enacted, the Bill will improve the development consenting processes, leading to speedier decision-making and more streamlined judicial review.  

Our Environmental and Planning Team will continue to post updates on the provisions of the Bill. In the meantime, should you require more information on this topic contact Alan Roberts, Partner, Niamh Collins, Solicitor, or any member of A&L Goodbody’s Environmental and Planning team.

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We are delighted to invite you to our Construction, Planning and Procurement Breakfast Seminar on Thursday 9 February as we discuss the theme of “Uncertainty”.

Venue
Banking Hall at The Westin Hotel, College Green
Date
Thursday 9 February 2023
Time
7.15am – 10am

Please join us for a light breakfast, followed by a series of short presentations all focusing on uncertainty in the areas of construction, planning and procurement. Senior members of our Construction, Planning and Procurement teams will update you on the issues and topics which will be on the agenda for key industry players:

  1. Conor Owens and Enda O’Keeffe on adjudication and the current issues arising.
  2. Siobhan Kearney and John Dallas on utilities risk / energy issues. This will cover issues such as gas and ESB supply and connection agreements.
  3. Jamie Rattigan and Kim O’Neill on inflation / deflation. This will also consider how inflation and deflation impact on funding.
  4. Alan Roberts and Kristen Reed on “Will the new Planning Act shut the door on Judicial Reviews?”
  5. Conor Owens and Richard Hourihan on “Contract modifications arising from inflationary and market pressures”.

The seminar promises to be informative, practical and lively with insights being shared by leaders in their respective fields. The seminar also qualifies for Legal/General CPD with the Law Society of Ireland.

Breakfast and registration will be from 7.15am and the seminar will begin at 7.45am. As always there will be a Q&A session with our speakers at the end of the agenda items with a view to finishing up at 9.15am, or a little later if you would like to stay on and connect with some people who you may not have met for some time.

We look forward to welcoming you on the day.

Please RSVP by Friday 3 February here or contact any of the following, or your regular A&L Goodbody contact, for more information:

After considerable ambiguity in respect of environmental costs protection, the Supreme Court’s decision in Heather Hill Management Company CLG & McGoldrick v An Bord Pleanála, Burkeway Homes Limited and the Attorney General [2022] IESC 43 has brought some much-needed clarity to the rules around costs implications of challenges to large scale developments on environmental grounds.

On 10 November 2022, Mr. Justice Murray handed down a judgment on behalf of the Supreme Court on the interpretation of section 50B of the Planning and Development Act 2000, overturning an earlier decision of the Court of Appeal and agreeing with the decision of the High Court judge.

The Supreme Court held that the protective costs order available under section 50B applies to any challenge to a decision made pursuant to a statutory provision which gives effect to specified EU Directives listed in the provision. The Supreme Court held that there is no basis for the splitting of costs by reference to the issues and grounds in proceedings where some grounds/issues raised engage those EU Directives and others do not. This means that applicants who take judicial review proceedings will in the normal course be entitled to their full costs where the challenge involves environmental grounds.

While the judgment has brought certainty on the question of costs, it remains to be seen whether the judgment will result in an increase in the number of judicial review applications. The impact of this judgment will certainly be felt across a number of industries including property development and construction and stakeholders will eagerly track the effect on the volume of challenges to development over the coming months and years.

For further information on this topic, please contact Niamh Collins, Solicitor, Alan Roberts, Partner,  or any member of A&L Goodbody’s Environmental and Planning team.

Residential Zoned Land Tax (RZLT) is a new tax introduced as part of the Government’s “Housing for All” plan, which will become payable from 1 February 2024. However, owners of land zoned for residential use should be aware that 1 January 2023 is the deadline for filing an appeal against inclusion of lands on the local authority RZLT maps which are detailed in this post.

What is RZLT?

It is an annual tax calculated at 3% of the market value of land within scope, which will apply from 2024 onwards and will be administered by Revenue. It replaces the Vacant Site Levy which was not deemed a success.

The Government states that the tax is aimed

at increasing housing supply by activating zoned, serviced residential development lands (including mixed-use lands) for housing [and] to incentivise landowners to use existing planning permissions for housing.

What land is impacted?

RZLT will apply to land that is, on or after 1 January 2022, both zoned for residential use and serviced (even where the current use of the land is not residential). Land is considered to be serviced where it has sufficient access to the necessary public infrastructure and facilities required for residential development.

Certain exclusions apply, for example:

• Residential property subject to LPT which includes garden/yards under 1 acre. (Residential property with gardens/yards over 1 acre falls in scope and the owner must register for RZLT, although no RZLT is payable by such owners).
• Land zoned for residential use but used by a business to provide services to residents of adjacent residential areas e.g. a corner shop.
• Mixed zoned land that includes residential use where it is reasonable to consider the land is integral to the operation of a business carried out on or beside it.
• Land that is required or occupied for certain social, community or governmental infrastructure purposes.
• Land subject to the Derelict Sites Levy that is payable in accordance with the Derelict Sites Act 1990.
• Land that is affected by considerations which might prevent development e.g. contamination or where historic or archaeological artefacts are present.

How will I know if my land is affected?

Each local authority is required to prepare and publish a map identifying land within the scope of RZLT, which maps will be updated annually to reflect changes in zoning and servicing status. The first draft maps, which were published on 1 November 2022, are currently subject to review as follows:

  • Parties whose properties are designated as subject to RZLT by virtue of this mapping exercise may make a submission to the local authority have their lands excluded if they do not believe that such land meets the criteria for inclusion. This submission must be made no later than 1 January 2023.
  • In the case of such a submission, the local authority will notify the owner of its determination, not later than 1 April 2023;
  • The local authority, before making its determination, may request additional information from the owner, or other third party, within 21 days of receipt of the submission;
  • The owner, or other third party, has 21 days, from the request being made, to provide the information requested to the local authority;
  • A landowner who wishes to appeal the local authority determination to An Bord Pleanála (ABP) may do so not later than 1 May 2023; and
  • ABP will notify the owner of its determination not later than 16 weeks from the date of the notice of appeal.

The final map, which will reflect the outcome of the submission and appeals process, will be published on 1 December 2023. Land included on the local authority’s final map which is no residential property is known as a “relevant site” and is subject to RZLT.

Who is liable?

The legislation requires payment by “owners”. This term is broadly defined as the registered owner, the person entitled to receive any rack rent payable in respect of the land (or who would be so entitled if that land was let) and “any other person whose interest in the land entitles them to develop the land”. This arguably includes developers with contractual rights to develop the land.

When and how is it paid?

RZLT will first be charged on 1 February 2024 with a requirement to file a return and pay any RZLT due for 2024 by 23 May 2024. This is in respect of land which was zoned as suitable for residential development and serviced prior to 1 January 2022 and on which development has not commenced prior to 1 February 2024. Land zoned for residential use and serviced after 1 January 2022 will become liable for RZLT 3 years after the year in which it comes within the scope of the tax.

RZLT operates on a self-assessment basis and owners of lands liable for the tax must register from late 2023. An annual return must be submitted to Revenue with a liability date of 23 May in each year, beginning in 2024.

What do I need to do now?

If you own services land that is zoned residential (whether or not the current use of the land is residential), you should check whether it has been included in the relevant local authority RZLT maps. If you wish to contest that designation, you will need to prepare and submit an appeal against the designation on or prior to 1 January 2023.

Revenue’s very helpful guidance document on RZLT can be found here.

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

Minister for Tourism, Culture, Arts, Gaeltacht, Sport and Media, Catherine Martin, TD has today (Wednesday 7 December) announced that the Government has approved the priority drafting of the Registration of Short-Term Tourist Letting Bill.

This is another initiative provided for in the Government’s Housing for All policy and Minister Martin was joined at today’s announcement by Darragh O’Brien, Minister for Housing, Local Government and Heritage.

The legislation will relate to short-term lettings of 21 days or less and will require suppliers offering accommodation for such periods to register with Fáilte Ireland and provide a valid registration number when advertising properties for letting on online platforms.

Amongst the stated aims of the legislation are to make more efficient use of existing housing stock and to bring properties back into the long-term rental market.

The Government’s press-release can be found here. We will provide further updates as the legislation progresses through the Oireachtas.

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

The Central Bank of Ireland (CBI) has announced new rules that will apply to Irish regulated funds that invest 50% or more, directly or indirectly, in Irish property assets.

The most significant provision is the implementation of a 60% debt to total asset leverage limit. Both third party debt and shareholder loans count toward this 60% limit.

There is a carve-out from this leverage limit for certain funds that invest primarily in social housing but that carve-out is subject to a number of caveats.

The leverage limit applies immediately for all new funds authorised since 24 November 2022. For existing Irish regulated funds, there is a 5 year implementation period though the CBI has said it expects funds that need to get below the limit to have made significant progress within 3 years. The CBI has also said that it will expect any existing Irish regulated property fund that is over the 60% leverage limit not to incur additional debt while it is over the limit (or that would bring it over the limit).

The rules announced by the CBI also include new guidance for Irish regulated property funds that offer redemption facilities, effectively requiring them to have a minimum redemption period of at least 12 months from the redemption request dealing deadline to the date of payment of the redemption proceeds. Again the guidance applies immediately for all new funds authorised since 24 November 2022. There is an 18 month implementation period for existing regulated property funds in this regard. This is less significant as most Irish regulated property funds are either closed-ended or heavily limited liquidity, such that this provision would not cause undue concern.

The CBI’s paper outlining the guidelines can be found here and our further analysis can be accessed here.

For further information on this topic, please contact Michael Barr, Partner, or any member of A&L Goodbody’s Asset Management & Investment Funds team.

Performance Security

Performance security is a prominent feature of construction projects and is used as a means of protection for the Employer against the non-performance of the Contractor. The advantage to the beneficiary of the bond (i.e. the Employer) is that a third party surety (often an insurance company or bank/funding institution) agrees to fulfil the Contractor’s obligations under the underlying construction contract or to pay a sum of money that was advanced to the Contractor by the Employer. Bonds issued by a robust and reputable bond provider with a strong credit rating certainly provide comfort to the Employer in the event of default, insolvency or termination of the Contractor. Further, in the development finance context, its lender will also seek to ensure such performance security is in place to protect the Employer’s interest in such scenarios and protect the lender’s interest in an enforcement/step-in scenario.

The term “performance security” captures all types of third party security instruments. The most commonly used in the construction context are performance bonds and advance payment bonds. Whilst often referred to interchangeably (and both do fall under the umbrella of “performance security”), these instruments serve different purposes and often include different trigger events that allow the Employer to call on the bond.

What’s the difference between an advance payment bond and a performance bond?

Advance payment bond

An advance payment bond (APB) is often used in the construction and engineering industry in circumstances where an Employer has agreed to make a payment to the Contractor prior to the Contractor fulfilling its obligation for that payment. For example, it can provide the Contractor with funds for site mobilisation or the purchase of key materials or equipment manufactured off site. The concern on the Employer side is failure by the Contractor to fulfil obligations for which the Employer is already out of pocket. As a means of protection against this, the Employer may require the Contractor to provide an APB that provides that, once called upon by the Employer in accordance with its terms, the issuer will refund the advance payment or the “unperformed” element of the advance payment to the Employer.

Key features of an APB:

  1. The issuer has an independent, primary obligation to pay the bond amount under the APB to the beneficiary on receipt of a demand that has been properly issued in accordance with the terms of the APB.
  2. As APBs are regarded as a substitute for cash, they are usually on demand rather than on default based instruments.
  3. The issuer is often a bank rather than an insurance company.
  4. APBs usually cover the entire of the advance payments made to the Contractor, whereas a performance bond is often a percentage of the overall contract sum.
  5. The issuer will usually seek evidence that the advance payment has been made to the Contractor prior to its obligations under the APB taking effect (for example by way of copy of a SWIFT transfer of the bond amount to the Contractor by the Employer).
  6. The bond amount may increase to cover further advance payments made under the underlying contract or decrease as the obligations under the underlying contract are fulfilled e.g. an advance payment of 10% is made for the order and delivery of equipment and the bond value decreases by 10% when such equipment is delivered to site and approved by the Employer.
  7. An APB will often have a fixed expiry date with mechanics under the underlying contract for the Employer to seek an extension to the existing APB or replacement APB if the relevant obligations relating to the advance payment have not been fulfilled prior to such fixed date.
Performance bonds

The clue is in the name – a performance bond is security for the Employer for the performance by the Contractor of its obligations under the contract. If the Contractor fails to fulfil its obligation under the contract, for example due to insolvency, the Employer will suffer a loss . In such circumstances the Contractor needs to be terminated and replaced and the Employer will need to procure a replacement contractor (potentially at a premium price) in order to try to make up the lost time and complete the works.

Key features of a performance bond:

  1. Can be on demand or on default but are usually on default based instruments meaning that the issuer has secondary obligation to the beneficiary that is contingent on failure by the Contractor to fulfil its primary obligation to the Employer under the contract – trigger events typically include breach of the contract, insolvency or termination for contractor default.
  2. The issuer is often a bank or insurance company.
  3. Performance bonds usually cover the risk of the Contractor’s default or insolvency up to an agreed limit (in the Irish market, usually 10% of the contract sum under the relevant construction contract, often reducing to 5% on practical completion of the works).
  4. Performance bonds do not usually have a fixed expiry date but rather remain in place until the end of the defects liability period or a minimum period of time following practical completion (in the Irish market, usually 12 – 15 months).
  5. Performance bonds often provide that the Employer is entitled to recover amounts that are “established and ascertained” under the performance bond. Following the decision of the Irish case Clarington Developments Limited v HCC International Insurance Company, such words were interpreted by the courts as the Employer having to first exhaust the dispute resolution procedures under the relevant construction contract to crystallise the amount to which the Employer was entitled.

It is worth noting that, while performance bonds can help the Employer recover some of the costs incurred in finishing out the works in an insolvency/default/termination scenario, the Employer would first need to complete the works. Thereafter they can attempt to recover costs under the bond, however this may be challenged by the bondsman particularly in a difficult economic climate. In this sense, performance bonds are a means of recovering costs post completion and not a liquid instrument to fund completion of a project in a default scenario.

Recent Trends in Irish Market

The Irish market has seen an increased use of APBs in recent years. This is primarily being driven by the current delays and shortages in supply chains that is being experienced globally because of the aftermath of Covid-19 and the effects of the on-going conflict between Russia and Ukraine. Such delays and shortages have led to continued surges in prices of fuel and materials in particular. According to the latest Construction Industry Federation Economic Outlook research, 96% of construction companies have reported a rise in the cost of building materials between June and August 2022, with 85% expecting cost rises to continue to year end. The increasing cost of materials was cited as the top concern for companies over the next three to six months (86%). In response, many Employers are asking Contractors to place orders at an early stage in order to lock in prices and production/factory slots for key materials and equipment. Consequently, Employers are increasingly seeking APBs as security for such advance payments. This can pose a challenge to subcontractors and some smaller main contractors who may not have a sufficiently strong balance sheet or credit rating to facilitate the issue of performance security. Employers should carry out detailed analysis and due diligence of the supply chain to identify the pinch points and where performance security can assist. Employers should also work closely with their insurance advisors to map an overall realistic and achievable plan for performance security for the project, in the context of the current market and the financial strength and credit rating of the relevant contractors and subcontractors.

For further information in relation to this topic, please contact Siobhan Kearney, Senior Associate, Clare McAdam, Lawyer or any member of A&L Goodbody’s Construction and Engineering team.

RTB

On 17 November 2022, the Residential Tenancies Board (RTB) published its 2021 Annual Report and Accounts.

The report is available here and deals with issues such as:

  1. How the RTB communicates with customers
  2. How the RTB helps resolve rental disputes
  3. How the RTB regulates the rental sector
  4. How the RTB monitors trends
  5. How the RTB ensures good governance

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