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.

The Affordable Housing Act 2021 was signed into law by the President on 21 July 2021. Commencement requires further ministerial order.

The Act is referred to by the Government as “the most comprehensive standalone affordable housing legislation in the history of the State” and does the following:

  • Allows local authorities to build, acquire and make available homes at prices which are below open market levels;
  • Introduces the shared equity scheme which is designed to help bridge the gap between the market value of a home in the private market and what an individual or couple can afford;
  • Introduces the cost-rental letting model into Ireland; and
  • Makes changes to Part V of the Planning and Development Act 2000, most importantly amending the current 10% minimum requirement for social homes and increasing this to 20% for social and affordable homes.​

The Act has yet to be published by the final version of the Bill can be found on the Oireachtas website.

 

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

The notice for S.I. No. 361 of 2021 Commencement of Section 6 of the Residential Tenancies (No. 2) Act 2021 has been published in today’s Iris Oifigiuil.

This order appoints 16 July 2021 as the date on which section 6 of the Residential Tenancies (No.2) Act 2021 comes into effect. This is the section which introduces the RPZ rent increase changes referred to in our previous posts and the Act has therefore now been commenced in full.

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

The Residential Tenancies Board has published some guidance materials in relation to the Residential Tenancies (No.2) Act 2021. These comprise of:

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

A short post to confirm that the Residential Tenancies (No. 2) Act 2021 was signed into law by the President last Friday, 9 July.

This is the legislation which introduces changes to the RPZ rules, capping rent increases at the rate of inflation shown by the Harmonised Index of Consumer Prices.

The RPZ rent increase changes require further ministerial order before they come into force. However, the balance of the Act is now operative.

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

This Bill has been significantly amended in the Seanad to provide for (in addition to the items detailed in our previous post):

  • a change in the calculation of rent increases within RPZs, moving from the 4% per annum model to a model which caps rent increases at the rate of inflation (if any) shown by the Harmonised Index of Consumer Prices;
  • extension of RPZ designations for a further 3 years to end on 31 December 2024; and
  • extension of the provision which allows for rent reviews outside of RPZs every 2 years only, again for a further 3 years to 31 December 2024.

The Bill returns to the Dáil tomorrow for final stages and there is a motion for early signature by the President before the Seanad on Friday. We would therefore expect all of these provisions to be law by next week, other than the change in calculation of rent increases for RPZs (i.e. the first bullet in this post) which will require further Ministerial order. Minister Darragh O’Brien has indicated that he intends to introduce this provision as soon as is possible.

From the point of view of how the new rent increase model will work in practice, see the following detail from Minister O’Brien’s speech in the Seanad on Monday:

“The RPZ calculator will calculate any permissible rent increase that may apply. That will be managed by the RTB itself. The user of the calculator shall input the following variables into the RPZ calculator: the date the rent was last set; and the amount of the rent last set. The calculator shall produce the amount of the maximum permissible rent increase, if any. The calculator may also indicate that no rent increase can apply. In this situation, a landlord may reduce the rent or keep it at the same level. Ultimately, the rent is agreed between the tenant and the landlord. The calculator will operate as follows. It will compare the HICP value in the HICP table published by the RTB on or most recently before the date that this rent was last set, with the HICP value contained in the table published by the RTB on or most recently before the date that any new rent increase is being determined. Any difference between the two aforementioned values shall be calculated as a percentage by the RPZ calculator. If that percentage is a positive value, that is, where there has been an increase in the HICP values over the period in question, it is applied by the calculator to the amount of the rent last set to produce an amount of permissible rent increase.”

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

The Government yesterday published the Residential Tenancies (No. 2) Bill 2021:

The Bill provides for the following:

  • the extension of the existing protections for tenants adversely financially impacted by Covid-19 to expire on 12 January 2022 (from 12 July 2021);
  • limiting the notice periods required to be given by students in respect of student-specific accommodation to 28 days;
  • capping the payment to be made in order to secure a tenancy to:
  1. ​​an advance payment of rent in a sum no greater than a month’s rent under the tenancy agreement; and
  2. a deposit in an amount no greater than one month’s rent.​
To be clear, both the first and last changes above apply to all residential tenancies, not just student accomodation, although the change capping advance payment has been designed with the protection of students as its primary purpose.
The Bill is expected to come law before the Oireachtas summer break.

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

The significant shortage of houses in Ireland has been well publicised in recent years and indeed was one of the driving forces behind the ‘Rebuilding Ireland Action Plan for Housing and Homelessness’ and the more recent ‘Project 2040 National Planning Framework’.

One of the five central aims of the Rebuilding Ireland Action Plan is increasing the housing supply. Can Modern Methods of Construction (MMC) play a role?

What is MMC?

The definition published in the UK by the Ministry for Housing Communities and Local Government is a useful guideline. It identified seven categories of MMC:

  • volumetric modular
  • structural panellised
  • off-site components
  • additive manufacture
  • non-structural assembles and sub-assembles;
  • off-site building material improvements
  • on-site process improvement

Effectively, MMC describes an approach to constructing buildings more quickly, reliably and sustainably by methods such as off-site manufacturing, modular construction panels with timber or light steel framing, structural insulated panels or cross-laminated timber.

 

Benefits of MMC

Benefit Explanation
Time MMC saves a significant amount of programme time as construction of modular units can take place off-site in conjunction with the on-site/structural construction. Also as the majority of the construction work is carried out off-site and indoors, external factors such as inclement weather do not delay construction. Process production and repetition of process can also increase productivity, create efficiencies and reduce labour hours.
Sustainability Investors are progressively concentrating on sustainability as a key metric in the performance of their portfolio. Lenders are also increasingly viewing it as an important performance indicator for borrowers to achieve.

 

MMC in Irish construction industry

If the Irish industry is to meet the challenging targets outlined in government housing initiatives and the increasing demand for high quality and affordable housing, MMC could be an attractive option. The adoption of MMC may also be an effective way for developers to meet the sustainability metrics that funders and investors are increasingly seeking.

In general, the Irish construction industry has been relatively slow to adopt MMC. A reason for this may be that most construction firms in Ireland are SME’s and would need significant support to utilise and implement MMC, particularly given the associated costs and labour shortages (which has been intensified by the COVID-19 pandemic). However, conversely, the COVID-19 pandemic has the potential to accelerate the modernisation of the construction industry. Although the delays caused by COVID-19 reduced productivity, the industry may experience an increase in the use of MMC to regain momentum and programme certainty and ultimately mitigate any future delays.

From a legal perspective, MMC introduces a number of interesting contractual considerations such as: ownership of off-site material, insurances and transit risk, insolvency risk of suppliers, defects in modular units (and liability) and regulatory compliance (e.g. building regulations). It will be interesting to see how such considerations evolve and manifest in development agreements and other construction contracts in respect of future MMC projects in Ireland.

For further information on this topic contact Siobhan Kearney, Senior Associate, Conor Owens, Partner, or any member of A&L Goodbody’s Construction and Engineering team.

 

The Irish construction professional indemnity (PI) insurance market has been noticeably hardening in recent years. Having enjoyed quite a lengthy period of relatively stable market conditions, it is our experience that many insurance companies are now tightening their policy terms, increasing premiums and overall are seemingly more reluctant to underwrite the same level of risk. But what is driving this market change and what are the implications?

What is PI?

PI Insurance is an insurance product that provides protection where the insured is in breach of professional duty and such breach gives rise to loss or damage to a third party. It is a “claims based” policy, meaning the policy will pay out for any valid claim made during the policy period (typically 12-month), regardless of when the alleged breach of duty occurred. PI insurance is particularly relevant in the construction sector as a number of consultants such as architects and engineers (and indeed, contractors and subcontractors with design responsibility) have a professional duty in relation to design services. Employers have historically taken comfort in the knowledge that such construction parties have the benefit of a PI policy to respond to any claim taken by the employer against them for defective design. However, recently, the availability of PI in the construction sector and the terms upon which such insurance is available has proven a source of difficulty for contractors, consultants and sub-contractors, which suggests the comfort PI insurance has previously given employers may be under threat.

Why is the PI Insurance market hardening?

The Grenfell fire of June 2017 is considered the worst residential fire in the UK since the Second World War and has widely been cited as a turning point for the construction PI insurance market. Combustible materials used to refurbish the cladding exterior of Grenfell Tower are thought to have caused the rapid and devastating spread of the fire. As a result, insurers are increasingly excluding claims related to fire safety, particularly in relation to cladding systems. This tragedy has also resulted in a surge in insurance premiums for contractors and other professionals in the industry such as architects and surveyors, in some cases to a prohibitive level.

The impact of international events such as COVID-19 and Brexit has also reduced the number of insurers in the Irish construction market and those remaining have expressed reluctance to write new business. It is reported that insurers in 2020 were actively seeking to reduce their exposure to construction PI insurance policies. The ongoing COVID-19 pandemic continues to result in delays and even cancellation of construction projects, which is adding to the general wariness of insurers in underwriting construction companies. The full extent of the impact of COVID-19 on the PI insurance remains to be seen. However, it seems likely that the uncertainty and increased risk of delay caused by the COVID-19 pandemic will serve to perpetuate the tightening of the PI insurance market in Ireland.

Recent trends in the Irish PI market

Each and Every Claim vs Aggregate Cover

A key shift in market trends is the availability of “each and every claim” or “any one claim” cover. A number of major insurers, that have in recent years been very active in the Irish market and have underwritten policies for a substantial number of larger professional firms and construction companies, have stopped offering “each and every claim” policies in favour of “aggregate claim” policies. This will have a noticeable impact on the market.

Fewer Insurers

The market has witnessed the exit of a number of insurers in recent years. With fewer insurers willing to write PI insurance for construction projects, it has become very difficult for many contractors, consultants and sub-contractors to obtain cover at an affordable level and/or on acceptable terms. Premiums have reportedly increased between 20% and 400%, with higher excesses being applied. This may also pose issues for construction companies and consultancy firms who are contractually obliged to maintain specific limits of indemnity of PI insurance on an each and every claim/any one claim basis under the terms of their contract. Employers may need to consider paying the increased premium to ensure the construction parties on the project have PI cover in place.

Exclusions

Another challenge is the increase in policy conditions and restrictions such as exclusion for claims relating to certain incidents (such as fire cladding as mentioned above).

Reinstatement

There has also reportedly been an increase in the use of reinstatement. Unlimited reinstatements are often referred to as being tantamount to each and every claim cover. However, the devil is in the detail on exactly what reinstatement is being offered and specialist advice should be sought from a construction insurance advisor to understand the nature and extent of the cover being offered.

Summary

The availability and terms of PI insurance, particularly in the wake of COVID-19, remains unknown. However, it does seem that the recent hardening looks set to continue for the near future. Going forward, employers and construction counterparties should look closely at the PI insurance requirements in the underlying construction contracts to ensure the terms aligns with the PI insurance available. A “look back” exercise might also be prudent, to assess what contractual commitments have been given with regards to PI insurance and how might this now be addressed in the changing climate. Employers and construction counterparties should take specialist advice from a construction insurance advisor in relation to the matters discussed in this article.

For further information on this topic, please contact Conor Owens, Partner, Siobhan Kearney, Senior Associate, or any member of A&L Goodbody’s Construction and Engineering team.