Dáil Summer Term: Residential Tenancies, Right to Purchase and Land Value Sharing

Last week marked the beginning of the Dáil's summer term, which offers an opportunity to look ahead to potential legislative developments that may arise with the implementation of the Government's summer legislative programme. Of note within the Government's summer agenda are two pieces of "priority" legislation which our Real Estate team believes will be of significance to clients involved in both residential and commercial property development and investment.

Residential Tenancies (Right to Purchase) Bill 2023

This new Bill will seek to give tenants a statutory right of first refusal where their rental dwelling is put up for sale. Under the current draft Heads of the Bill, if a landlord seeks to terminate a tenancy for the purpose of selling the property, they will be obliged to serve tenants with an invitation to bid on the property alongside the notice of termination. Tenants will then have 90 days to submit a bid, in which time the landlord cannot accept bids from third parties.  Owners will, however, be able to invite third party bids by advertising the property on the open market. If no agreement is reached between landlord and tenant within the 90 day period, then third party bids can be accepted. However, if the third party bid that is received is ultimately lower than or equal to the tenant's highest bid, then the landlord will be obliged to invite the tenant to make a further bid that matches the third party offer. If the tenant does not do so within 10 days, the landlord may enter a binding agreement with the third party.

In this respect the use of the term "right to purchase" within the title of the Bill is misleading as this legislation is not creating a right of the tenant to purchase the property. Rather, it creates a right of first refusal and this will not oblige a landlord to sell to their tenant if they can attract higher offers on the open market. The misleading nature of the Bill's title has been noted by the Joint Committee on Housing in their pre-legislative report on the Bill and it has been recommended that the name of the Bill will be amended to remove any reference to a "right to purchase" (click here to review the Committee's report).

Tenants will be subject to certain eligibility requirements before they can avail of this right of first refusal. Under the current draft heads, these eligibility requirements prescribe that tenants must reside under a Part 4 tenancy and address other factors including breaches of the tenant's obligations and the tenant's financial capacity to purchase the property. Tenants who reside in certain properties such as student specific accommodation, are also ineligible.

The Bill has attracted some criticism despite only being at the very beginning of its journey through the legislative process. In its own pre-legislative report regarding the Bill, the Joint Committee Housing, Local Government and Heritage has raised concerns over potential undue delays the Bill may cause getting rental properties on to the open market given that Landlords will likely wait for vacant possession to get full market value. These delays may seem unjustified given that representative groups on behalf of both tenants and landlords have separately stated that the legislation is unlikely to significantly increase the level of sales between landlords and tenants.

It difficult to precisely establish this Bill's potential impact given the lack of detail currently available regarding the Bill's measures. The Bill's General Scheme is not available online to view directly, for example. However, given that this Bill has been afforded priority status in the upcoming Dáil term, this detail may soon be forthcoming. Our Real Estate team will monitor developments in relation to his Bill and will be on hand to provide advice to clients operating in the residential tenancy sector as further details emerge and a clearer picture develops as to the Bill's implications.

Planning and Development (Land Value Sharing and Urban Development Zones) Bill 2022

This Bill seeks to introduce a charge on increases in land value that occurr as a result of State land zoning decisions.  This will take the form of a Land Value Sharing (LVS) contribution of 30% on the increase between existing use value and the market value on land which has been zoned residential or mixed-use including residential. This will be levied at the planning stage and will be a condition of the final grant of planning permission. The aim of the Bill is to provide local authorities with more revenue to provide housing infrastructure in the communities where land value has increased on foot of zoning decisions.

The current Heads of the Bill outline a number of exempted developments including:

• social/affordable housing
• residential developments relating to 4 or fewer houses
• commercial or industrial development where the net additional floor space is 500sqm or less
• conversions/reconstructions of existing buildings where 50% or more of the existing external fabric of the building is retained.

The potential impact of this Bill is obvious in that developers will need to factor in the LVS contribution when planning their projects, however, it should be noted that in light of the above exemptions it seems likely that the Bill will primarily affect larger-scale developments. You can review the draft Heads of the Bill by clicking here.

Written by: Paddy Smyth and Paul Bruun-Nielsen