It will be very difficult for large landlords to find buyers for properties with tenants in situ

[Dermot]

There is no proposal to limit a landlord's freedom to sell. There is a proposal to limit a landlord's freedom to evict a tenant in order to sell, but thaty may make sense if it comes with an intention to facilitate the development of a market in which properties are sold with sitting tenants.

There are many parts of Ireland where there is now an extremely limited market (practically zero) market for tenant's in situ properties.
What professional investor would purchase a property given the difficulties of having a tenant removed from a property and all the restrictions that we have currently and coming down the road.
Its not a mature market and how would it be financed
Calling into "Paddy Power" might be as safe.

 

[JoeRoberts]

There are many parts of Ireland where there is now an extremely limited market (practically zero) market for tenant's in situ properties.
What professional investor would purchase a property given the difficulties of having a tenant removed from a property and all the restrictions that we have currently and coming down the road.
Its not a mature market and how would it be financed
Calling into "Paddy Power" might be as safe.

Exactly

There would be nothing wrong with these proposals for new investors, they would decide what price to pay to operate in this market. They would of course be outbid by owner occupiers tjough as the numbers wont make sense.

 

[Dermot]

I will just give an example of a recent deal where an investor purchased in the region of 25 properties with a tenant in Situ situation. (5 Vacant) .
All built in the last 20 years/ close to the main county town and all in pretty good state of repair. Very good estate.
Sold at a 32% discount to current market prices in same estate.
Only one bidder and took about 18 months to close sale.
I heard yesterday that he now has "buyers remorse".

 

[Bronte]

Well, no, if you want to not be a big landlord, all you need to is dispose of all but your properties in excess of three. You can keep three of them, including the one that houses the special needs child.

And you don't necessarily have to sell them. Who were you planning on leaving them to? Is there scope here for a bit of estate planning, by transferring properties now to the next generation of your family? (And it wouldn't require you to give notice to the tenants; you could transfer subject to the tenancy.) Obviously that might not suit your circumstances or your objectives, but it's a course of action that might suit others in your position.
At worst, I think you just have to not have a tenant in it. And it may be sufficient to have a tenant in it, but to have served a valid notice of termination.

This makes no sense because if she or her estate is forced to sell with tenants in situ it devalues the property.

A landlord with one property divided into 5 flats is not a 'big' landlord. And they should not be treated the same as institutional landlords who are not 'people' but investment vehicles. In addition institutional landlords have many tax advantages not open to ordinary landlords.

 

[Greenbook]

If they think a part of the solution to the housing crisis is normalising European-style long-term renting, and if they also want to professionalise the landlord side of the equation, then I think a market in which properties with subsisting tenancies can be traded is essential. If landlords can't realise their investment without evicting their tenants, then you can't have both commercially-driven landlording, and secure long-term tenure for tenants.

Yes, but as far as I know you can't get a mortgage, even a BTL one without vacant possession. So your market is confined to brave, cash only landlords, a very limited cohort at this point in time.

With long term lets in Europe, the norm is that the tenant is responsible for the fit out, repairs and maintenance. So attractive for landlords as it is very hands off and akin to a commercial lease. It's an investment based on yield alone, you really don't have to factor in the cost of repairs or refurbishments.

 

[Greenbook]

In theory this is correct but in reality the price that will be achieved will be below open market due to the rent controls.

Price will be below market value because the new landlord is taking a bet on their new permanent tenant (if he's so great, why are you selling) and your market is limited entirely to cash only landlords.

 

[Greenbook]

Now I haven't any real clue on this point, but I am wondering whether all this is unconstitutional. If you are a large landlord and want to continue with your business, you're faced with either swapping tenants every 6 months or so or entering into a very risky lease with a longer term tenant which carries a very good chance of permanently devaluing the property and making it very difficult to sell. It is not quite as bad for small landlords, but the same risks apply. Can property rights be interfered with that much for the common good? I've no answer to this personally, but I am beginning to wonder. It is a pity we don't seem to have anyone with legal expertise on board.

And all this in return for max 2% increase for 6 years following by a doubtful uplift to market value. If rents have increased by 50% at year 6 is the government really going to allow those increases to go through?

 

[ClubMan]

Now I haven't any real clue on this point, but I am wondering whether all this is unconstitutional.

Not the first time this been raised...

I struggle to see how an open-ended prohibition on “large” landlords seeking no-fault termination of tenancies could be constitutional. It looks like an unjustified attack on property rights to me.

Is there any possibility that this will not be approved or constitutional??
Ir seems to go against all our constitutional rights.

I don't think so. I think they've solved it this way:

1. All current leases stay as they are - you can evict for sale etc.
2. When the current lease ends post 1 March 2026, it is up to you to enter into a new one with a new tenant. If you do so, you are fully aware of what the rules are and have made decision to restrict your property rights with your eyes wide open, so you can't say your constitutional rights have been breached. If you didn't know the rules, ignorance of the law is no defence.

 

[TomEdison]

There are many parts of Ireland where there is now an extremely limited market (practically zero) market for tenant's in situ properties.
What professional investor would purchase a property given the difficulties of having a tenant removed from a property and all the restrictions that we have currently and coming down the road.

I accept that there is currently no market for tenanted properties. My point is that, if you're going to have both commercial landlording and stable tenancies then you need such a market.

In principle, the fact that a property comes with a tenant who enjoys security of tenure shouldn't be a problem for a professional landlord purchaser, since he wants the property to be tenanted — he's buying it for the rental income stream. If anything, it's an advantage — it saves him the cost of a period of vacancy, and the cost of marketing the property to tenants. My understanding is that, in places where they have a stable long-term rental market, the sale of tenanted properties is pretty routine. And it's already routine in Ireland for commercial property. So this is not some far-side-of-the-moon aspiration.

I don't think for a minute that simply restricting the right to evict a tenant in order to sell the property will automatically lead to the development of a similar market for tenanted properties in Ireland. Others things need to be done to tackle the obstacles to the development of such a market. My point is just that (a) there should be such a market in Ireland, and (b) restricting eviction-for-sale sales makes sense if you are aiming to develop such a market. So this could be a straw in the wind as to the government's long-term policy (if they have a long-term policy at all, which admittedly is a grand assumption).

 

[Greenbook]

In principle, the fact that a property comes with a tenant who enjoys security of tenure shouldn't be a problem for a professional landlord purchaser, since he wants the property to be tenanted — he's buying it for the rental income stream. If anything, it's an advantage — it saves him the cost of a period of vacancy, and the cost of marketing the property to tenants. My understanding is that, in places where they have a stable long-term rental market, the sale of tenanted properties is pretty routine. And it's already routine in Ireland for commercial property. So this is not some far-side-of-the-moon aspiration.

But think about what will happen to such a longterm professional landlord here in Ireland, based on the new rules and what we've seen over the last 10 years:

1. Less than inflation increases for 6 years plus very likely no market value increase in year 6 - why no government is going to sign off to a large jump in rents at that point. It would be political suicide

2. Banks won't lend in Ireland without vacant possession, so there is a very limited market for cash buyers only.

3. In Germany and other European countries if it is a long lease, then the tenant is responsible for fit out, repairs and maintenance. Hence it is akin to a commercial lease, so landlords are delighted to acquire a property with a long term stable tenant. In Ireland, you're responsible for all repairs and maintenance including, based on recent inspections, weeding the garden! You're responsible for all refurbishments as well (more difficult when the tenant is in situ) & the requirements here as to BERs etc. will increase over the years.

Tenants being able to rent long term with stable leases and stable enough increases (I believe in Germany the rent can't increase by more than 20% over 3 years) is a great idea from both the tenant's and the landlord's perpective. I'd like this system as a landlord as I always invested for yield really and it is very hands off. But it doesn't exist and the government can't magically impose it because of the problems I've set out above. Also, the new rules make long term tenants completely unattractive.

I agree with you. At this point with so many people stuck in the PRS, it would be far better to have a German type system here and it would make sense for a lot of landlords as well as it is stable and hands off, but what they have done now will positively discourage it.

 

[Persia]

In principle, the fact that a property comes with a tenant who enjoys security of tenure shouldn't be a problem for a professional landlord purchaser, since he wants the property to be tenanted

Probably not a problem for most however for me, its a big problem, I've avoided any trouble with tenants purely because of my screening.

I will spend upwards of 30-40 minutes having what appears to be a casual chat with a shortlisted number of prospective tenants.

Gives me a good insight into what they're like as people, after 25 plus years you develop an instinct for it and for people.i remember during one such chat the prospect, told me in no uncertain terms what he thought of his previous Landlord and went on about how he refused to pay and how the Gardai had been called several times by his neighbours for disturbing the peace and now he wanted to move quickly.
This seems hard to credit but its a genuine encounter with an individual who had appeared plausible and reasonable if you had only a passing acquaintance at a viewing.

Inheriting a tenant would be something I would not want.

 

[Greenbook]

Even if you inherit a good tenant (and most tenants are fine), I still think there is a real risk that you'll never get market rent because large resets will be 'postponed'. Maintainence and improvement costs may become significant. I think the current inspection regime went a little easy on landlords for fear they would sell. With permanent tenancies, that issue is gone and there is nothing stopping the government from adding to and increasing standards or minimum BERs. Nothing wrong with high standards, but you do need the rent to cover the cost.

Tenant in situ purchases will not be attractive even to a cash rich professional landlord - still too many risks even if the tenant is good.

 

[Greenbook]

Thanks to my wife who is a history buff, I think I now know what the exit is for a landlord with a permanent tenant. This apparently happened in the UK commonly after their WW1 rent controls she tells me:

1. You are a landlord with a permanent tenant and you need to get out

2. The only offer you will get will be from a speculator with cash. If the house is worth €400k, he will offer you €100k cash and you'll have little choice but to take it as there are no other offers.

3. Your tenants are good, but are low income workers. The speculator will have checked this out in advance. He'll offer them €100k to move out. They will jump at it as they will now be able to get a mortgage and buy or move back home with a large lump sum.

4. They'll be gone within a year, the speculator will freshen up the house, put it on the market and sell for €400k, so a nice €200k profit and rent in the meantime.

This did happened in the past in the UK. I certainly think it could be a scenario here. The government will have no sympathy for the landlord - shure didn't you get exhorbidant rent for years!

 

[DannyBoyD]

I've avoided any trouble with tenants purely because of my screening.

Remember the engineering principle, the longer a piece of string the more likely it is to break.

At some point you'll hit a dud, as long as you have a budget & a plan, you'll weather it.

 

[bipped]

With long term lets in Europe, the norm is that the tenant is responsible for the fit out, repairs and maintenance.

It should be the same here for long term lets. NAL but I can’t understand why all tenancies here are not bare bones. It makes no sense to me that landlords fit out a rental with so much more than the legal requirements. If tenancies now are for unlimited duration, retrofitting may be compulsory, vacant possession may be difficult, etc etc, it should be the tenants responsibility to supply whatever type and style and quality of furniture, beds, floor and window coverings they want. It seems to me that landlords are allowing themselves to be caught for possibly 10+ years for the on-going maintenance and refurbishment of items they are not required to provide. The only long term lets that need to be fitted out now is student accommodation. It’s puzzling to me why private landlords continue that practice when costs are so high, increases are capped, and ability to leave the market becomes more difficult with every change in the legislation.

 

[Dr Strangelove]

This is not as big a problem at portfolio level.

If you have 10 properties one dud tenant is manageable.

If you have one property it’s a disaster.

 

[Greenbook]

At some point you'll hit a dud, as long as you have a budget & a plan, you'll weather it.

If you are a large landlord, that dud could be with you forever or you'll have to write him a very large cheque to get him to go voluntarily

 

[Greenbook]

If you have 10 properties one dud tenant is manageable.

Not necessarily, that dud could take up a huge amount of your time with all sorts of messing around. The RTB will not be your friend if you try to evict him and if you lose such a case, he really has you over a barrell.

Up until now, it was an okay risk with a portfolio because you could sell and exit that way. That option will be gone. He is your tenant for life. It will be impossible to sell the property with him in situ. You are 100% stuck and trapped.

 

[Greenbook]

It should be the same here for long term lets. NAL but I can’t understand why all tenancies here are not bare bones. It makes no sense to me that landlords fit out a rental with so much more than the legal requirements. If tenancies now are for unlimited duration, retrofitting may be compulsory, vacant possession may be difficult, etc etc, it should be the tenants responsibility to supply whatever type and style and quality of furniture, beds, floor and window coverings they want. It seems to me that landlords are allowing themselves to be caught for possibly 10+ years for the on-going maintenance and refurbishment of items they are not required to provide. The only long term lets that need to be fitted out now is student accommodation. It’s puzzling to me why private landlords continue that practice when costs are so high, increases are capped, and ability to leave the market becomes more difficult with every change in the legislation.

Landlords have no choice but to continue it. There is a 90 page set of guidelines detailing exactly what you must provide and it is very specific.

 

[TomEdison]

If you are a large landlord, that dud could be with you forever or you'll have to write him a very large cheque to get him to go voluntarily

Yes. But, in the same way, employment protection laws make it difficult to get rid of underpeforming employees. Publicans will tell you that equal treatment legislation makes it difficult to exclude problematic customers, etc, etc.

I think the idea here is that if you have professional, large-scale landlording, dealing with a proportion of less-than-desirable tenants within the framework of the regulatory regime for landlording, including protections for tenants, has to be managed as a cost of the business.

And, basically, that's true. But it does mean that you need a regulatory regime, and tenant protections, which make it possible. This does not mean you need the regulatory regime, and tenant protections, that landlords dream of. Somewhere, the competing objectives of making landlording profitable and providing secure and decent accomodation for tenants, have to be made to meet, with compromise of both objectives

It should be the same here for long term lets. NAL but I can’t understand why all tenancies here are not bare bones. It makes no sense to me that landlords fit out a rental with so much more than the legal requirements.

Fun fact; the letting of unfurnished residential property used to be standard in Ireland. At some point — I think it was in response to galloping rent increases during the Great War — rents were frozen, but there was an exception in the legislation for the letting of furnished accommation, which at the time was something only done where a short-term tenancy was expected.

The result, over time, was a signficant shift in the market; as unfurnished lettings expired or were surrendered, landlords would furnish the property before reletting, so as to avoid rent restrictions. Only local authority lettings were unfurnished.

Rent restrictions weren't abolished until the 1970s or 1980s, and by that point the expectation of private lettings being furnished was well entrenched. Also by that point home ownership rates were high. As a result, a high proportion of private lettings were relatively short-term, since the tenants expected in the medium term to buy, and the practice of furnished letting suited them.

As Greenbook points out, the provision of furniture is now mandatory, and there are detailed regulatory specifications. The regulatory specifications happened because of the notoriously poor quality of furniture and appliances that landlords used to provide.