Landlords and tenants could both be aggrieved by the government’s ‘first refusal’ plan

Posted on: 13 March 2023

The ending of the no-fault eviction ban has understandably attracted the lion’s share of media attention since the government announced it. But the announcement contained more than a confirmation of the end of the ban, with two other aspects worth noting.

The first is that the government is planning to introduce a right of first refusal for tenants when their landlord is selling, and the second is that there will be additional measures to increase the amount of social housing.

The exact details of the first proposal have yet to be announced, though we know that the sale price offered to tenants will be based on an independent valuation. This means that the right of first refusal will not be absolute. If the tenant cannot or does not want to pay the independently assessed price, then the property will, presumably, go on the market in the normal way.

Imposing limits on how the right of refusal will work is important for ensuring that this measure is constitutional. Under article 43.1.2 of the Constitution, the state is precluded from abolishing the “general right to transfer, bequeath, and inherit property”.

Any proposed right of first refusal for tenants will necessarily constrain the right to transfer property, but it will fall far short of an abolition of this right. On this point at least, the concept of a right of first refusal is likely to survive constitutional challenge.

What may prove more controversial is the independent valuation of sale prices offered to tenants. The Irish courts have not been particularly clear about whether and to what extent the right to property protects its monetary value. There is some case law which indicates that the courts will protect economic value, yet there is also case law which suggests that they will not protect poor investments.

An obvious analogy to independent valuation is the process by which market value is assessed under compulsory purchase orders. That regime allows for arbitration where the parties disagree on price. The challenge for any valuation under the right of first refusal is that, unlike in compulsory purchase, the valuation may potentially be tested on the market if the tenant does not buy their dwelling.

Given the volatility of property prices, there is scope for both tenants and selling landlords to be aggrieved by the valuation process. Unfortunately, until further details emerge on how the process will work, it is hard to fully tease out the constitutional issues which may arise.

There is, though, a more immediate problem with the right of first refusal: its announcement undermines the government’s stated aim in ending the eviction ban, namely to stem the exodus of small-scale landlords from the private residential sector. The reason is that one of the grounds of no-fault eviction available to landlords is that the landlord plans to sell the property.

It seems likely that the announcement of a forthcoming tenant right of first refusal might have the effect of encouraging more landlords to sell before the new rule comes into force. At best this is short-sighted on the part of the government; at worst it borders on a dereliction of duty.

Tuesday’s announcement also indicated that a review had commenced of the private rented sector, and promised that more measures for landlords and tenants were on the way.

It is disappointing, to say the least, that this review is not yet complete and that we have no sense of what these measures might be. What was the point of the eviction ban if not to buy time to develop solutions for the housing crisis, particularly the crisis in rented accommodation?

It is worth remembering that in 1991, only 8 per cent of Irish householders were private renters – yet within 25 years, this figure had risen to almost 30 per cent. The rise in the number of renters and small landlords is the result of decades of deliberate government policy and legislative intervention. However, it is now clear that this model of housing provision fails both tenants and landlords.

Small-scale landlords are simply not able to provide the high-quality, affordable and secure housing that Ireland needs. Yet the large-scale, luxury, build-to-rent developments cannot fill this gap either; the profit margins of rental housing are too thin to support them.

What is needed is more social and not-for-profit housing. In fairness, Tuesday’s announcement also made much of the government’s increased investment in social housing. While the promise of more social housing is welcome, converting private housing into social housing will be nowhere near enough to meet current needs. Such conversions see no net increase in supply.

The effective delivery of increased social housing will take time. Yet instead of buying itself more time by reworking the no-fault eviction ban to address key concerns with it, the government opted to end it altogether.

Even worse, it added extra incentives for landlords to sell, and to sell soon. It is hard to see how this will end well; from the frying pan into the fire we go.

This article was first published in The Sunday Business Post on March 12th, 2023: https://www.businesspost.ie/analysis-opinion/sarah-hamill-landlords-and-tenants-could-both-be-aggrieved-by-the-governments-first-refusal-plan/

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