I rented a room in my home to a friend at lower than market rate for six months more than three years ago. After he moved out, I rented it to another person under a licensee agreement. I set that rent only marginally higher than what I had charged my friend as I thought I had to keep to the RPZ [rent pressure zone] rules.
For the past two years, I’ve hosted three different Ukrainian people at different times and I’ve availed of the accommodation recognition payment (ARP) payment.
I want to rent the room out again and I thought I’d have to use the RPZ calculator to calculate the rent I can charge based on the last time I set the rent in May 2022. But a friend told me RPZ rules don’t apply to the rent-a-room scheme. Is this correct?
I haven’t been able to find anything official online, just some reddit comments that agree with my friend’s advice. The question is: am I stuck with charging below the market rent under rent-a-room because I rented the room to my friend for “mates rates” three years ago?
Ms C.D.
Renting can be a minefield – both for the renter and the property owner. There are myriad rules, which are determined by the type of rental contract, the type of property and where it is located.
For professional landlords, or institutions, with access to specialist advisers, there will always be someone to hand with access to all the rules and regulations but for accidental landlords, or small-scale property owners, such as yourself, it can be difficult to find accurate information.
The key thing in your case is that you are renting space in the home where you live. Thus, as long as you stay within the rules, you should not find yourself subject to the rent pressure zone rules at all.
From what I can see in your letter, you have always used either the rent-a-room scheme or the accommodation recognition payment scheme. We’ll go into each separately but one thing they have in common is that neither creates a tenancy that would be governed by the rent pressure zone rules.
Rent-a-room is very simple. It applies to homeowners or, with their permission, their tenants but the property in question must be the main home of the person offering to rent a room on a long-term basis.
That’s the second key thing: the rental must be long term, which is defined as a minimum of 28 consecutive days. This is designed to avoid use of the scheme by people who are simply operating under Airbnb or a similar short-term holiday let arrangement. There are, as always, exceptions – in this case covering people in respite care, those availing of four-day-a-week “digs” arrangements, or students (including language students) staying for shorter periods.
You are also barred from using the scheme to rent to your child, or the child of a partner, or to your employer – all of which sounds reasonable.
Finally, there is an absolute upper limit on how much you can “earn” from the arrangement. This is capped at €14,000 a year, including any ancillary charge for things such as laundry that you might levy. Go one cent above the €14,000 and all of it is liable to income tax, PRSI and universal social charge. But stay below that cap and you are not liable to any of those taxes.
It’s worth noting that you cannot deduct any maintenance or upgrade costs from the gross rental. You either claim the rent-a-room relief or decide that you will fare better by claiming the expenses under normal taxation of earnings. In neither case, however, is a tenancy formed. And that’s important.
You refer to your second letter as a “licensee” agreement. This is the same thing (as long as other rules and income caps are observed). The person staying with you is there at your invitation or with your consent. There is no tenancy, as such.
Under the accommodation recognition payment, as you know, you qualify for a monthly payment of €800 for housing one or more Ukrainian refugees in your home for a minimum period of six months. Again, you can be either the owner of the property or a tenant in it. If the latter, you will need to have approval of the owner and, either way, it needs to be the family home of the person seeking the payment.
The property also needs to meet certain standards, which can be found here.
As with the rent-a-room scheme, the €800 monthly payment is not subject to income tax, PRSI or USC. Importantly, the payment is also disregarded when it comes to social welfare means tests, which can be key for some householders.
And, as with rent-a-room, there is no tenancy created between the two parties and they do not have access to the rights that might be available to tenants. This, of course, means you cannot demand additional money from the people staying in your home if, as is likely, the €800, does not cover the monthly cost of keeping them. However, they can agree to contribute to the cost of utility bills, though they are certainly not obliged to.
Both these arrangements differ from a normal rental contract – even where you might have drawn up an agreed set of rules (contract) under rent-a-room to cover issues such as notice periods, which is possible though not required.
If you are not availing of the rent-a-room scheme or the approved recognition payment for housing a Ukrainian refugee, you will need to register the property and the letting with the Residential Tenancies Board. And, if the property is in a rent pressure zone – of which there are currently 65, with the most recent area added being the Sligo Drumcliff local authority area – you are restricted in the rent you can apply and the timing and amount of increases to that rent.
Rents in rent pressure zones can rise only by a maximum of 2 per cent annually or the rate of consumer price inflation if that is lower.
As you appear to be looking to rent out the room again under the rent-a-room scheme, you do not need to worry about the rent pressure zone rent calculator.
[ Homes hosting Ukrainian refugees quadruples with costs rising to €13m a monthOpens in new window ]
Even if you were to be renting the space on a more commercial arrangement – including registration with the Residential Tenancies Board – the rent you set would not be constrained by what you charged under the previous rent-a-room arrangement or the €800 a month earned under the Ukrainian-refugee approved recognition payment.
And if you had rented outside the rent-a-room arrangement at “mates rates”, you should still be all right as a property that has not been rented for a period of two years before your new tenancy (if any) is exempt from rent pressure zone rent cap rules under the legislation. Do bear in mind that is two years since it was rented, not two years since a new rent was set on the property.
As far as I can see, assuming the previous rental was under rent-a-room capped rates, your friend is correct and you are not constrained by the rent pressure zone rules.
Having said all that, always be careful of “mates rates”. If this had been a rental under rent pressure zone rules, you could have found yourself constrained financially down the line to your disadvantage because of a one-off favour to a friend. You’d actually be better setting a market rate and “forgiving” some of it to the friend under the small gift exemption, but that’s a scenario for another day.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com with a contact phone number. This column is a reader service and is not intended to replace professional advice
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