A tenant’s right to compensation for improvement arises under Part 4 of the Landlord & Tenant Amendment Act 1980. Hardly topical one might say, but the significance of this provision has come to the fore in recent years since the introduction of “Renunciations” of Tenant’s Rights under 2008 legislation referred to below. If a Tenant does renounce their rights under mechanism laid down in the 2008 legislation, can they still claim compensation for improvements?
Ignoring the issue of “Tenant’s Renunciation” for the moment, when can a Tenant claim compensation for improvement? Section 45 of the 1980 Act defines improvement as meaning “any addition to or alteration of the buildings comprised in the tenement and includes any structure erected on the tenement which is ancillary or subsidiary to those buildings and also includes the insulation of the tenement of conduits for the supply of water, gas or electricity, but does not include work consisting only of repairing, painting and decorating, or any of them”.
A tenant is not entitled to compensation unless he quits the tenement “because of the termination of his tenancy”. However, he has no entitlement where he himself has terminated it by Notice of Surrender or otherwise or the landlord has terminated for non-payment of rent. It should be noted that the right to compensation is not excluded where the tenancy is terminated by the landlord for any other reason, e.g. breach of covenant not relating to rent.
A tenant is entitled to compensation for any improvements only if, at the termination of the tenancy, it “adds to the letting value”.
The improvement must also be “suitable to the character of the tenement”. It would appear that substantial expenditure, which adds little to the letting value is unlikely to be suitable to ground a right to compensation.
If compensation is payable, then such compensation is payable within one month from the date of the fixing the amount (either by agreement or as set by the Circuit Court) or delivery of clear possession of the tenement to the landlord, whichever is the later.
It appears that the overriding principle in this matter is whether the “improvement” actually adds to the letting value of the property and if it does not, then no compensation is likely.
The main restriction on the right to claim compensation for improvement centres around the requirement for notice by the tenant to the landlord of the tenant’s intention to carry out improvements to the premises. Earlier legislation required the service of an Improvement Notice as a precondition to claiming compensation, but the current legislation, being the 1980 Act, modified that position. Currently, failure to serve the requisite notice deprives the tenant of compensation only if a landlord satisfies the Court that (a) he has been prejudiced by the notice not having been served; or (b) the improvement contravenes any covenant in the Tenancy Agreement; or (c) it injures the amenity or convenience of the neighbourhood. Where the improvement comprises works required by a sanitary or housing authority, the rule is that failure to serve the requisite notice on the landlord does not deprive the tenant of his right to compensation if the tenant satisfies the Court that the landlord did not suffer loss or damage thereby. It is to be noted that here the onus rests on the tenant to establish lack of prejudice whereas in the other cases, the onus rests on the landlord to establish prejudice etc.
When the parties cannot agree on the amount of compensation, the compensation is calculated on the basis of being the capitalised value of such addition to the letting value of the tenement at the termination of the tenancy as the Court determines to be attributable to the improvements but making a deduction in such sum as the Court thinks proper to reflect previous benefits enjoyed by the tenant or his predecessor in consideration of the improvements, expressly or impliedly, an example of a tenant benefit might be a reduction in the rent for having carried out the improvement. In fixing the capitalised value of the addition to the letting value, the Court is to have regard to the probable duration of the addition, the probable life of the improvement and all other relevant circumstances, but in no case is the capitalised value to exceed 15 times the annual amount of the addition. So by way of example, if the addition of the improvement meant a €5,000 annual additional rental income on a property that would last 15 years, then a Court could award up to €75,000 as compensation.
The provisions of the Civil Law Miscellaneous Provisions Act 2008 which provides for the renunciation of the right to a new tenancy does not impact upon a tenant’s right for compensation, even when such a renunciation has been executed. It should be noted that if such renunciation has been executed, it does mean that the tenant is not entitled to compensation for disturbance, but it is an interesting distinction that compensation for improvement still survives such renunciation provided such improvement was made and qualifies as per the foregoing requirements.