Buy-to-Let Sector: Discussion with Irish Property Owners Association.

I welcome Mr. Stephen Faughnan, chairman of the Irish Property Owners Association, with Mr. Vincent Lynch and Ms Margaret McCormack of that association and Mr. Frank Lahiffe, consultant. We shall commence with a presentation. I draw everybody's attention to the fact that members of the committee have absolute privilege but the same privilege does not apply to witnesses appearing before the committee. The committee cannot guarantee any level of privilege to witnesses appearing before it. Further, under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the House, or an official by name or in such a way as to make him or her identifiable.

Mr. Lahiffe has the floor.

Mr. Frank Lahiffe

If I may, I will set the scene for the committee. I thank the Chairman and committee members for the opportunity to give this presentation. The Irish Property Owners Association, IPOA, was established 16 years ago to represent property owners in the private rental sector on whatever platform was necessary to develop and defend their rights. The Property Owners Association of Ireland is a company limited by guarantee and the IPOA is the registered trade name of the company. The association is financed through a membership fee paid by landlords who join the association. The association promotes professionalism and education on the rights and obligations of both property owners and tenants. It is fully affiliated to EUPI, the European Association of Property Owners. For the details of the presentation I hand over to the chairman, Mr. Faughnan.

Mr. Stephen Faughnan

I thank the committee for allowing us to make our presentation. The private rental sector is a vital part of the housing market in Ireland. More than 500,000 tenants are catered for in the market and it is crucial that the rights and obligations of both owners and tenants are fully respected in legislation. Unfortunately, that is not the case. Inthe past few years much legislation has been enacted which has had, and will have, serious implications for the private rental sector. Some operational aspects will have devastating effects on individual investors and the future supply of affordable rental accommodation.

I ask the committee to give some thought to the difficulties faced by property owners in the private rental sector. Investors were encouraged by the Government to put measures in place to look after themselves when they retire. They entered the private rental market for long-term investment, purchasing properties on which they paid up to 9% stamp duty, and provided good quality homes to 500,000 people. These are long-term investors, not speculators — their intention was to purchase property to provide for their future and that of their families. When investing, investors factored the possibility that mortgage interest rates might increase together with periods of vacancy and routine maintenance costs, being aware that rents can go down as well as up, unlike in the current commercial rental sector.

Some 20% of all mortgagees are on tracker mortgages and are in the lucky position that the decrease in rental income was accompanied by a decrease in their mortgage payments. Unfortunately, 80% of mortgagees are not in the same position: those with fixed-term mortgages had no reductions and variable rates decreased slightly. Unfortunately, the banks did not pass on the full reductions in the ECB rates to buy-to-let investors and in some cases actually increased them, resulting in their mortgage becoming more expensive, while rental income has significantly decreased.

As a result of the decline in the sales market, developers who cannot sell their properties are being forced by their financial institutions to rent them in the short term. This has resulted in a flooding of the market, increasing the supply of property available to let and reducing rents. These developers are not long-term investors and will sell as soon as the market improves and consequently the properties should not be considered long-term rental properties. Short-term properties are new and well designed and when tenants move into them they may have left the traditional long-term investor. In time, this may see the long-term investor moving from the market and may create a shortage of supply. This move should be discouraged before serious harm is caused to the traditional stock of rental accommodation.

Most buy-to-let investors who have purchased property since 2004 are now in negative equity. They cannot sell because the properties are worth less than the amounts they borrowed. This becomes a real problem when they cannot meet their repayments. Buy-to-let investors in this section had equity in their homes and were encouraged by financial institutions with the offer of maximum loan facilities to release the equity in order to purchase a second home.

Unfortunately, as a result of the difficulties in the economy as a whole, a buy-to-let investor also has to deal with other issues, such as redundancy, reduction in income and unemployment. This limits the amount he or she has available to subsidise rental income. Market forces have resulted in an oversupply of property for rent, long vacant periods, reduced rents, reduced income generally and negative equity, which are unavoidable problems. If investors had only these matters to deal with, they would weather the storm. Unfortunately, some investors will lose their properties anyway. Rental income is insufficient to cover their mortgage interest payments, which is a sad position, but it is part of the cycle of investment for the long-term buy-to-let investor.

Government intervention in the private rented sector has been anything but helpful. An example of this is the botched introduction of legislation in 1996 for the registration of properties with local authorities, which was unworkable. The commission on rental income in 1999 outlined a number of fiscal measures for the private rented sector, but when the subsequent legislation came into place, these measures were nowhere to be seen. The Residential Tenancies Act 2004 is a very complex piece of legislation which has compelled landlords to register tenancies with the Private Residential Tenancies Board, but the main part of the Act, that is, the dispute resolution mechanism, is in total disarray and costs landlords thousands of euro in lost rent.

In one case, a landlord pursued a tenant for non-payment of rent. The proper course of action was followed. By the time the dispute resolution process was completed through the tribunal, the tenant owed €12,500 in unpaid rent. This was enforced through the courts and the decision given by the judge was that the rent was outstanding but allowed the tenant to pay €100 per month, which meant it would take ten years to repay the money. As in many other cases, it is highly unlikely that the landlord will ever be paid. This is one of the many cases which costs landlords hundreds of thousands of euro per year.

In July 2008 the interest relief allowable on moneys borrowed for refurbishment was abolished. This was a serious blow because only the interest on the moneys borrowed was allowed to be offset and this was to encourage property owners to refurbish properties and keep them up to date. Property needs to be modernised and the withdrawal of refurbishment relief will be detrimental to the market.

The EU directive on energy efficiency was introduced in January 2009. Properties rented from that date have to have a building energy rating certificate which costs approximately €300 per unit. Energy efficiency is very important in today's climate and older properties need to be upgraded to make them more energy efficient. Any improvement in the efficiency of property will benefit tenants and not property owners, but there is no incentive to the property owner to upgrade the energy efficiency of the property. If such tax relief was available, it would encourage property owners to upgrade properties, which would benefit tenants, create employment and reduce CO2 emissions. The importance of this is evident in the United Kingdom, where allowances of £1,500 for upgrading the energy efficiency of properties are given to landlords.

New standards for rented accommodation were introduced in February this year which involved additional costs to property owners in the private rented sector. Pre-1963 properties, multiple unit properties and the older stock of properties will be particularly hard hit, with many owners in negative equity and unable to access funds from the banks. Refurbishment relief has been abolished and many of these properties may fall into disrepair. Owners cannot sell or afford to refurbish them. There are approximately 20,000 pre-1963 properties, housing in excess of 100,000 tenants, which provide affordable accommodation.

From 2013 it will be illegal for these property owners to continue renting their properties. The estimated cost of refurbishment per unit in pre-1963 properties is €10,000 to €15,000, with refurbishment of common areas costing approximately €25,000. There will be a loss in rents as a result of the reduction in the number of units and a loss of rent during the process of refurbishment.

Landlords also have the problem that banks are not lending due to the current financial situation. A landlord will have to terminate the tenancies which some residents have lived in for ten years or more, which will be a very difficult situation for them to deal with. Sourcing accommodation for similar properties will be impossible, which will undoubtedly result in homelessness and the stock of affordable accommodation will dwindle.

The recent budget measures have affected everyone negatively but have affected landlords in particular. They have been targeted more than any other sector. This is particularly unfair because landlords, in purchasing property, pay stamp duty at the commencement of the investment, often borrow money in order to pay the additional tax and contribute large amounts in taxation annually. Income levies of between 2% and 6% were introduced. While buy-to-let investors do not accept the necessity for them, they are fair because they are targeted at every business on the basis of the profit on an investment. These levies target profit, after allowing for expenses.

The reduction in mortgage interest relief to 75% is a very severe blow. Investment was based on the full mortgage interest being offset against rental income. Instead, buy-to-let investors are paying tax on an expense. They have to pay the full 100% of mortgage interest to the banks. This cut needs to be reversed. Prudent investments were predicated on the knowledge that tax legislation never introduced a retrospective law.

When the supplement was introduced across the board, even though property owners had already reduced rents, breaching contracts and the Residential Tenancies Act 2004, it artificially forced down rents and is a testament to rent control. Rent supplement should be paid directly to the property owner on behalf of the tenant, which would reduce fraud and the amount of cases being brought to the Private Residential Tenancies Board for non-payment of rent. Adopting this method of payment will ensure continuity of residence.

Investors were again targeted with increases in capital acquisitions tax and capital gains tax by a staggering 20%. This tax will not be evident until the disposal of property by sale or transfer. It is a heavy burden to put on an investor who is disposing of property and, in particular, on family members. The Local Government (Charges) Act 2009 was recently enacted and directly targeted property owners in the private rented sector, with investors paying €200 per dwelling even if they are in a loss-making situation or cannot let their properties. Ability to pay was not taken into account. Pre-1963 property owners are struggling with the charge. It is unacceptable that they have to pay per bedsit or unit. Recent investors with high mortgages cannot afford this payment. A house comprising six bedsits incurs a cost of €1,200 but in a house next door shared by six tenants the cost is €200.

Some investors may be in negative equity and the rental income may not cover mortgage interest payments. The cost of this to a property owner can be €200 to €2,000 per unit and above. This needs to be changed and a maximum cap of €400 for a house with two or more units should be introduced. The question of whether property owners pay the charges in order to be law-abiding or refuse to pay insurance premiums has been widely asked.

It is also unfair that payment of the charge is due in March 2010 which, in effect, means property owners have to pay it twice in the one year. No service is being provided for the charge. We have been advised that we cannot offset this tax against expenses, which has the effect of doubling the cost to property owners. It should be allowed to be an expense.

Ms Margaret McCormack

The proposed property tax and water charges will be particularly difficult for investors and will be vigorously challenged. However, it should be noted that council tax and water charges in the United Kingdom are billed and charged to the occupier of the property by the service provider. In Wales, when a property is vacant no charge is due. This is a fair system and if a property tax is to be introduced in Ireland this model should be considered. Tenants in studio flats or self-contained bedsits should not be disproportionately overburdened. Ability to pay needs to be taken into consideration.

Investing in property is currently taxed as unearned income, but needs to be treated as a business. The current system is unfair, anti-business, discriminatory and takes no account of the social and financial benefits to the State of having private rental properties available for those who are unable or do not wish to purchase their own accommodation. Rental income is, in all instances, treated as unearned or passive income instead of earned income. Many of the allowable tax deductions and reliefs available to other business, including pension relief, are denied to landlords. The Irish Property Owners Association sees no justification for the continuation of such a penal and outdated tax system for active property owners. The concept of passive or unearned income dates back to British rule and does not reflect modern Ireland. An individual who actively manages rental property can hardly be described as not earning his or her living. The modern, active property owner deals with a variety of issues on a daily basis, including the following: sourcing new tenants to fill vacancies as they arise; dealing with troublesome tenants and the problems created by such individuals; ensuring the property is maintained to meet the rigorous standards for residential lettings, including dealing with repairs which may be urgently required; and ensuring proper records are maintained to meet his or her business obligations under various sections of legislation, including the taxes Acts and the Residential Tenancies Act 2004.

Mr. Stephen Faughnan

To summarise, Government intervention in the property market in the past year, in addition to the oversupply of property, has resulted in a much higher proportion of property owners being unable to service their mortgages. Investors who are surviving may not be able to do so next year as a result of the increased taxes and charges and the significant reduction in mortgage interest relief. Three times as many property owners are going to the courts for defaulting on their loans than three years ago. Next year that figure is likely to double.

The following items must be addressed immediately. The cut in mortgage interest relief must be reversed. It should be and is a legitimate business expense.

Refurbishment relief to encourage property owners to keep properties in good order should be reinstated. Particular attention should be paid to the older stock of rental accommodation which has to be repaired and maintained to comply with current standards and energy requirements.

Expenditure on energy efficiency measures in buildings should be allowed to be offset as an expense, resulting in a reduction of carbon outputs, a decrease in tenants' bills and the provision of employment. It must be understood tenants are the beneficiaries of energy improvements.

The Local Government Charges Act 2009 needs amendment as follows: a block payment of €400 for a pre-1963 house in two or more units should be allowed. Where an investment is making a loss, it should be excluded from payment of the charge. Payments under the Charges Act 2009 should be allowed to be offset as an expense.

Charges on property for all necessary services such as refuse, water, etc. should be considered based on an ability to pay to ensure the user is liable for payment. Revenue should change the way it deals with rental income and consider the letting of property as a normal business, with normal business relief. The burden of taxation on entering and exiting the private rental sector is such that it can only discourage investment. The sector needs support and needs it now.

I thank the Chairman and members of the joint committee for giving us the opportunity to make a presentation. If they have questions, we will do our best to answer them.

I thank Mr. Faughnan, Mr. Lahiffe and Ms McCormack for their presentation which highlights the many serious issues facing the tenant business. I am sure members of the committee have many questions and comments to make.

I thank the representatives for their presentation. It is an area in which public policy has developed in anad hoc way. The fact that the predominant form of ownership is owner occupancy means that the rented sector has always been regarded as something of an add-on. The various tax treatments have reflected this fact.

I understand the reason the Minister for Finance, with pressure on resources, considered there was scope to secure more revenue by restricting allowances in the way he did because there is a big difference between landlords who are long established and whose expenses are relatively low in that they purchased property at a very low level and others who may have bought more recently and who could be, like some of the householders about whom we are talking, in negative equity. The difficulty with many of the measures introduced is that they are indiscriminate in the extent to which landlords can deal with these charges. It is an issue that needs assessment. I am not sure what the view of the Commission on Taxation is on it. I believe it indicated that it considered this matter had to be put on a business footing in the long term and that the current tax treatment did not represent a sound, long-term basis. I hope that, as the commission's report comes to be teased out, some of the obvious anomalies will be dealt with.

I recall in last year's Finance Bill trying to deal with individuals who had one house from which they had moved. They had become landlordsper force, so to speak, because they were unable to repay the mortgage. They were then hit with this measure, but the Minister considered there was not a way of providing a more forensic tax instrument that would allow allowances to such persons, while expecting those with substantial rental properties and, as many of them are long established, with a fair capacity to contribute more. That aspect needs consideration.

The difficulty none of us can avoid is that in the massively over-supplied market there will be a great difficulty for those who own properties, whether landlords or private individuals, which are now either not needed and vacant or cannot acquire the rent first hoped for. That is a real dilemma, apart from the tax dimension and regulatory aspect that has been brought to our attention today. The case deserves examination in terms of the combined burden and whether they should be a long-term part of a sustainable regime. That is an issue we must examine.

I welcome the delegation for which I have a number of questions. Much of the submission deals with buy-to-let properties. Does Mr. Faughnan envisage problems with the buy-to-let model continuing because I am aware of many people who say they were afforded credit on very easy terms by banks to purchase buy-to-let properties and who are now finding these properties difficult to let or, as described in the presentation, the rents have fallen? Does he agree the Irish market is heavily over-supplied and that, inevitably, many involved in buy-to-let properties may have to try to sell what was to have been an investment property? Much of it was on the basis of high levels of immigration continuing. I would be interested to hear Mr. Faughnan's remarks on that issue.

Do the representatives have a breakdown of the number of landlords who own multiple properties? From time to time I meet people who tell me they have between eight and 30 properties. In many cases this was facilitated by the easy lending regimes of the banks. In some cases, if people who were buying a house in which to live had a good income, the bank suggested they buy another on a buy-to-let basis. Do the representatives have a breakdown of the numbers of landlords who have, say, just one property and the numbers who might have more than one? That might help the committee to understand the numbers who see it as a business and those who were encouraged by the banks to purchase a buy-to-let property.

I would like to ask Mr. Faughnan some questions in regard to his comments on rent supplement. It is apparent when one looks at property websites that commercial rents are falling by an average of 20%. The State is currently paying out more than €0.5 billion in rent supplement. Would Mr. Faughnan agree that it might be reasonable for the State to seek a reduction in rents given because, as he will be aware, it is under severe financial pressure? All the property websites suggest rents are falling dramatically. Would Mr. Faughnan agree that the State must seek value for money in terms of rent supplement? Mr. Faughnan made reference to the system being reformed. What is his view of the State rental allowance scheme, RAS, whereby county councils enter into arrangements to rent properties for up to three years on behalf of tenants? I am interested to hear Mr. Faughnan's views in regard to that scheme.

On the rent supplement scheme, a would-be tenant must first find a property following which the HSE agrees the rent the tenant may offer or negotiate with the landlord. Would it be much easier to have a centralised scheme whereby the HSE or, preferably, the local authority negotiates or stamps the rent level and the tenant or HSE or local authority pays the rent? I get many reports in my constituency office of tenants who are paying rent which is over and above the agreed HSE rent supplement. Clearly, there are many problems in this area, in particular for tenants who are quite hard pressed to come up with the extra money. I am interested to hear Mr. Faughnan's view in this regard. As I understand it, people who are paying their own rent are in a position to negotiate good deals with landlords in terms of rent reductions. However, this is not happening to the same extent in relation to rent supplement.

Mr. Stephen Faughnan

Deputy Burton mentioned agreements in respect of short-term lettings in terms of there being an over-supply in the market at the moment, which is true. We believe this is a temporary arrangement and relates to builders offloading properties which they cannot currently sell. The financial institutions are forcing builders to rent their properties in the short term. As soon as the market improves — which we all hope will be soon — those types of properties will be put on the market for sale. Many older type landlords have got out of the business and as a result we may be faced with a deficit of properties for rent in a number of years.

Does Mr. Faughnan have any idea when such deficit might begin to arise? Will it be in a year, two years or three years?

Mr. Stephen Faughnan

When the market will pick up is dependent on the recovery of the economy. We all expect and hope this will happen next year or the year after. While many houses are currently vacant, I imagine that if the market improves, they will sell fast. Showhouses are full every weekend but people are not buying. With a little encouragement people will buy again. The over-supply of accommodation will, I imagine, evaporate shortly after this happens. We fear this will lead to a deficit in property available for rent which, in turn, will result in an increase in rents.

Deputy Burton referred to a reduction in rent supplement. The Department of Social and Family Affairs reduced by 8% this year the amount available to tenants by way of rent supplement. This forced landlords to reduce accordingly. Some landlords did not do so because they were unable to do it. The Deputy referred also to top-up payments in respect of rent.

Is it not true that rents have fallen by 15% to 20% in many parts of the country, as evidenced on the property websites? Young people and students renting privately are doing great deals with landlords in respect of rent.

Mr. Stephen Faughnan

That is true. Rent has reduced by, perhaps, 20% or more in particular areas. Landlords would already have reduced their rents by that amount for a tenant in receipt of rent supplement. The 8% reduction is on top of that 20%, which is an amount over and above that already agreed to by the landlord. Landlords who have good tenants do not want them to go and will reduce rents to suit them. The Department in telling us that if we do not do so a tenant must leave the property, is in fact controlling rents.

The Deputy also asked about the rental accommodation scheme, RAS. It has many good uses. It provides a landlord with an income for a period at a particular rate. The landlord will be sure to receive rent if the scheme is managed in the manner set out. It is a good scheme for people who are long-term unemployed. There are other areas in terms of letting in which local authorities are involved. Local authorities in the Dublin area are currently involved in a scheme which allows them to take on unfurnished properties on a ten and 20-year basis, which we welcome as it means continuity of income and that the local authority or appointed management company will take charge of the unit. While this scheme is in its infancy we believe it has a future.

That scheme relates to the taking over of a whole block of apartments from builders and developers in distress?

Mr. Stephen Faughnan

Yes, in 70% to 75% of cases. Speculators are not prepared to give the local authorities those types of properties. It appears to be a good model and we would welcome it as it gives continuity of income for a property owner. It will be up to the local authority to tenant the property and the property owner will know how much he or she will be paid over a number of years. I believe it is a good idea that will work well.

Does Mr. Faughnan have a breakdown of the number of landlords who own multiple properties and what types of properties they own?

Mr. Stephen Faughnan

We mentioned in our submission that there are approximately 20,000 houses in multiple occupancy.

I am speaking about the landlords who have eight, 20 or 30 properties.

Mr. Stephen Faughnan

We do not have figures in that regard. Landlords do not provide too much information in that regard.

Some of the landlords I met told me they have eight properties and others said they had 32 properties. Obviously, banks encouraged a lot of individuals to purchase a single property in high risk blocks of apartments which are difficult to rent at the moment. Does Mr. Faughnan have any analysis in terms of the spread of ownership?

Mr. Stephen Faughnan

No, we do not. It is a difficult figure to get. The Private Residential Tenancies Board is not able to get that figure either at this point. While the board is putting together a great deal of information of that nature it has not to date been able to obtain the figure concerned.

I welcome the delegation and thank them for appearing before the committee. Many investors used their own property as a personal guarantee to buy an investment property. Does Mr. Faughnan know if personal or investment properties purchased by these people were as a result of banks throwing money at people to encourage them into the investment property market? It has been brought to our attention that the dispute resolution system of the Private Residential Tenancies Board is not functioning properly in terms of the length of time it takes for cases to come through. Perhaps Mr. Faughnan will set out what solutions would be required to move the resolution process forward.

Mr. Stephen Faughnan

We know that many people were encouraged to purchase a second home. Since 2004, most people who bought those types of properties — and were encouraged by banks to take equity in their own home to buy a second house for investment purposes — are in negative equity. They are in serious difficulty. We have an amount of people who are under stress from banks taking cases against them. We do not know the percentage of cases that have come before the courts at the moment, but we encourage all our property owners to make sure they go to their bank or financial adviser to work out a strategy, so that they can hold on to that property for the short term at least. We encourage them not to ignore these situations, but to face their responsibilities. We find that the main banks are listening to these people and are giving them reasonable opportunities to face up to their responsibilities in the current circumstances.

Have any cases of misselling been brought to Mr. Faughnan's attention, whereby banks would have been reckless in selling mortgages?

Mr. Stephen Faughnan

Not to that extent. It would appear to depend very much on the equity people had in their own home——

So that there were adequate securities as well.

Mr. Stephen Faughnan

——and what level they would give or what money they would put towards it themselves. I would not say there was recklessness.

Reckless lending by the banks?

Mr. Stephen Faughnan

I would not think it was reckless.

It was fully secured?

Mr. Stephen Faughnan

Fully secured, yes. With regard to the Private Residential Tenancies Board, the dispute resolution mechanism was supposed to be the way to solve disputes between property owners and their tenants out of court. However, it has turned the opposite way.

Mr. Stephen Faughnan

It will take from 18 months to two years to get a dispute resolved by the Private Residential Tenancies Board. There is an appeal mechanism in it. A lot of the cases that are going before the Private Residential Tenancies Board — both in mediation, adjudication and then on to a tribunal — concern deposit retention and rent arrears. Deputy Bruton's colleagues have called for a deposit retention scheme to be put in place. It sounds like a good idea because it is in the UK, but we would dispute that. The Private Residential Tenancies Board's dispute resolution mechanism should resolve any disputes concerning deposit retention or rent arrears in ten days. There is no reason for these things to go on for 12 or 18 months. They cost a lot of money, both for the Private Residential Tenancies Board and the property owner. In those cases, the Private Residential Tenancies Board does not insist that the rent be paid during the course of the dispute. That is a serious issue. Even though the 2004 legislation states that it has to be paid, the board does not insist on it. By the time these cases come to resolution, it has cost the landlord a loss of rent, which he or she may never get. In addition, it has cost the Private Residential Tenancies Board thousands of euro to bring it to a tribunal because there are three people on the tribunal and a mediation process before that. Last year, there were 681 such cases. If some people in the Private Residential Tenancies Board cannot be assigned to hear these types of cases, it is a poor day because the legislation cannot be handled in an efficient manner. We believe there is no need for a deposit retention scheme if the legislation was applied properly.

Mr. Faughnan said 500,000 people are in rented accommodation. Does that mean there are about 100,000 rental units?

Mr. Stephen Faughnan

Give or take a few thousand, I think there are about 250,000 tenancies registered with the Private Residential Tenancies Board.

I absolutely respect that members of the Irish Property Owners Association are all doing their best to work with tenants. However, there is a problem in that business because a relatively small number of landlords — they are possibly not members of the association — do not behave particularly well. One of the reasons that so many disputes end up with the Private Residential Tenancies Board is that some landlords may have bought into an investment and do not know very much about being a landlord. They do not always treat tenants very well. There are also tenants who do not behave well to landlords and end up damaging property.

Does Mr. Faughnan think more advice should be offered to landlords on how to make it an effective business between them and the tenants, particularly in multiple units? I respect that people in Mr. Faughnan's association are in it as a business and would have high standards. As public representatives, however, we get cases all the time. I do not know whether landlords have the faintest idea of their obligations to tenants. People are not told about rules on noise, litter and bins. In certain areas of my constituency, up to 25% of houses in estates are rented. The gardens are left unkempt, bins are left out and the place is dirty and untidy. Could the Irish Property Owners Association run an education campaign for landlords? Home owners are proud of their properties and look after them, but they find it difficult when landlords do not maintain rental properties. They are like the absentee landlords of colonial times. It is a constant cause of problems. On top of that, irresponsible tenants have weekend-long parties, including drinking sessions, so it is an extremely fraught situation. A large volume of complaints that go from Deputies, including myself, to the Private Residential Tenancies Board deal with issues that could be avoided if there was a proper code of conduct for landlords and tenants.

Mr. Stephen Faughnan

I thoroughly agree with Deputy Burton. Unfortunately, in certain areas, this situation happens with a small minority of landlords. We educate landlords annually with two courses per year. We hold meetings around the country, all through the year, educating landlords on how to behave. There will be exceptions to all these situations.

As regards repairing properties, under legislation introduced on 1 December, landlords are responsible for their gardens, painting, etc. That will sort out much of what the Deputy mentioned in local areas. I would imagine it will improve people's view of landlords. Disputes over anti-social behaviour are covered by the 2004 legislation. Property owners can refer to the Private Residential Tenancies Board for emergency procedures to evacuate such people. It does not work as simply as that, but the mechanism is there to have anti-social behaviour dealt with in a reasonable manner. It needs to be tightened up, no more than with the deposits, so that the Private Residential Tenancies Board can be more effective.

I assume Mr. Faughnan's association also represents apartment owners. He has not commented on property management companies. Does he want to comment on the fact that there is currently no legislation to regulate property management companies? They are a law unto themselves.

Mr. Stephen Faughnan

We have a difficulty with management companies concerning charges and the way they manage properties. I understand that the Property Services Regulatory Authority is taking on board new legislation for that.

That legislation will not affect existing management companies. For instance, in my constituency, we have tens of thousands of people in managed apartment blocks and estates. Currently, the average management fee in apartment blocks in Dublin west is between €1,800 and €2,400. It is a large amount. In the case of storm or flood damage, there is no sinking fund. In many of these blocks, over 50% of the apartments could be investment properties. In some cases it could be closer to 70% or 80%.

It would seem that property investors who are not looking after the overall future of the unit will be left high and dry if they encounter a difficulty, for example, the recent flooding or the roof being blown off an apartment block in south Dublin. Has Mr. Faughnan had any interaction with the property regulator?

On the regulations, the Bill is sitting in the Seanad and, apparently, the Minister has over 250 amendments to that legislation. In fact, it may almost be a new Bill. In the meantime people are facing extraordinary levels of increase in fees. Has Mr. Faughnan had any discussion with the property regulator on trying to regulate fees so that where one pays a fee, there is value for money and an invoice showing what the fee is paid for? This would apply both to owner-occupiers and to landlords. It would be an enormous step forward because there is a considerable rip-off going on, particularly of younger people and, obviously, some of the association's members, in these management companies.

Mr. Stephen Faughnan

We made a submission on tidying up this area to the Law Reform Commission two years ago and this matter was taken on board. The Property Services Regulatory Authority has taken that up as well.

There are areas which are causing difficulty, for instance, the insurance of such properties. They tend to generate a significant number of claims from sinks being left overflowing resulting in the flooding of properties, etc. In the past, insurance companies cut premiums for competition reasons, but they are beginning to increase them and there are 100% and 200% increases in such premiums. That is causing much of the difficulty. I read on the newspaper during the week that there was a fiddle going on between the contractors and management companies involving kick-backs, etc. I know nothing of that. I would make the point about insurance premiums.

As an organisation, we are pressurising landlords to ensure they fight and attend annual general meetings and make their presence felt. They, as owners of properties, should sit on these boards and should fight their case to reduce fees.

I am aware that in a few areas, in Deputy Burton's constituency and in other constituencies, where landlords have sat on these committees or boards that they have got reductions and responsible replies, and tidied up the operation generating much greater efficiencies. Apart from the cost, there is a lack of efficiency in management companies in dealing with such matters. It is not good management, for argument's sake, if one has an automatic gate which is left broken for two or three days and undesirables gain access.

I have seen bills for management companies for fixing lifts of €18,000 where somebody came along, who I presume was a qualified electrician, with a screwdriver, but it was a case of think of a number.

Mr. Stephen Faughnan

On the question on a sinking fund, every apartment block should have a sinking fund even if they were to put it on the owners of the properties to set it up and then impose an annual charge for it. We are only coming to the point where there is a demand being made on sinking funds because the properties are getting older and need refurbished windows, energy conservation measures, etc. Every apartment block needs to have a contingency fund for repairs.

Why does the association not set up a school for the developers and give them a briefing about the standards to which their buildings should adhere?

Mr. Stephen Faughnan

We would not have any briefing now for developers.

It would be doing a great public service.

I thank Mr. Faughnan, Mr. Lynch, Ms McCormack and Mr. Lahiffe for their presentation today and highlighting serious problems in their business. Much of their submission applies to a range of Departments and I propose to contact the Chairmen of the committees concerned and send them a copy of the association's submission together with the official report of the discussion we have had here today. Naturally, we will also contact the Ministers in those Departments with details of the submission. We will do that immediately and we will note the matter for further discussion in our 2010 schedule.

The joint committee adjourned at 1.15 p.m. until 2.30 p.m. on Thursday, 25 February 2010.