Lessons from Europe on tenants’ right to first refusal
Among the range of measures the Government has announced to address the housing crisis and provide a “safety net” for those facing eviction is one specifically aimed at renters who are in a financial position to buy their rental property.
Those tenants would be given first refusal on the sale when the owner decides to put the house or apartment on the market.
Similar schemes already exist in some other European countries.
In France, if a landlord wants to sell a property, they must offer the sitting tenant the option to buy it – though there are exceptions, such as if the owner wants to sell the property to a relative.
The owner must give the tenant six-months’ notice that they plan to sell, and the tenant then has two months to decide if they want to buy the home.
If they do, they have four months to arrange finance.
If the landlord gets a better offer on the property, the tenant is given the opportunity to match it.
Speaking to RTÉ’s This Week, Michel Arseneault said he had been renting his apartment located in a late 19th century building in Paris “like one of those you see in postcards” for more than 15 years when an opportunity to buy it arose in 2016.
“One day I learned our owner – a landlord I knew nothing about because everything went through an agency – wanted to sell all the flats he owns in the building.
“He actually owned the entire building, which was quite rare. There was talk at the time of a possible increase of taxes on foreign-based landlords in France.
“This Greek landlord decided to sell the property. As a tenant I was offered first right of refusal, the term in French is ‘droit de préemption’ (right of preemption).
“Under law the tenant has first right of refusal and can block the sale,” Michel said.
Michel said there were some negotiations about the price, but eventually he and his partner bought the apartment for 10% below the market value.
“Unlike the situation which is being contemplated in Ireland, there was no independent valuation of the property, basically the landlord says, through an agent, ok this is what we’re offering.
“I accepted the offer because it was under market price. Now of course this begs the question, why would anyone sell an apartment in central Paris below market value?
“In this case the landlord probably wanted to get rid of property fairly quickly which makes it easier. Buying and selling property here is complicated, there are all kinds of paperwork involved, companies are involved including insurance companies, health insurance companies so it’s not that easy to buy or sell an apartment in Paris.
“So if you are selling it to the tenant its advantageous for the landlord because it makes it just easier it terms of paperwork.
“Now why under the market price? It’s because you don’t need a real estate agent who usually takes commission.
“Yes I did get a good deal but keep in mind I had been living there for 15 years and I had already given this landlord hundreds of thousands of euros in rent,” Michel said.
Michel said almost all of the tenants, bar one couple in his building, which has 20 flats in total, were able to buy their homes.
“I know this type of scheme cuts back on the paperwork, cuts back on the bureaucracy, makes buying and selling easier,” Michel said.
In Germany, numerous cities have exercised the municipal right of first refusal.
Emmanuelle Chaze, who lives in Berlin, said it’s become increasingly difficult to buy or rent a house or apartment due to rising prices in the city, but tenants have the right of first refusal if a landlord intends to sell their property.
“When there’s a renting contract and the landlord wants to sell then he has a legal obligation to first inform the tenant but then give him or her the opportunity to buy the flat they live in.
“So this applies if one flat is for sale in a building but if the entire building is being sold then different rules apply. But generally if there’s an individual flat then tenant has a pre-emptive right to buy it.
“The are many exceptions, however – if the flat is sold for insolvency or at an auction or if it is co-owned or if the owner wants to sell it to a family member or a partner, then the tenant doesn’t have a pre-emptive right to buy it,” Emmanuelle added.
“The people I know who bought places in Berlin did it a decade ago when it was still much more affordable than it is now. Now, if you don’t have the capital it has become really hard to come by a place you can afford.
“Even if there is a pre-emptive right to buy it the tenant doesn’t have a say as to the conditions of the contract and that includes the price.
“So if the person cannot afford it it doesn’t really matter if they have the option to buy it or not. The tenant can benefit from the same buying conditions as would a third party and then they would have the pre-emptive right to buy it for a few months.” Emmanuelle concluded.
Minister for Housing Darragh O’Brien has said that he will bring forward legislation for a ‘first refusal’ plan in Ireland.
Ahead of details being announced, Professor Padraic Kenna of the School of Law and the Centre for Housing Law, Rights and Policy Research at NUI Galway has said there are question marks over eligibility.
He thinks there will have to be quite a lot of legislative change on this property law issue.
“It’s not quite clear as to how long you need to be a tenant – does it apply to tenants who have been a tenant for six months or is there going to be a minimum length of four years or six years for instance?
“Also in the private rented sector we have quite a lot of situations in cities of multiple tenants in the same property so that’s going to be a question- who will be eligible to exercise this option to purchase? All of them or some of them?
“Also, we have in large blocks planning permissions with specify that there can be one owner as part of the planning conditions. There’s going to be question mark whether the properties in those blocks will be eligible as well,” Prof Kenna said.
“Realistically if it’s going to be enforceable it would probably need to be registered against the title of the property as an option.
“Some kind of a caution in the land registry to protect third parties but to also make sure that the option is there and was exercisable.
“It does raise a lot of questions though whether delay will defeat this option – at what point will the landlord be entitled to say ‘Well I’ve offered this for sale, there has not been a satisfactory response … or there has been a delay’.
“At what point can the landlord sell to somebody else because the value maybe decreasing for instance because who knows what’s going to happen in the future?,” Prof Padraic Kenna added.