Scottish Government’s “New deal for Tenants”

On 29 September 2023 the Scottish Government published their proposals for reform in the residential rented sector – A New Deal for Tenants: Rented Sector Reform Proposals (the Consultation). Some of the proposals in the Consultation relate solely to either the private rented sector (PRS) or social rented sector (SRS), while others would have effects on both sectors. This article provides an overview of the main proposals, with a detailed review of the rent control proposals - which may be of particular interest to current or prospective investors in the Scottish PRS.

 

Ending joint tenancies

PRS joint tenancies occur when more than one person is named on a tenancy agreement. Each named individual is responsible for all obligations under the tenancy agreement, both on their own and equally along with the others named on the tenancy agreement. If an individual wishes to leave the property, all tenants must agree to give notice to end the tenancy. Although this ensures that no joint tenant can be inadvertently made homeless, it also means that people are effectively ‘trapped’ in a tenancy unless the other tenants also agree to end the tenancy agreement. 

 

In the Consultation the Scottish Government propose introducing a requirement for a 2-month consultation period among all the tenants in a situation where a tenant wishes to leave a joint tenancy. This period would allow for an agreement to be reached as to when the tenancy should end. If there is no agreement, the departing tenant may serve a 28-day notice on the landlord which would end the tenancy for all the tenants. In effect, this would mean that a departing tenant in a joint tenancy will have to give 3 months’ notice to end their tenancy. The Consultation envisages that this period of time “would give the other joint tenants time to consider their own circumstances and to come to an agreement with the exiting tenant – through finding someone to replace the tenant leaving, assessing whether they are able to continue to afford to remain in the property either on the same tenancy agreement or under a new tenancy (subject to the landlord’s agreement), or find alternative accommodation”.

 

Personalisation of the property

Tenants in PRS tenancies, particularly those living in rented accommodation for a long period, would often like to personalise the property. The Consultation proposes permitting personalisation in order to put PRS tenants on an equal footing with homeowners and SRS tenants (who already have the ability to decorate their property as they wish). Personalisation of the property by the tenant would fall into one of two categories:

• Category 1 – personalisation not requiring landlord approval
  Minor modifications such as hanging pictures and posters would fall into this category.

• Category 2 – personalisation requiring landlord approval
  This category would include more substantive changes such as painting the walls a different colour. If a landlord agreed to a change, they would be able to set reasonable conditions for approval. The reasonable conditions may include:
• An obligation on the tenant to reinstate the property at the end of the tenancy or to leave the property in “good decorative order”;
• An additional deposit; and
• Any modifications to be made by a qualified individual.

The Consultation acknowledges that there may be some reasonable grounds of refusal, such as:

• The modification would result in non-compliance with the law;
• Safety concerns in relation to other occupiers, tenants or dependents;
• The building being a listed building;
• A valid notice to leave having been served on the tenant before the tenant made the modification request; and
• The modifications would require modifications to common areas or other premises.

The Consultation proposes that for category 2 modifications, examples of reasonable grounds for refusal and reasonable conditions for approval would be set out in regulations to provide clear guidance to landlords and tenants. It is proposed that a landlord would have a set period (for example, 30 working days) to respond to a modification request, and that the response should include any specific conditions for approval or, if applicable, the reasons for the refusal. Silence on the part of the landlord would be treated as a refusal.  Where there is a joint tenancy, all joint tenants would need to agree to the change and make the request jointly.

 

Changing perspective regarding pets

Written permission from the landlord is required to keep a pet for both SRS and PRS tenancies. The Consultation proposes a statutory provision allowing pets to be kept in properties where possible. As with personalisation of the property, a tenant could submit a request to keep a pet to the landlord. The landlord would then have 30 working days to respond. The landlord could only refuse the request where reasonable to do so and by giving reasons for the refusal. If the landlord agrees, they can set out conditions to the approval which, again, must be reasonable. These may include requiring an additional deposit or requiring the tenant to supervise the pet and ensure that they are not a nuisance to neighbours.

The proposal would see landlords permitted to refuse a request where ‘reasonable grounds’ are met. The proposed reasonable grounds of refusal of a pet include:

• The property is not suited to the type / number of pets requested;
• The animal is listed in the Schedule to The Dangerous Wild Animals Act 1976; and
• The animals are to be kept for commercial purposes.

 

Unclaimed deposits to be transferred to Government

PRS tenancies usually require a deposit to be made by the tenant at the start of the tenancy. This sum of money is kept by the landlord in one of three deposit schemes available. The deposit is returned to the tenant at the end of the tenancy (less reasonable deductions for any damage to the property). Between each of the three deposit schemes, there is now around £4 million of unclaimed deposits.

To attempt to combat this, the Consultation proposes requiring deposit schemes to request alternative contact details from tenants. Under the proposals, a deposit will be classed as an “unclaimed deposit” if has not been claimed for a period of 5 years from the date the landlord applies for the deposit to be repaid, and reasonable efforts have been made to return the deposit to the former tenant.  Unclaimed deposits would be able to be transferred to the Scottish Government after a set period of time.

 

Greater protections during eviction

Whatever the reason for eviction, the timing may be difficult for the tenant. This proposal would see the First-tier Tribunal for Scotland (Housing and Property Chamber) and the Scottish Courts asked to consider whether to delay an eviction due to one of the following reasons:

1. Seasonal pressures e.g., winter months;
2. Eviction would cause financial hardship, have a negative impact on health or disability of the tenant or someone in the household; or
3. Whether delay would cause financial hardship to the landlord or have a negative affect on their health / disability.

Some eviction grounds may be exempt from the above considerations e.g., evictions for reasons of antisocial or criminal behaviour.

 

Changes to rent control

Historically protections have been afforded to PRS tenants to guard against rises in rent which make the rent on a property unaffordable. These protections include a 3-month notice period should the landlord wish to increase rent, and only allowing one rental increase during a 12-month period.

In October 2022, the UK’s year-to-date consumer price inflation rate was 9.6%, the fastest rate in four decades. In that same month, as a response to the increasing cost of living, the Scottish Government introduced the Cost of Living (Tenant Protections) (Scotland) Act 2022 (2022 Act). Schedule 1 of the 2022 Act contained temporary modifications to the law in relation to rent controls. Under the temporary laws, the landlord of a private residential tenancy cannot increase the rent by more than the “Permitted Rate”. At the time the 2022 Act was passed the Permitted Rate was set at 0% (in effect, no increase in rent was permitted). The 2022 Act gave the Scottish Ministers power to substitute a different percentage as the Permitted Rate. Currently, the Permitted Rate is set at 3%.

The 2022 Act was due to expire in March 2023. Scottish Ministers extended the expiry date to March 2024. The Ministers’ power to extend the Permitted Rate and expiry date, largely at will, has created uncertainty in the Scottish private rental market. That uncertainty has been felt particularly by Build-To-Rent (BTR) investors, who depend on predictable market conditions for their forecasting.

Some of the key proposals from the Consultation in respect of rent controls include:

• Increased Local Authority involvement – In the Consultation the Scottish Government propose that rent control should take local circumstances into consideration. It is proposed that Local Authorities should carry out assessments of the rental market in their jurisdiction, and report back to the Scottish Ministers whether rent controls should be imposed in all, or part, of their area. The proposal is clear that Scottish Ministers would remain the final decision maker in respect of any recommended rent controls.

• No increase between tenancies - The current rent controls only cap rent increases during a tenancy. Landlords are free to increase rent between a tenant leaving and a new tenant moving in. The Consultation proposes that in a rent control area, rent controls would apply both during existing tenancies and on the grant of new tenancies. The proposal is that in rent control areas, rent increases would be limited to one increase per property in any 12-month period, even if the tenant changes during that time.

• Amending the 12-month rule – The Consultation also proposes to clarify that where an area has no rent control in place, although rent could be increased in between tenancies, the rent could not be increased during the initial 12-month period of a tenancy. The Consultation does not state what the position would be after this period, but the assumption would be that the current rule that tenants cannot have their rent increased more than once in any 12-month period would then start to apply.

• Safeguards for Landlords – In recognising the need to cater for landlords as well as tenants, the Consultation proposes agreeing prescribed circumstances where rental increases above the cap would be permitted. The Consultation is mostly silent on what these circumstances might be but suggests that one reasonable circumstance might be where a rise in the cost of rent reflects the costs of improvements made to the property.

• Development properties – The Consultation proposes an exemption for ‘New to Market’ tenancies in rent control areas, which would allow open market rent to be set when a tenancy is first entered into. The exemption takes account of the fact that it would be difficult, if not impossible, to determine the ‘previous rent’ of newly developed properties. This exemption would also include the first tenancy of a property following it being purchased with vacant possession, and the first tenancy for a property which has been empty for a prolonged period.

The Consultation is accompanied by a Questionnaire seeking responses from landlords and tenants (the Questionnaire). Some interesting questions are put forward in the Questionnaire on the topic of rent control:

Question 6 - Do you think rent control should be introduced on a local basis, where assessment shows that there is a need, or should rent control be universally applied across Scotland?

Question 12 - If rent control areas are put in place for fixed time periods, which time period would you consider to be most appropriate?

Question 19 - Do you consider that any of the categories of housing below should be considered for exemption from rent controls?

• Rented property offered for social good where rents are controlled below market level; and/or
• Purpose-built accommodation for rent, providing professionally managed privately rented accommodation at scale (Build to Rent).

The Questionnaire also calls for opinions on setting a date by which all existing assured and short assured tenancies will be phased out entirely. It has not been possible to enter into these tenancies since 1 December 2017, but many entered into before that date continue to run.

The Questionnaire is open for responses until 27 October 2023.