The Private Housing (Tenancies) (Scotland) Bill – Change is coming

There’s been a lot in the press recently relating to a shake-up of the Private Rented Sector. Much of the new legislation is welcomed by responsible parties in the sector; raising standards which are in dire need of it however others say that it looks like ‘they have it in’ for landlords.

Some of the changes include;

  1. Changes to tax on landlords and their properties (see more here)
  2. Changes around electrical safety to keep landlords and tenants safe (see more here)
  3. Imminent compulsory regulation of letting agents – This can only be good for the sector in improving standards and ensuring only competent, responsible agents and landlords operate. As it stands, regulation is only voluntary via bodies including ARLA and RICS – (FYI, Umega Lettings are ARLA accredited letting agents ;)) – so for those non-regulated agents there is still scope to act in an unscrupulous manner, or to advise landlords and deal with tenants without the adequate expertise or processes

The focus of this blog is The Private Housing (Tenancies) (Scotland) Bill which has now been passed through the 3 stages of parliament and the main changes are expected to come into force in late 2017. The purpose of the Private Housing Bill is to create a new Private Rented Tenancy (PRT) providing a more simplistic tenancy system, enhanced security for tenants and greater predictability regarding rent increases. It aims to modernise tenancy agreements, removing confusion relating to pre-tenancy notices and grounds for repossession, streamlining the system and making renting more balanced for all parties involved.

So, how have the government done in achieving this streamlined, fair system and how will this affect landlords and tenants and the wider housing sector in Scotland? Here’s our take on things with a rundown of 8 key changes to the system;

  1. Pre tenancy notices – under the new PRT, confusing pre-tenancy notices will no longer have to be served. Phew. With the current SAT (Short Assured Tenancy) it’s a minefield and even the smallest mistake can result in an ‘Assured Tenancy’ being entered into rather than a ‘Short Assured Tenancy’ which is a whole can of worms.
  1. Terminating a tenancy – a ‘notice to leave’ will be issued under the PRT to terminate a tenancy. This is a big improvement on the current system which is also a minefield, very easily misunderstood.
  1. Repossessing abandoned properties – the new PRT provides a nice, clear ground for possession of abandoned properties, on giving 28 days’ notice, which is a big help to landlords where tenants have disappeared and landlords need to clean the property up and re-let ASAP.
  1. Rent arrears – Under the current Short Assured Tenancy, a tenant must be in full 3 months arrears to be deemed to be in ‘rent arrears’. If the tenant makes a token payment within a 3 month period (even if they still owe hundreds or thousands of pounds) it is not compulsory for a sheriff to evict them. Under the PRT this has been improved and it will be mandatory for a sheriff to terminate a tenancy agreement if, at the start of the day on which the tribunal hearing takes place, the tenants owe at least 1 month’s rent and they have owed rent for 3 consecutive months. Landlords can serve notice to begin terminating the tenancy as soon as the rent falls into any areas and don’t have to wait until 3 months’ rent is owed.
  1. ‘Rent Controls’ – this one got A LOT of exposure in the press during the consultation period, creating panic amongst landlords! Contrary to what the press would make you believe, the PRT does not impose ‘rent controls’ on the open letting market. Under the PRT rents can be controlled for ‘sitting tenants’ (ie tenants already living in a property) but only in areas where ministers designate them to be RPZ (Rent Pressure Zones), only to be used in extreme circumstances. Outwith RPZs there is no restriction on rents and specifically no restriction on asking rents on the open market, allowing supply and demand to dictate a fair rent for each property. This is a great solution as rents are not artificially held back on the open market, while tenants (importantly, families) within RPZ are protected from unfair rent increases once they’re settled into a property. After all of the hullabaloo in the press over the past year around these ‘rent controls’ this is a real relief as it should not discourage property investment in Scotland by landlords, property companies and property funds. Furthermore, rent increases will be restricted to once per year and three months’ notice will be given when doing so. The tenant will also have the option to challenge what they deem to be an unreasonable rent increase by referring the matter to a Rent Officer who can then determine a ‘fair’ rent.
  1. Initial Term – Under the new tenancy, there will be no initial tenancy term. Currently, a SAT must be a minimum of 6 months however with the new PRT landlords and tenants will be able to end a tenancy at any point on giving the required notice. You could argue that the 6 months required under a SAT creates caution amongst tenants and so the PRT will create a more flexible tenant market. On the whole, once tenants set up home in a property most prefer not to move regularly and go through the hassle of shifting their belongings/utilities etc. Infact with tenants struggling to save up deposits to buy properties we’re seeing tenancies lasting longer and longer with most professional lets lasting upwards of 2 years. However, on the other hand under the PRT, without a 6 month ‘safety net’ landlords may now be exposed to tenants vacating in traditionally quieter winter months and to higher turnover of tenants and the additional expense that this creates. This is specifically worrying within the student sector where it is essential (for landlords and for tenants) that tenancy agreements fall in line with the academic year and it could be catastrophic for a landlord to have to market a student property over the winter months when 99% of students are already settled into a property for the year and are unlikely to be looking to move. This change could well scare off many investors due to the lack of a fixed tenancy length, but maybe that’s what the government wants; encouraging students into purpose built student accommodation (buildings of over 30 beds are exempt from the new PRT), forcing landlords to sell and thereby freeing up properties for owner occupiers to purchase, helping to resolve the current Housing Crisis. That said, it suits students to live in one property for the full academic year and not to have to go through the ordeal of moving during the course of the year so just because tenancies will be more flexible under the PRT, doesn’t mean that students will suddenly start moving throughout the year. We may see a bit of a student ‘sub-market’ evolving over the winter months when the odd student will be looking to move now that there is this flexibility (ie when they fall out with their flatmates; this happens a lot!) so demand for vacant student properties over winter months will probably increase a bit.
  1. Notice periods to terminate – Under the current SAT, 2 months’ notice is required to terminate a tenancy however under the PRT tenants will be required to give 28 days’ notice to terminate a tenancy. For a traditional letting agent this is fine as 28 days is normally plenty time to secure a new tenant. However this has caused concern from property funds looking at investing in the Private Rented Sector via ‘Build to Rent’. Rents within these self-contained sole-landlord managed blocks (normally 100-400 bedrooms/apartments) are very sensitive and property funds are uncomfortable with the shorter notice periods and have suggested that it is not worth the risk investing in Scotland, instead focusing their investment in England and Wales where conditions are more favourable. Landlords will be required to give 28 days’ notice if the tenancy has run for 6 months or less, and 84 days if the tenancy has run for more than 6 months, giving long-term tenants plenty time to secure a new property if they are asked to vacate.
  1. Grounds to end Tenancies – This is another ‘big one’ which created quite a stir in the press over the past 12 months – the removal of the ‘no fault’ ground. Under a SAT landlords can force tenants to move out with as little as 2 months’ notice, once their original period has expired without any further reason being required. Under the PRT, landlords will have to state at least one recognised ground for bringing the tenancy to an end. There will be 18 grounds for possession (8 mandatory, 8 discretionary, 2 mixed) including the landlord looking to sell/refurbish or move into the property, to use it for non-residential purposes, anti-social behaviour or criminal conduct of the tenant or rent arrears as outlined above. This change has caused uproar amongst many in the lettings industry but, in reality, not much will change from the current system for the majority of city centre professional lets. The real blow is for student properties where it normally suits landlords to serve notice for students to vacate in the summer months if they are not able to commit to a further 12 months in the property, in order that the landlord can re-let the property to a new party looking to stay on until the following summer.

So, as you can see there are major changes afoot for landlords and tenants. Landlords will have the right to bring an agreement to an end only in specified circumstances and there will be greater predictability in respect of rent increases. Reaction to the Act has unsurprisingly been mixed within the sector.  Some believe the new measures will achieve the legislation’s aims and strike a fairer balance for tenants in private letting relationships. Tenancy lengths are increasing so provided tenants are offered good quality homes and are treated fairly by their landlords they should have no reason to vacate and so landlords have nothing at all to fear.  However, others have warned that such strict controls on landlords will make Scotland a less attractive place to own rental portfolios.  Critics argue investment will suffer as a result and we will see a reduction in the availability of private rental properties as landlords look to sell their properties due to these changes and other changes affecting the sector. How great an impact the act will have remains to be seen.

Umega Lettings is an ARLA, CLA, Safe Agent accredited letting agent, leading the way within the lettings sector in Edinburgh. We are responsible agents and believe in achieving fairness, balance and transparency between all parties within the lettings sector. You can read some reviews on our service at AllAgents. Please get in touch if you have any comments on the above blog or would like to discuss any points in more detail. We’re always keen to have a chat and get opinion on the changes and challenges facing the lettings sector.