Scottish Private Renting and its Regulation

by Ken Gibb

The Scottish Government today published its 2015-16 Programme for Government – a statement of its plans for legislation and policy development in the run up to the Scottish election in the Spring. The headline stories are about education and the engagement of the Scottish Government with the new powers it will gain from both the Scotland 2012 Act and the post-Smith Scotland 2015 Bill.

But once you get beyond the leading stories, there are always other things of interest to pursue. For me, what is striking is the relatively brief but definitive discussion of the Private Tenancies Bill that has emerged from two rounds of extensive consultation and a long-standing private renting strategy group.

To put this in context, the Government has not yet published its analysis of the 7,500 responses to the 2nd consultation launched in March (which was due at the end of August but I have not so far found it on the Government Website). So until now what we had to go on was the steer given in the March consultation document. However, this appears to have been firmed up in the Government Programme released today. Much of this is  widely supported (such as the new tenancy proposals – see below) but it does also make it clear that the Scottish Government will give ministers the power to limit rent increases in high rent pressure areas.

Today’s Programme document states (p.71) that the aim of the bill is produce a more professionally managed and better regulated sector that provides good quality homes and is an attractive place to ‘live, work and invest’. To do this the Bill will:

  • Introduce a Scottish private rented tenancy to replace the current assured system.
  • Remove the ‘no-fault’ grounds for repossession so that a landlord cannot repossess just because the fixed terms of the tenancy has come to an end. While tenant and landlord could not quit in the initial 6 months, thereafter the tenancy would continue indefinitely and notice of quitting could thereafter apply (subject to tenancy agreements being maintained and other agreed reasons for repossession not applying).
  • There will be 11 specific grounds for repossession that allow the landlord to regain the property and the tenant will have right to go to a first tier tribunal to challenge unjust repossession.
  • Provide more predictable rents and protect tenants against ‘excessive rent increases’, including the ‘ability to introduce local rent controls for rent pressured areas’.
  • Create a more streamlined clearer to understand tenancy system that is fit for the modern private rented sector.

To unpack the thinking behind the local rent controls idea, we need to go back to the March consultation paper. The paper compiled evidence about market rents by broad rental market area for the period 2010-14. It found that while overall prices (CPI) rose by 11.7%, market rents for 2 bed properties across Scotland rose by only 11.2%. Moreover, private rents over this period fell in real terms n places like Greater Glasgow and Fife but nominal rents fell on West Dunbartonshire, Argyll and Bute and in Ayrshire. It was only in Lothian (17.2%) and in Aberdeen City and Shire (39.8%) that there were real increases (and a large rent increase in the North East specifically).

The consultation recognises some of the problems associated with poorly designed controls and sees no case for a general ceiling on rents but instead argues for powers to make rent increases more predictable and limiting increases where rent levels and increases in local market warrant it:

  • The forthcoming Bill should include specific provisions that give tenants safeguards against unjustified and excessive increases – which could be used as a means to evict them – and greater predictability regarding when rents will increase.
  • Initial rents should continue to be set by tenants and landlords in the open market.
  • Rent reviews should take place no more than once in any 12-month period. Landlords should have to give tenants 12 weeks’’ notice of a change in the rent. This would help tenants to plan when managing their finances to cover the rent
  • The aim is also to protect tenants against the possibility of unscrupulous landlords using large and unjustified rent increases to force them from their home when otherwise they are complying with their tenancy agreement.

Further details of what is proposed follow on p.34 of the March consultation document:

The approach we have in mind would enable Ministers to limit the levels of rent increases for sitting tenants in hot-spot areas. As this is intended to be a means of responding to a problem affecting tenants in a local area, we propose that this power would be triggered by a local authority applying to Ministers for an affected area to be designated a ‘rent pressure area’. Local authorities would have to present evidence to show that rents for sitting tenants in the area were increasing excessively. This evidence may include: statistics on average rent rises, income growth and general price inflation; an increase in the number of rent increases being referred to the First-tier Tribunal; and an increase in the number of PRS tenants approaching the council with concerns over their ability to afford excessive and unjustified increases.”

This sounds highly similar to the pressured market area status used in the 2001 Housing (Scotland) Act to suspend the Right to Buy.

So, subject to the 2nd consultation outcomes not changing the thrust of the March document (which seems to be a reasonable conclusion) and thereby forming the basis for the legislative proposals, it looks like we are moving to limited rent regulation on an area basis only.

How effective will this be? How well designed will the details be and what analysis will be done supporting the proposals in terms of their market impacts? Will it be the thin end of the wedge or can we expect market rental supply to continue to grow despite the reported weak growth in rents? It will be fascinating to see how investors and landlords respond?