On Wednesday 16th November 2022, Rettie hosted a Live Webinar via Microsoft Teams, regarding the Cost of Living (Tenant Protection) (Scotland) Bill Update.
The Webinar covers the Cost of Living (Tenant Protection) (Scotland) Bill, what it is, what are the changes, and how these will affect you. Led by our Commerical Director, Neil Cunningham , and with a market history briefing from our Associate Director of Research, Andrew Meehan . Our Director of Lettings, Karen Turner then takes us through the main changes such as the Rent Freeze, and then highlights the Short Lets changes.
If you would like to catch up on the Webinar, you can watch the recording here: Cost of Living (Tenant Protection) (Scotland) Bill Update Webinar.
There was also an opportunity for a Q&A session with our panel of experts to answer any questions regarding the Bill updates and changes. We will be collating answers to all the questions and everyone will receive a follow up email in due course with this information.
If you would like to view our Research Rent Freeze Briefing, you can do so here: Scottish Residential Rentals – A Frozen Market.
Your Questions Answered
1. If the rental property is a marital asset in a divorce, and will need to be sold, is it affected by the change in legislation?
Yes, is the short answer. If there’s a matrimonial asset that’s sitting with a tenant in the property, that needs to be sold in order to comply with a court order for capital payment, the change in legislation will have an impact. Assuming the property is a Private Residential Tenancy (PRT), then there are two new grounds from the legislation that will apply:
The landlord wants to sell.
The landlord needs to sell to alleviate financial hardship.
The first of the two grounds is covered by the moratorium. The second of the two grounds, assuming you could persuade the tribunal that there is financial hardship and that it’s reasonable to evict, wouldn’t be covered by the moratorium.
The new legislation affects the course of action and could affect the settlement of a matrimonial pursuit in both circumstances.
2. Are there any areas where we can challenge this new legislation? Otherwise, do you think this is the end for the Short Lets sector?
There are various groups who are speaking and collaborating to pull together a challenge to the new legislation in both the long lets and short lets sector. It is likely that stock levels will be restricted and reduced whilst the legislation stays in place, but we do not anticipate that this will be the end of the short lets sector.
In particular, if we look at the wider impact on the local economy, we can see that there is reason for judicial challenge and potentially a review of the legislation. For example, it has been reported that in this year’s Edinburgh Festival 1/3 of shows didn’t take place as there was a lack of accommodation for performers, production companies and visitors. If there is not enough accommodation, it puts the festival in jeopardy of not running to full capacity in future years and the economic income for Edinburgh will then be lowered. When we consider that the festival brings in £1.4 billion to the Edinburgh economy, we can see how a review of the short lets legislation may be required sooner rather than later. We are not certain of timescales, but we do anticipate that there will be judicial challenges from both short lets and long lets, and a U-turn in the not-too-distant future.
3. Will there be an appeal process should a short licence application be unsuccessful?
Not to our knowledge. We have tried to get some clarity through the planning department over recent weeks on a number of aspects, but we are not being given a clear response, or one that aligns with the guidelines. At the moment it appears that the processes internally at the planning department need to be agreed, so it is possible that there may be an update to accommodate an appeal process in the future. As things stand though, money is requested upfront for a short lets landlord application, and there is no guarantee that a licence or planning will be approved. Fees will not be refunded.
4. What do you predict will happen to rent levels following the rent freeze, how do you think landlords will react?
We need to put this into context to understand more broadly that rents are far more stable than the headlines might suggest. Headlines that suggest rents have gone up 10% a year are only relevant to new tenancies. The ONS have tracked rental growth at around 3.6% over the past year and historically it has underperformed inflation. We’ve also done analysis on the Scottish Government BRMA Local Housing Allowance Data, which shows that rental levels have remained very stable. A lot of the inflation’s coming at the very top end of the market. The perception that rents are running away needs to be challenged.
For landlords the practical thing to do, if you’re told to freeze your rent, is at the first possible opportunity you’ll probably then increase rent. So, one of the unintended consequences of the rent freeze is potentially, whilst rents are frozen for a period of time, when the freeze ends, we’ll probably see rents jump forward again. It’s just one of the many unintended consequences that will potentially come down the line from this including the levels of new supply being built, investment in the social sector and net zero targets. There are a lot of different elements that are being impacted by the rent freeze that weren’t necessarily planned for.
5. How do you expect the rent freeze to affect monthly rental rates for newly available properties before vs after the March 31 expiry date?
Rental rates will continue to be set in line with current market rents.
A lot of our re-let stock have been long term tenancies, and in a lot of cases rent increases haven’t happened over the last couple of years. For properties that are coming back to the market, rents are being set in line with current market rents in line with current market levels.
For any new properties that are coming to the rental market, we do a lot of research to see what properties have been renting for, and we do also have quite strong conversations with landlords if we feel the rents are too high and it’s not achievable and adjustments are made accordingly.
6. How will the time periods of the freeze interact with the 3 months' notice of a rent increase? Does this in effect make the freeze 9 months minimum?
It will depend very much on how the rent cap is reviewed throughout the period that the act is in place. The way things are set up at the moment is that where the rent cap is set at 0% then all the parts of the 2016 act relevant to PRTs are disapplied, meaning you can’t issue a rent increase notice while the cap is sitting at 0%. So, in affect, while we have a 0% rent cap we can’t, for example, serve a rent increase notice at all in the anticipation that things will change on the 1st of April.
As it stands a 9-month minimum rent freeze is possible, however it is supposed to be under review by the Scottish Government and things could change. Whilst the rent cap is sitting at 0% we can’t issue a rent increase, except where the landlord is looking for up to 50% of prescribed property costs such as insurance or other aspects of letting costs. This does in effect extend the period, because for a PRT it’s a 3 month notice period to issue a rent increase notice.
7. As you will be aware the government needs to review the provisions of the Cost of Living (Protection of Tenants) (Scotland) Act 2022 every 3 months. The next review is in December. Are you aware of any of your client or contacts in the BTR sector lobbying the Government with evidence of the impact on the market?
We are lobbying the government with regards to the impact of what this is doing to our market. Certainly, on the BTR side we are in conversations through our BTR director and our research team. We’re also in consultations with our lawyers and we’re collaborating with outside colleagues to provide information for a potential challenge. This is currently at the very early stages, but we do expect to see some formal challenges. We can’t say too much beyond that at this stage for confidentiality reasons.
8. Almost 20% house price growth for Scotland over the last 2 years - is that not a boom?
In nominal terms it might seem that way but when you factor in inflation, wage growth and those other factors it takes the edge off the headline figure. Certainly, if you compare inflation adjusted house prices compared to previous boom and busts then it’s not quite at the same level. But in nominal terms there has been very strong growth.
9. Could you clarify the difference between licence and landlord registration?
Landlord registration is applicable to a long let landlord, you have to apply for a registration that’s valid for a 3-year period. In terms of short lets a licence to operate is required and potentially planning permission on a short-term basis. Short let landlords don’t have to apply for landlord registration.
10. Some news articles said that shared entrance flats in tenement buildings in Edinburgh will not be granted planning permission to a short term let "unless there is a good reason". Do you have any insight into this? Is it scare tactics, or will it really be difficult to secure planning permission on these types of property?
If you’re a short lets landlord with a property in a tenement stair (shared stair) it’s unlikely that you will be granted an application or planning permission to operate.
11. I had 2 tenants in my property, 1 has left and the other can only pay half the rent. Can I evict him?
Despite the circumstances of one leaving and the other not paying in full – it remains joint and several, and Tribunal action will name both, regardless of who’s paid and who’s not living there. It will also depend on the level of rent arrears.
If you’re not looking at substantial arrears, then you're potentially looking at quite a long process. If the property is a Private Residential Tenancy (PRT), the standard ground 12 applies where 3 consecutive months arrears are required, and then a 28-day notice period. When the 28-day notice period expires you’re then entitled to lodge the application for eviction with the tribunal. The tribunal process takes approximately 8 – 10 weeks to get to a hearing. The tribunal will then consider the application. The tribunal can grant the eviction at the first hearing, so assuming that it is granted the tenant can be evicted.
With the new rent freeze the equivalent of 6 month rent arrears is required plus a notice period of 28 days, before raising the notice to leave.
12. How do you terminate a SAT when a tenant is only making partial rent payments and how long does the process take?
For a Short Assured Tenancy (SAT), under grounds 11 and 12, the termination of the tenancy will be affected by the eviction moratorium. This potentially means you can’t enforce that order for 6 months from the date that the order is granted. If we’re talking about substantial arrears, which are 6 months or more, then you can cut out that 6-month period and then you’d be looking at a 30-day period which is affectively an appeal period, and then 14 days after that. With the moratorium it’s going to be a long process if you’re looking to evict by way of rent arrears, unless you can rely on substantial arrears. Please bear in mind that all grounds are subject to the discretion of the tribunal anyway so just because a tenant is in arrears this unfortunately doesn’t mean that you’re necessarily going to get the eviction order.
13. Is it still joint and several liability, so if one tenant leaves the other remains liable for the rent in full? The arrears would then be 50%?
Both tenants remain joint and several, so although 1 has chosen to leave their liability to pay rent remains.
The arrears is for the full amount and action is taken against both names
If the tenancy is a Private Residential Tenancy (PRT) in order for it to be ended, all joint tenants require to give notice. If one leaves, they’re all still liable until that tenancy is ended either by the tribunal granting an order or both tenants giving proper notice to leave. Whilst one tenant may be sitting in the property, and occupying it, they both may be liable for it until that tenancy is ended.
14. Are we expecting to see further statutory legislation for rent caps? I expect this is now the direction of travel and some form of rent control is here to stay?
Potentially yes. If we look at rent control zones, our feeling on the rent control zones are they haven’t worked effectively in other European countries. We also don’t have enough data to bring in rent control zones as that data has to be monitored, uploaded, somebody must control that data and we need a system to run it all. At the moment we’re a bit away from seeing a rent control zone coming into Scotland, but who knows. As we’ve seen recently changes can come in without any prior knowledge and we must react, so we will need to watch this space.
In terms of general rent controls and the direction of travel, there was a recent consultation which took place called ‘a new deal for tenants’, where the Scottish government outlined their plans for the sector going forward. This came on the back of an earlier consultation called ‘the route map to 2040’. What is clear is that the Scottish government is committed to putting in full rent controls by 2025.
Whilst this is only at the information gathering stage at the moment, it does seem likely that the process will include more private landlord registrations to provide information on levels of rent, number of properties etc. to allow them to build a picture. Whilst we have a rent cap now, and whilst there is a strong suspicion that rent cap will be increased from 0% to 3% (or thereabout), the direction of travel is towards full rent controls. That will mean initial market rents are controlled too, not just increases in rent. We’ve had Rent Protection Zones (RPZ’s) since late 2017, but we’ve not seen any RPZs yet, as it required local authorities to provide data to justify that they were needed. None of the local authorities were able to do that.
Certainly, the direction of travel is towards rent controls. The sector needs to try and do what it can to resist that.
15. Is there a route to claim compensation from the gov for loss of rent or loss of capital value due to the legislation on long term and short term?
None that we are aware of, and it's unlikely that there will be a loophole to claim this.
16. Can you advise if the tenant must be 6 months in rent arrears before you raise an eviction, therefore with 84 days' notice likely to leave the landlord 9 months + without rent!
Yes, the equivalent of 6 month rent arrears is required and a notice period of 28 days is required not 84 days, before raising the notice to leave.
17. Could landlords provide 3 months' notice now to tenants (or say end Dec) to an increase 1 April, subject to the freeze ending on 31 March? Obviously recognising the cap/freeze may go on longer...
Not until we have an update on the lifting of 0% - until then no rent notice would be worth raising as it would sit at 0%. In an ideal world we will get an update in January 2023 as its due for a review after the first 3 months.
18. So short lets will need a licence/planning. How long is a short let?
This will depend on various aspects. Shorts lets can be anything from 1 night's stay such as Air BnB model, up to 1 month tenancy.
19. Is the maximum increase 50% of 3%? It's hardly worth the paperwork!
Landlords can apply to a rent officer for a rent increase to cover up to half of the increase in prescribed property costs, including mortgage interest; insurance premiums (other than general building and contents insurance); and a service charge paid for by the landlord and for which the tenant is liable in terms of the lease. The maximum increase that can be claimed is up to 50%, capped at 3% of the passing rent.
20. If the planning permission is granted to change the use to a short term let, can this be easily reversed and what is the process? For example, to revert to renting on a Private Residential Tenancy (PRT) or selling the property to all possible buyers.
We are not certain but would suspect an application to change use again may be required.