Consultation on a New Tenancy for the Private Sector: Analysis of Consultation Responses

Executive Summary

Introduction

1. In 2013 a Private Rented Sector Tenancy Review Group was tasked with examining how suitable and effective the current private rented sector system was, and considering whether changes in the law were needed. The Review Group produced a report for Ministers in May 2014. The report's main recommendation was 'that the current tenancy for the Private Rented Sector, the Short Assured Tenancy and the Assured Tenancy, be replaced by a new private tenancy that covers all future PRS lets'.

2. The consultation paper sets out the Scottish Government's proposal for a new private tenancy system. As the paper notes, the overall aim of the proposed new system is to improve security of tenure for tenants, while giving suitable safeguards for landlords, lenders and investors. The paper further notes the Scottish Government's commitment to developing a new system that strikes a fair balance between the interests of tenants and landlords and supports a professionally-run sector that is managed for the long-term benefit of landlords and lenders, as well as tenants.

3. Twenty questions were asked. The first set of questions covered four themes relating to improving tenants' security of tenure. These were: a no-fault ground for regaining possession; tenancy roll-over arrangements; length of tenancy; and Notices to Quit - from landlords to tenants. Six themes were covered in relation to safeguarding landlords, lenders and investors. These were: grounds for repossession; shorter Notice to Quit period in certain circumstances; pre-tenancy notices; notice of proceedings; Notices to Quit - from tenants to landlords; and a model tenancy agreement. The consultation also included 3 questions about rent levels and asked whether the proposals strike the right balance between the interests of tenants and landlords. Each of these issues is covered in turn within the summary analysis below.

4. The consultation ran from the 6 October to the 28 December 2014. The final number of responses included within the analysis was 2,543. Of these 561 were standard responses and 1,982 were campaign responses.

5. In addition to undertaking an analysis of written responses to the consultation, Craigforth was also commissioned to gather views on the proposals from a number of private sector tenants. Focus groups were held in the Aberdeen, Edinburgh, Falkirk, Glasgow, Paisley, Scottish Borders and Stirlingshire areas in December 2014. A total of 35 private tenants participated.

No-fault ground for regaining possession

6. Under the current Short Assured Tenancy (SAT) arrangements, a landlord may reclaim possession of the property and does not need to give a reason except that the fixed term is ending. The proposal is that there should not be 'no-fault' grounds for regaining possession, meaning that a landlord would no longer be able to ask the tenant to leave the property simply because the tenancy agreement had reached its end date. Instead, the landlord would have to use one of the proposed new grounds for recovering possession.

7. The clear majority of respondents (81%) agreed that a no-fault ground should be excluded from the new tenancy system. However, the majority of non-campaign respondents (79%) disagreed.

8. Those agreeing that the no-fault ground should be excluded included respondents to the Living Rent campaign and a number of local authorities, campaign body, tenant group and union respondents. Key issues raised by these respondents included the extent to which the PRS now provides long-term housing for many households, including households containing children. There was a suggestion that longer-term tenancies will allow people to put down roots and will support the development of stable, balanced communities. There was also a common view that the potential for a tenancy to be ended for no reason leaves some tenants unable or reluctant to assert their rights.

9. However, the majority of non-campaign respondents supported the inclusion of a no-fault ground. Individual, letting agent, landlord and industry body respondents tended to take this view. These respondents raised a number of concerns about the likely impact on the health of the PRS market and the potential for current or future investment to be lost. It was suggested that investors dislike uncertainty, are risk-averse and lack confidence in being able to regain possession other than through the no-fault route. It was also suggested that losing this mechanism for managing their business efficiently and at a reasonable cost could lead some landlords to become more selective in the tenants they are willing to rent to.

Tenancy roll-over arrangements

10. The current system enables tenancies to roll over on a month-to-month basis, after the end of the initial lease period, if stated in the tenancy agreement. The proposal is that the new system will not enable tenancies to roll over on a monthly basis or indeed any other basis that offers a shorter duration than the current tenancy agreement. This means that at the end of the initial lease period, if no Notice to Quit has been issued, either automatic renewal will apply or a new contractual tenancy will be needed.

11. The clear majority of respondents (79%) did not agree that the monthly roll-over should be excluded. Groups in which the majority disagreed were industry bodies, landlords, lettings agents, others and individual respondents.

12. Many respondents suggested that both landlords and tenants like the flexibility offered by the arrangement. Many referred to the type of tenant who might need or prefer the monthly roll-over approach (such as those with short term working arrangements) or to the circumstances under which the monthly roll-over can be useful (such as those looking to buy a home in the near future). A particular concern was that such tenants could find themselves liable for the rent to cover the remainder of the tenancy period and/or that the number of abandonments (and associated problems for landlords) could increase.

13. Although in the minority overall, a majority of advice, campaign, local authority and tenant respondents did agree that the monthly roll-over should not form part of the new tenancy regime. They tended to refer to the need to boost security of tenure and ensure that tenants have sufficient notice that the tenancy will be coming to an end. In particular, it was noted that a month is insufficient time to find a new property in many housing markets.

Length of tenancy

14. The proposal is that all future lets would have a minimum duration of six months. However, the consultation paper notes that some tenants, such as travelling or seasonal workers, may want a tenancy of less than six months; they would be able to request a shorter tenancy period from the landlord, who would be able to decide whether to accept the request. However, a landlord would not be able to offer a tenancy shorter than six months unless the tenant specifically requests it.

15. The clear majority of respondents agreed that tenancies should be for a minimum of 6 months (76%). Those who agreed tended to make relatively limited further comments, which often suggested the approach seemed: reasonable; continues with an approach which is valued for its flexibility; and is well-understood by tenants, landlords and agents. A small number of other respondents suggested that the minimum term could or should be longer, or that there should be no minimum term.

16. A majority (69%) also agreed that tenancies should have no maximum period. However, it appeared that the proposal and question were interpreted broadly in one of two ways. Some respondents have understood the proposal to be that there would be no prescribed maximum tenancy length - in other words that there would be no 'cap' on the length of tenancies. However, some respondents have interpreted the question as asking whether a tenancy should have no fixed term, in other words whether tenancies should be indefinite.

17. Some respondents suggested that an approach whereby landlords and tenants can agree to a longer tenancy if they both so choose works well for both landlords and tenants. Other respondents were of the view that the need for the length of a tenancy to be defined would depend on whether there is a no-fault ground. A contrasting view was that tenancies should not have a fixed term and that Scotland should adopt the more open-ended lease periods common in some other European countries.

18. There was also strong support for a tenant being able to request a shorter tenancy (74% agreed). Many respondents simply confirmed that the landlord would not have to agree. As at earlier questions, a substantial number of respondents also noted the advantages of building flexibility into the new system. However, there was a concern that tenants could be 'forced' into accepting shorter tenancies, with appropriate safeguards required to ensure this does not happen.

Notice to Quit - from landlords to tenants

19. Currently if a tenancy lasts for more than four months, the minimum notice period is 40 days; and if the tenancy lasts for four months or less, the notice period is at least 28 days. The proposal is to link the notice period for tenants with how long the tenant has been living in the property using the following sliding scale:

• Less than six months in the property = 28 days' notice (four weeks).
• Six months or more, but less than two years in the property = 56 days' notice (eight weeks).
• Two years or more, but less than five years in the property = 84 days' notice (12 weeks).
• Five years or more in the property = 112 days' notice (16 weeks).

20. The majority of respondents (60%) agreed with linking notice periods to the time the tenant has lived in the property. Those agreeing often referred to it seeming appropriate, reasonable or fair. A number of respondents also noted that a longer tenancy suggests that the tenant may have established strong connections to the local area and in these circumstances it is likely that they would need longer to find alternative accommodation which meets their needs.

21. However, some respondents suggested that, irrespective of circumstances, the 28 day notice period is too short; it was felt it gave insufficient time to make alternative arrangements, including finding the money necessary to fund a move. Other issues or concerns raised, including by those agreeing or disagreeing with the proposal, included that there could be issues with tenants with long notice periods abandoning or failing to pay the rent during that period.

22. The issues most frequently raised by those who disagreed with the proposal were that the approach would be complicated or that it simply is not necessary or appropriate for landlords to need to give longer notice.

23. Respondents were relatively evenly divided on the 4 notice periods proposed, although a small majority (54%) did agree with them. Both those agreeing and disagreeing raised many of the same issues as at the previous question with those agreeing suggesting the proposal appeared fair and reasonable and those disagreeing suggesting the approach would be complicated and unfair.

24. There were particular concerns about the 16 week notice period being too long. Alternatively some respondents disagreed with the shortest notice period (of 28 days' for someone who had been in a property for less than six months).

Grounds for repossession

25. There are currently 17 grounds under which a landlord can regain possession of their property; some grounds attract a mandatory court order and others a discretionary order. The proposal is for these to be replaced by 8 grounds, all of which would be mandatory. The proposed grounds are:

1. Landlord wants to sell.
2. Mortgage lender wants to sell because the landlord has broken the loan's conditions.
3. Landlord or family member wants to live in the property.
4. Refurbishment.
5. Change of use.
6. Tenant has failed to pay full rent over three months.
7. Tenant has displayed antisocial behaviour.
8. Tenant has otherwise broken their tenancy agreement.

26. The majority of respondents (78%) agreed that all the proposed repossession grounds should be mandatory, although the majority of advice and campaign group respondents did not agree.

27. Those who agreed that all the proposed grounds should be mandatory often focused their comments on the need for repossession grounds to be mandatory and 'watertight', particularly if they are the only route through which a landlord will be able to regain possession of their property.

28. In contrast, a small number of both those who agreed or disagreed identified certain grounds which they considered should be discretionary rather than mandatory. Respondents were most likely to suggest that Grounds 6, 7 and 8 should be discretionary. Many of those who disagreed with all grounds being mandatory stated explicitly that no grounds should be mandatory.

29. A small majority (56%) of respondents agreed with the proposed list of grounds for repossession. General comments made by those who agreed with the proposed grounds often referred to them being fair, reasonable and straightforward. A common theme, both amongst those agreeing, and disagreeing with the proposal, was the need for further information and detail. Other general concerns raised or comments made by those disagreeing with the proposals included the requirement for a no-fault ground or that the current system works well, or reasonably well, and no change is required.

30. In terms of specific grounds, Ground 6 (Tenant has failed to pay full rent over three months) attracted the highest number of specific comments. The principle concerns were that 3 months is too long for a landlord to wait and that the ground does not appear to, but should acknowledge the potential for persistent and significant failure to pay rent.

31. The majority of respondents (60%) also thought there are other possession grounds which should be included in the list. The most frequently made suggestion in terms of additional grounds was that a no-fault ground should be included. Other additional grounds proposed included a property being required for an employee, persistent late payment or non-payment of rent and the tenant having abandoned the property.

Shorter Notice to Quit period in certain circumstances

32. The proposal is that the new tenancy regime will enable landlords to recover their property by giving tenants 28 days' Notice to Quit, regardless of how long the tenant has lived in the property, if the tenant has:

• Failed to pay full rent over three months.
• Displayed antisocial behaviour.
• Otherwise breached their tenancy agreement.

33. The majority of respondents (67%) agreed that landlords should be able to recover possession of their property with a 28-day notice period if the tenant has failed to pay full rent over three months, displayed antisocial behaviour or otherwise breached their tenancy agreement. However, advice services, campaign bodies, industry bodies and legal body respondents were relatively evenly divided on this issue.

34. Comments made included that the proposal seemed reasonable and that there will be some circumstances when a landlord will need to be regain possession of a property quickly. However, some of those supporting the proposal did so provided that a test of reasonableness would be applied.

35. It was also suggested, again including by those who agreed and disagreed with the proposal, that there should be some circumstances in which a shorter notice period should apply. However, some of those who disagreed with the proposal took the opposite view and suggested that 28 days was too short a time to find alternative accommodation.

Pre-tenancy notices

36. Under the current assured tenancy system, landlords must provide advance notice to tenants if they intend to use the current repossession grounds 1 to 5 to regain possession of their property. The proposal is that a landlord would not need to issue a pre-tenancy notice to a tenant to say they may intend to recover possession under any of the new grounds.

37. The clear majority of respondents (87%) agreed that landlords should no longer have to issue pre-tenancy notices to recover possession of their property. Those agreeing with the proposal often suggested that the notices are unnecessary and that the current system is complicated and not widely understood.

38. Concerns raised by those who disagreed with the proposal included that the current system works well, or that it is important for tenants to be informed at the outset as to how possession can be obtained.

Notice of proceedings

39. A Notice of Proceedings is a document telling the tenant that their landlord wants to start legal proceedings to get their property back. Under the current system, the length of notice needed before the landlord can take legal action will depend on which of the 17 grounds the landlord has stated. A notice period of either two weeks or two months will apply. The proposal is to simplify this process by introducing a four-week minimum notice period that a landlord must give a tenant before raising proceedings under any of the new grounds.

40. Respondents were relatively evenly divided on whether the notice period for all proceedings should be 4 weeks, with 52% of respondents agreeing. Those supporting the 4 week proposal frequently referred to the advantages of simplicity and creating an approach which is easy to understand for landlord and tenant alike. However, some also suggested this period could be too long in certain circumstances, with these respondents referencing antisocial behaviour in particular.

41. There was a considerable consensus amongst those disagreeing with the proposal - the view was that the 28-day notice period is too long (either overall or under certain circumstances. These respondents sometimes referred to occasions when the tenant is at fault, to Grounds 6, 7 and 8 of the proposed repossession grounds, or specifically to rent arrears and antisocial behaviour. The common view was that a 14-day notice period is sufficient and appropriate under these circumstances.

Notice to Quit - from tenants to landlords

42. The proposal is that tenants will have to give the following notice to quit the tenancy:

• Less than six months in the property = 28 days' notice (four weeks).
• Six months or more in the property = 56 days' notice (eight weeks).

This would mean that, if a tenant wishes to leave the property at the end of their tenancy agreement, the tenant will need to tell their landlord either four or eight weeks in advance. If a tenant wishes to leave the property before their tenancy agreement expires, and this is not covered in the tenancy agreement, they will need to get the landlord's permission, as now.

43. A small majority of respondents (57%) agreed with the proposed timescales. Those who agreed with the proposal tended to suggest the approach seemed reasonable, fair and as striking a good balance between the interests of landlords and tenants.

44. Many of those disagreeing with the proposal suggested that notice periods should be the same for both landlords and tenants. Other comments tended to focus on either notice periods being shorter and/ or there being one single notice period. It was also suggested that having to give 8 weeks' notice could make it more difficult for the tenant to find alternative accommodation.

Model Tenancy Agreement

45. The proposal is to introduce a requirement to use a model tenancy document for all future private rented sector lets. The consultation paper suggests this could provide consistency of practice across the sector and help ensure that it provides good-quality and well-managed housing. It could also help promote landlords' and tenants' knowledge of their rights and responsibilities.

46. The clear majority of respondents (79%) agreed with the introduction of a model tenancy agreement. Although there was strong support, respondents did note that any model tenancy agreement will need to be sufficiently flexible to work for a diverse range of circumstances and properties. The principal concern of those who did not support the proposal was that it will not be possible to develop a model that is flexible enough to deal with all circumstances that can arise in such a diverse sector.

Rent levels

47. The consultation also asked three open questions about rent levels. The consultation paper notes that rent setting currently forms part of the existing assured tenancy system, and hence it seems sensible to consider rent setting and how this might work with the proposed new system. The first question asked for views on rent levels in the private rented sector in Scotland.

48. A number of respondents noted that rents are market-led and will determine their own level based on supply and demand. This was the most frequently raised issue by some extent. A number went on to note that this market-led approach should continue.

49. Other general comments included that there are significant variations in rent levels across Scotland including at a small area level. More generally, a number of respondents pointed to the complexity of the market and, in particular, the relationship between supply and demand. The wider issue of supply of affordable housing was also raised and it was suggested that availability of good quality, affordable housing is an issue across much, or the whole of Scotland.

50. Other respondents focused their comments on tenants' capacity to afford current or future rent levels with the particular affordability problems those on low income and/or in receipt of Local Housing Allowance (LHA) can have in accessing the sector.

51. The second question asked what action, if any, the Scottish Government should take on rent levels in the private rented sector in Scotland. Overall, 2,508 respondents commented on whether the Scottish Government should take any action on rent levels. Around 3 out of 4 respondents favoured the Scottish Government taking some form of action, including the 1,908 signatories to Campaign 3 (the Living Rent campaign), who called on the Scottish Government to bring rents under control, noted that in other countries there are laws that limit how much landlords can charge, and stated that this was the approach they wanted for Scotland.

52. However, the majority of non-campaign respondents did not think the Scottish Government should take any action with regard to rent levels in the PRS. Around 2 out of 3 non-campaign respondents made a comment which suggested the Scottish Government should take no action, sometimes noting that it is not for Government to interfere in the market and that to do so could have significant, negative consequences.

53. The final rent-related question asked what rent review conditions, if any, the new tenancy system should include. A number of respondents simply re-stated their opposition to Government intervention regarding rent levels, with some respondents suggesting that there is no need to make changes to the current system. The other frequently raised issue was that annual rent reviews are either current practice and/or would be an acceptable way forward.

54. Other respondents commented more generally on what any rent review conditions should be aiming to achieve. For example, it was suggested that the focus should be on bringing a degree of predictability and certainty to the frequency and nature of subsequent rent increases. As with the principle of introducing rent regulation, some respondents noted that this is a complex issue and should be considered in more detail as part of a wider review of rents and affordability in the private rented sector.

Balance between the interest of tenants and landlords

55. The majority of respondents (70%) did not feel that the proposals have struck the right balance between the interest of tenants and landlords, although the majority of local authority, tenant and union respondents did. General observations made by those agreeing that the proposals were balanced tended to refer to the proposed new system being simpler, clearer, offering consistency or being fairer. They sometimes pointed to the need for more detail and for consideration to be given to how each element of the proposed new system would work in practice.

56. Amongst those disagreeing that the proposals were balanced overall, around 9 out of 10 considered that the proposals favoured tenants. Industry bodies, landlords, letting agents and individual respondents tended to take this view. Respondents frequently referred to their concerns about specific proposals and in particular: the exclusion of a no fault ground; the removal of the monthly roll-over; and consideration being given to rent controls. More generally, it was suggested that some of these proposals undermine one of the key strengths of the sector, namely the flexibility it offers to both tenants and landlords.

57. The remaining 1 out of 10 felt the proposals favour the landlord. Those taking this view tended to be advice services, campaign bodies and a small number of individuals. These respondents tended to be most concerned about the proposal to make all repossession grounds mandatory; this led to the suggestion that the proposed new system would actually provide less security of tenure and protection for tenants than under the current system.

Next steps

58. Informed by this analysis, the Scottish Government intends to consult on developed policy proposals this spring. This will be a short public consultation, which will seek further views. The consultation document will be available on the Scottish Government website: http://www.gov.scot/Publications/Recent