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

5 General Questions

5.1 The final section of the consultation paper posed two general questions.

Question 12: Overall, do you feel that the proposed new tenancy system strikes the right balance between the interests of landlords and tenants?

5.2 Question 12 asked respondents if they felt that the proposed new tenancy system strikes the right balance between the interests of landlords and tenants. Responses by respondent type are set out in Table 17 below.

Table 17: Question 12 - Response by Respondent Type

Respondent Type	Yes	No	Don't Know	Total
Advice, Information & Ombudsman Services	3	5	-	8
Campaign Body or Group	2	3	2	7
Industry Body	1	9	1	11
Landlord	10	36	1	47
Legal Body or Firm	1	5	1	7
Lettings Agent and/or Property Management	11	37	6	54
Local Authority	17	2	-	19
Tenant and/or Resident Group	9	2	-	11
Union or Political Party	4	2	-	6
Other	2	4	1	7
Total Organisations	(60)	(105)	(12)	(177)
Individuals	67	234	40	341
Total (excl. campaign responses)	(127)	(339)	(52)	(518)
Percentage (excl. campaign responses)	24%	66%	10%	100%
Campaigns	-	74	-	74
TOTAL	127	413	52	592
Percentage of those answering	21%	70%	9%	100%

5.3 The majority of all respondents who answered this question (70%) and of non-campaign respondents (66%) did not feel that the right balance has been struck. Those supporting Campaigns 1 and 2 disagreed, as did the majority of advice service, campaign body, industry body, landlord, legal firm, letting agent, other and individual respondents. However, the majority of local authority, tenant and union respondents did feel that the proposed new tenancy system strikes the right balance between the interests of landlords and tenants.

5.4 A total of 457 non-campaign respondents went on to make a further comment, and the text from Campaigns 1 and 2 also included a relevant comment.

5.5 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. Respondents sometimes noted their support for an approach which they saw as providing more security for tenants. Some noted that they saw the proposals as giving landlords and potential investors sufficient safeguards to be confident that their investment is protected.

5.6 Components of the new system that respondents noted their particular support for included:

• The exclusion of a no-fault ground.
• The introduction of a model tenancy agreement.
• The simplification of various processes (Notice of Proceedings, Pre-tenancy Notices etc.), and the time and money savings to landlords that should result.

5.7 Those agreeing frequently noted that they were supportive of the proposals overall, but did have concerns about, or disagreed with, some of the proposals. This was sometimes voiced as feeling that the proposals were balanced, subject to comments they had made elsewhere within their response being taken on board. Elements of the proposed system which such respondents specifically noted they did not support included:

• The exclusion of a no-fault ground.
• The longer notice periods for landlords to tenants.
• Repossession grounds, and particularly Grounds 6, 7 and 8, being mandatory.

5.8 Finally, those who thought the proposals were balanced overall 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. It was also suggested that the impact of any changes (for example on levels and type of supply and ability to access tenancies), would need to be monitored or reviewed.

5.9 Analysis of the comments made by those disagreeing that the proposals were balanced overall suggests around 9 out of 10 considered the proposals favoured tenants whilst the remaining 1 out of 10 felt they favoured the landlord^[7]. Those taking the latter view tended to be advice services or campaign bodies.

5.10 The considerable majority of those who felt the proposals favoured the tenant were industry bodies, landlords, letting agents or individual respondents and those supporting Campaigns 1 and 2; their position was sometimes summed up as the proposals emphasising the protection of tenants at the expense of encouraging and supporting landlords, including in dealing with problem tenants.

5.11 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. Industry body, landlord, letting agent, legal body and individual respondents were particularly likely to raise one or more of these concerns.

5.12 A small number of respondents suggested that the current system works well and there is no need for change. However, some of those who expressed concerns about some of the changes did welcome attempts to improve the operation of the private rented sector. Nevertheless, some were also concerned that, if adopted as a whole, the new tenancy system could both drive knowledgeable, experienced and professional landlords away and discourage further investment in Scotland's private rented sector. Some respondents also suggested that a resultant shortage of properties will impact on levels of choice and affordability for tenants. Again, it was industry body, landlord, letting agent, legal body and individual respondents who were likely to raise these concerns.

5.13 Equally, some of these respondents suggested that the proposals will not have the apparently desired effect of tackling bad practice in the sector and that there are other mechanisms - including rigorous enforcement of existing legislation - which would be more effective in achieving this objective.

5.14 Other issues raised by those who felt the proposals overall will disadvantage landlords included:

• The changes would have consequences for smaller buy-to-let investors who will largely hold covenant restrictions from their lender that does not allow them to offer leases of greater than 12 months; changes to tenancy law will incur immediate valuation issues for landlords and, depending on the specifics of reform, professional valuers may deem that there has been a transfer of risk and thus a diminution of value.
• The proposals do not take into account or cater for the needs of the student market.

5.15 Those who felt the proposals favour the landlord 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. Advice service, campaign body or union respondents were most likely to raise this concern.

5.16 Other parts of the proposals that respondents expressed concerns about included shortened Notice to Quit periods and any plans to intervene with rent levels.

Summary - Question 12

The majority of respondents (70%) did not feel that the right balance has been struck 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.

Amongst those disagreeing that the proposals were balanced overall, around 9 out of 10 considered 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.

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.

Question 13: Do you have any (other) suggestions/comments on the new tenancy system for the private rented sector?

5.17 The final question asked respondents if they had any other suggestions or comments on the new tenancy system for the private rented sector. A total of 373 respondents did so.

5.18 Comments varied enormously, both in length and focus. However, many respondents took the opportunity to restate or summarise views expressed elsewhere within their response. These comments often focused on key aspects of the proposals, such as the no-fault ground, or on the absence of measures that will support landlords to deal with some of the biggest challenges they face.

5.19 Other frequently raised points included that a 'one size fits all' approach has resulted in proposals which focus on dealing with a small 'rogue landlord' element at the expense of those who abide by the legislation and strive to provide good quality accommodation; there was some scepticism as to whether the proposals would achieve the first objective and serious concerns about the impact they would have on vast bulk of the sector. In particular, there were concerns that current investment could be withdrawn, new investment would not be attracted, and the Scottish Government's own strategic objectives for the sector would be undermined. There were calls for the Scottish Government to give careful consideration to the recommendations relating to investor confidence set out in the Building the Rented Sector in Scotland report^[8].

5.20 An alternate position was the proposals do not go far enough to increase security of tenure for tenants and that certain aspects (in particular the proposal that all grounds for repossession should be mandatory), would actually lead to a serious diminution of existing rights for tenants. There were also concerns that the proposals will not tackle the problems of 'revenge evictions', with calls for the Scottish Government to do more to tackle this problem through reform of the legislation and policy and enforcement solutions.

5.21 The remainder of the analysis presented here focuses on issues not covered elsewhere within this report and/or not directly relevant to any of the other questions asked within the consultation document.

Varying forms of tenancy

5.22 The proposed new tenancy would replace Assured Tenancies and Short Assured Tenancies, with other types of tenancies (such as Protected Tenancies) continuing. It was suggested that retaining 'old' types of assured tenancies has the potential to cause confusion and that the new tenancy should replace all existing Assured and SATs after a transitional period.

5.23 Also in relation to the range of tenancy types it was suggested that other areas to be looked at in the medium term should include tenancies for shared accommodation, and the rights of tenants with a resident landlord. It was also recommended that, before deciding on the content of a new tenancy, the Scottish Government should speak to the growing number of Housing Associations that have subsidiaries operating mid-market and market rent properties, and that operate different financial models and National Housing Trust arrangements.

5.24 The potential for different types of tenancy, and particularly for an additional form of tenancy that offers much more security of tenure to tenants subject to agreed terms, was raised. It was also noted that the notion of three year or longer tenancies has been raised as part of the debate around tenancy reform. Whilst not ruling out this option, one of the respondents raising this issue cautioned that landlords could be deterred if the terms and processes by which either party can terminate the arrangement were not clearly detailed.

5.25 Specific suggestions regarding a longer-term or more secure option included:

• There could be a tenancy option which would allow PRS tenants to progress from a standard PRS tenancy (with limited security of tenure) to a long-term tenancy. Whist noting that the proposal would require careful consideration, the outline approach suggested included tax adjustments or incentives which encourage landlords to move toward long-term lets and family lets.
• An approach which recognises the differences between furnished and unfurnished tenancies could be considered; it was noted that Continental European housing systems tend to differentiate in the way they deal with the two sub-sectors with regard to rent regulation and to length and security of tenure.
• Practice within the commercial sector could act as a starting point for delivering an approach which could be based on larger deposits and increased tenant responsibility for maintenance and improvement. It was also suggested that this approach would have the potential to encourage more institutional and long term investment into the PRS.

5.26 Other suggested approaches included the development of a private sector rent-to-buy option for tenants where both the landlord and the tenant enter a contract at the start of the tenancy which enables tenants to purchase the property that they occupy, subject to agreed terms.

5.27 Finally, it was suggested that any alterative tenancy type (or at least the capacity to vary the standard private tenancy), will be required to accommodate the student market. In particular, it was noted that the student market operates with a very small tenancy start window (generally in August or September) and that accommodation may be let up to 8 months in advance.

The First-tier PRS Tribunal

5.28 Some respondents focused their comments on aspects of the First-tier PRS Tribunal, sometimes noting that the effectiveness of the proposed tribunal will be absolutely central to the new system working. There were calls for the tribunal system to be as simple and clear as possible and for the Tribunal to be fully resourced so that case processing times are kept to a minimum.

5.29 There were concerns that repossession issues being heard by the Tribunal, rather than the Courts, may give rise to unforeseen access to justice consequences. It was suggested that the transfer of jurisdiction for repossession actions could lead to increased demands on housing advice services to provide representation at the Tribunal and that this could be an even greater issue if tenants cannot access legal aid. More specifically, an organisation which currently provides a 'Court Door' advice service for those tenants who appear at Edinburgh Sheriff Court unrepresented and without having sought prior advice, noted the practical challenges that may result from cases going to the Tribunal. At present, the service can be delivered because all such cases are heard in a regular weekly time slot; they were concerned that a less predictable and dispersed Tribunal system may make it impossible to deliver this type of late intervention for those at risk of losing their tenancy.

5.30 Other points raised in relation to the Tribunal included:

• Further guidance needs to be issued on the ability to appeal a decision; given that decisions would have a significant effect on tenants' lives, permission to appeal needs to be granted or refused as soon as possible.
• The Property Ombudsman noted their understanding that, aside from the formal regulatory approach contained in the Housing (Scotland) Act 2014, it is the intention of the Scottish Government to allow existing voluntary redress schemes to continue and to work alongside mandatory requirements. They suggested there may be an opportunity to generate significant costs savings if they dealt initially with complaints about an agent who was registered with them.
• At present tenants seeking compensation from landlords for not putting tenancy deposits into an approved tenancy deposit scheme have to use the summary application procedure, which is a full legal procedure requiring the use of a solicitor. Even if they are eligible for legal aid the possible cost implications can act as a disincentive to tenants, many of whom will be put off by the very need to employ a solicitor. A simple tenant-friendly procedure via the Tribunal would be preferable and, ideally, could be combined with an action for recovery of the deposit.
• On-line referral of a case to the Tribunal should be possible.

5.31 Finally, clarification was sought as to the anticipated cost to the landlord (if any) of taking a case to the Tribunal.

Other issues

5.32 Other suggestions put forward for changes or improvements to current practice or regulation included:

• Introducing a statutory obligation relating to the repair and condition of a property. More specifically, it was suggested there should be obligations to have properties redecorated between tenancies or every two years.
• Particular support being made available to smaller (including reluctant), or new landlords, for example by funding training on the correct interpretation and application of tenancy legislation.
• Better regulation of both letting agents and/or landlords, with policing and real enforcement action where there are breaches. It was suggested that lettings agents are relatively unregulated and it would be sensible to consider requiring regulation by a reputable body. It was also suggested that the industry lacks an authority body which tackles unregistered, unscrupulous, unofficial landlords who ignore all current legislation and give the sector a bad name while supplying substandard properties to possibly vulnerable tenants.
• Increased powers for the Scottish Housing Regulator to regulate the private rented sector and to exclude landlords, with the Private Sector Housing Panel having jurisdiction in such cases.
• The Scottish Government should support local authorities in their continued development of the voluntary landlord accreditation schemes.
• A single body able to give advice to both landlords and tenants was proposed. It was suggested that, at present, getting advice can be very difficult and many aspects of legislation seem open to interpretation. It was also suggested that updates to legislation (such as electrical safety, Legionnaires' Disease guidelines, tenancy deposit schemes etc), are being discussed and implemented without most landlords or tenants being aware of changes being proposed or made.
• Setting up a registration system, made public, for landlords to register details of "bad tenants". A register providing information of landlords' performance was also proposed.
• Addressing some of the issues with tenancy deposit schemes. Concerns included that the current system can be very difficult for smaller landlords to manage, particularly those who are not computer-literate. A specific suggestion was that the deposit should not be held in an assured scheme but in a secure, specific bank account organised by the tenant through their bank. The funds could only be accessed with both the landlord/agent and tenant's signature and would be released following an inspection carried out by a surveyor/contractor appointed by the landlord at the end of the tenancy.

5.33 A number of the other suggestions made related to further potential changes to clarify or simplify documentation and processes. Specific suggestions included:

• Providing clarification regarding Notice to Quit termination dates.
• Removing the need for the AT5 notice^[9].
• Being able to use electronic signatures for Tenancy Agreements and being able to serve documents, such as a Notice to Quit, via e-mail.
• In situations when both landlord and tenant are in agreement about renewing a tenancy agreement, it would be useful to have some form of mechanism within the new legislation to renew or extend that tenancy without the need to formally terminate the current agreement and issue a complete new agreement.

5.34 Finally, and in relation to funding arrangements for the sector, a Conditional Exemption for Affordable Rented Housing from Inheritance Tax, together with roll-over relief from Capital Gains Tax was proposed. It was suggested that these measures would allow landlords to operate as businesses and encourage only those who deliver affordable rented housing.

Next steps, transitional arrangements and monitoring

5.35 Some respondents suggested that the current proposals are under-developed and that further detail will be required before they are able to take a firm view on either some or all of the proposals for a new tenancy regime. As at Question 10, some respondents noted their willingness to assist in further development or that they wished to be consulted again once this detail is available.

5.36 Amongst the issues highlighted as requiring particular attention were: the relationship under the new regime between the tenancy contract and the statutory tenancy; the extent to which the legislation will impose contractual terms on the parties; and the relationship between the security of tenure provisions and any rent control measures to be included. It was also suggested that potential competition law and human rights implications of the proposals have not been fully addressed and that these could trigger possible claims against the State.

5.37 The issue of which tenancies would be brought under any new regime was also raised. One view was that there should be no retrospective elements to the legislation with current tenancies remaining as they are going forward. However, an alternate position was that current tenancies should be included, albeit there could perhaps be different transitional arrangements for each type of tenancy. The view was that all tenants would be advantaged by being within the new system and having the rights of access to the Tribunal and that having one system both simplifies regulation and promotes greater understanding of their rights amongst tenants.

5.38 Some respondents made suggestions or posed questions about the plans for the transition to any new tenancy regime. These included:

• There should be an extensive and continuing publicity campaign aimed at landlords, letting agents and tenants by central and local government before, during and after the transitional period.
• There should be an initial transition period of at least 6 months with a focus on informing tenants and landlords, followed by a year during which tenancies would convert on renewal, including renewal by tacit relocation after the end date of a tenancy agreement. After that year it was suggested all tenancies would convert to the new tenancy and be deemed to be let under that new tenancy.
• The legislation should give Scottish Ministers powers to delay any implementation stage for a specified period, if problems suggesting need for such a delay emerge.
• Landlords should be given 3 years within which to dispose of their properties with vacant possession if they do not wish to be involved in the new regime.

5.39 Once implemented, it was suggested that changes to the tenancy regime will need to be carefully monitored to ensure that the changes do not have any long-term negative effect on the sector in terms of investment in properties or delivery of new supply. More specifically, it was suggested that the changes should be evaluated, with the findings of that evaluation reported after the first year of operation.