Cost of Living (Tenant Protection) (Scotland) Act 2022: first report to the Scottish Parliament

7. Operation of Part 1 and assessment of necessity and proportionality

7.1 Paragraphs 1 & 2, Part 1, Schedule 1: Rent cap for private residential tenancies

Description and Operation of the Provisions

7.1.1 The Act introduced a temporary cap on in-tenancy rent increases for the majority of private sector tenancies, which was backdated to 6 September 2022 in order to prevent landlords seeking to increase a tenant's rent between the Programme for Government announcement of the 'rent freeze' and commencement of the Act. For tenancies where a valid rent increase notice was issued before 6 September 2022, the existing legislative requirements continue to apply.

7.1.2 The 'permitted rate' (the 'rent cap') is currently set at 0%, and applies to most existing tenancies in the private rented sector. Any rent increase notice issued for applicable tenancies on or after 6 September 2022 will be void whilst the cap is at 0%. Landlords can still set the rent for any new tenancy, the rent cap only restricts in-tenancy rent increases.

7.1.3 Notwithstanding the rent cap, landlords have a safeguard available to them, and can apply to Rent Service Scotland (RSS) to increase the rent for a let property above the rent cap in connection with defined 'prescribed property costs'. Landlords must give their tenant notice in writing when they make such an application.

7.1.4 An application may only be made if a landlord has had an increase in these defined costs, during the preceding six months, 'prescribed property costs' are defined as follows:

• the interest payable in respect of any mortgage or standard security over the rental property;
• any insurance premium payable by a landlord relating to insurance connected to offering the property for rent, for example 'landlords' insurance' (excluding general building and property insurance); and
• any 'service charge(s)' related to the rental property that are recoverable from the tenant via their rent as part of the contractual arrangement between tenant and landlord.

7.1.5 A landlord can apply to increase the rent to recover up to the lower of either 50% of the increase in these costs or 3% of the existing rent. The existing protection which only allows a landlord to raise rents once per 12 months still applies.

7.1.6 If an application is approved by RSS, the resultant rent increase will not come into effect until (at the earliest) 12 weeks after the date the landlord made the application. A landlord or tenant is able to appeal the RSS' decision by applying to the First-tier Tribunal for Scotland (Housing and Property Chamber) within 14 days to have the RSS calculation reviewed.

7.1.7 As at 31 December 2022, RSS have received 12 applications of this nature (of which, 10 are valid) from landlords seeking to increase rent above the permitted rate on the basis of an increase in prescribed costs that relate to the let property.

7.1.8 Whilst there have only been a relatively small number of applications received, it should be noted that general enquiries to RSS have increased significantly, due to landlords seeking information in relation to the rent cap. As at 31 December 2022, RSS have received a total of 45 enquiries; 24 from landlords regarding hardship and seeking information on how to apply for a rent increase above the rent cap; 8 from Housing Associations in relation to Fair Rent tenancies; and, 13 from tenants asking about rent increase notices generally, and specifically seeking clarification on whether their rent increase will still go ahead, where a valid notice of increase was issued prior to 6 September 2022.

7.1.9 Scottish Ministers have powers in the Act to vary certain provisions, if it is necessary and proportionate to do so, they may amend: the level of the rent cap; certain features of the landlord safeguard, such as the defined list of prescribed property costs and/or the 50% and 3% figures.

Consultation

7.1.10 The call for evidence, along with informal consultation with stakeholders, has provided valuable information on the views of key stakeholders - including landlords, tenants, housing rights organisations, investors and educational establishments and providers of student accommodation - on the operation and impact of the measures. These are summarised in Section 5 of this report. Scottish Ministers have considered these as part of assessing the continued necessity and proportionality of the measures.

7.1.11 For landlord representatives, an initial discussion was held on 25 October 2022 with the Chartered Institute of Housing and Scottish Land and Estates, with a further meeting on 6 December 2022, after the legislation came into force, with the Scottish Association of Landlords, Propertymark, the Chartered Institute of Housing and Scottish Land and Estates. These meetings included discussion of communication and awareness-raising, concerns regarding rent arrears, and concerns about current uncertainty in the sector and the potential for unintended consequences from the emergency legislation.

7.1.12 For tenant representatives, an initial discussion was held on 26 October 2022 with Citizens Advice Scotland and Living Rent, with follow up meetings with these stakeholders taking place after the legislation came into force on 7 December 2022 and 14 December 2022 respectively. Matters discussed included awareness-raising and guidance, concerns about illegal rent increases and queries about the longer-term legislative programme for the private rented sector.

7.1.13 For investor representatives, Scottish Government officials met with 12 investor organisations on 8 December 2022. Stakeholders set out concerns about investor confidence and investments which have been paused or withdrawn as a result of the emergency legislation, and the need for certainty to reassure investors going forward.

Necessity and Proportionality

7.1.14 During this reporting period, in order to assess the use and continued necessity and proportionality of the private rented sector rent cap and safeguards, the Scottish Minsters have taken into account:

• the evolving economic context of the costs crisis and the likely impact on households resident in the private rented sector;
• information from key stakeholders regarding the impact and effect of the measures on landlords and tenants; and
• information from other sources to seek to identify any unintended or unanticipated impacts that may have arisen as a result of the measures.

7.1.15 The concerns detailed by consultees in the call for evidence (see section 5 of this Report) are noted, but in terms of testing the validity of these concerns with reference to evidence, and assessing the wider impact of the rent cap measures, there is limited data available to date due to the relatively short period of time that the Act has been in place. This is, however, being continually monitored and considered.

7.1.16 We have carefully considered the response from consultees. However, based on the overall evidence set out in section 4 of the impact of the costs crisis, at present the rent cap provisions remain necessary and continue to pursue the prescribed aim in the public interest of ensuring that tenants in the private rented sector were, and are, protected against the impact of the wider economic conditions during the winter months, through stabilisation of their housing costs. This is at a time when the economic data demonstrates that the costs crisis continues to have a significant and detrimental impact on household finances, with fuel poverty on the rise, increases in inflation and other costs as detailed in Section 3 of this Report.

7.1.17 Citizens Advice Scotland reported in December^[34] that "Online demand around housing issues also remains significant. Notably, despite the Scottish Parliament legislating for a rent freeze in September 2022, demand for the online advice page "The landlord wants to increase the rent" is still up 25% compared to November 2021".

7.1.18 Consultee, Living Rent, stated that the measures provide: "crucial relief and assistance to tenants during the most serious cost of living crisis in generations. Within just a week of asking tenants how they felt, we had over 200 people outline how important these measures have been and the necessity to have them continue". They also noted that there are: "record numbers using food banks with needs outstripping supply according to the Trussell Trust and higher than during the Coronavirus pandemic, as well as a 31% increase in applications for crisis grants".

7.1.19 In terms of the proportionality of the rent cap, there are powers to amend the level of the rent cap combined with the ability to vary the landlord safeguard, provided through the prescribed property costs provisions, enables Scottish Ministers to take tailored and agile action in response to any changes in the economic environment, enabling them to ensure that their response continues to be proportionate. The rent cap strikes a fair balance between the public interest and the interference with landlords' rights inherent with the measures. No changes have been necessary to date due to the continuing economic evidence of the continuing costs crisis.

7.1.20 There was limited evidence received on the operation the prescribed property costs due to the relatively short period of time that the process has been operational. As set out during the passage of the Bill, the purpose of including the provision for landlords to make an application to have a rent increase considered in respect of defined prescribed property costs is to provide a suitable safeguard which takes account of the individual circumstances of landlords. We have reviewed the level and those property costs that are permitted to ensure that they strike a balance. Based on the evidence provided by stakeholders and set out in Section 4, we remain of the view that the prescribed property costs remain necessary and proportionate in balancing the rights of tenants and landlords, and taking account of the impact of the cost crisis on landlords.

7.1.21 The current framework is finely balanced, and as we begin to look forward towards emerging from the worst of the winter months, there will continue to be close monitoring of economic data and evidence of the impact of the measures will continue to be gathered. Evidence on whether, or not, the financial burdens on households begins to lift will be closely monitored alongside the impacts of the rent cap measures. Whether, or not, emerging and contemporaneous evidence supports an amendment to the level of the rent cap or and/or safeguards continuing to be necessary and proportionate remains under continued consideration.

7.2 Paragraph 3, Part 1, Schedule 1: Rent cap for social tenancies

Description and Operation of the Provisions

7.2.1 Part 1, Schedule 1 also protects the majority of tenants in the social rented sector from any increase in in-tenancy rent by their landlords of more than the permitted rate of 0%.

7.2.2 As the majority of social sector landlords increase rents once a year, in April, the emergency rent cap provisions have had minimal impact. During this reporting period – and in line with existing statutory requirements - social sector landlords have been carrying out ongoing consultation with tenants on potential rent increases that may take place from 1 April 2023 if permitted by the rent cap.

Consultation

7.2.3 The call for evidence, along with formal and informal consultation with stakeholders, has provided valuable information on the views of key stakeholders - including landlords, tenants, housing rights organisations and investors - on the operation and impact of the measures. These are summarised in section 5 of this report. Scottish Ministers have considered this as part of assessing the continued necessity and proportionality of the measures. Whether there have been any unintended or unanticipated impacts arising from the measures has also been assessed, for example, in relation to consultee responses suggesting that the measures may have resulted in a decline of investment in the sector as considered in Section 5 of the report.

7.2.4 During this reporting period, there has been ongoing and in-depth engagement with local authority landlord and Registered Social Landlord representative bodies through the Social Sector Short Life Task and Finish Group, that has supported Ministers to make an informed decision on the rent cap provisions for the social sector. As part of this work, Social Sector Short Life Task and Finish Group members have consulted with their respective memberships and also directly with tenants to provide updates and feedback on the impact of the rent cap provisions.

Necessity and Proportionality

7.2.5 During this reporting period, in order to assess the use and continued necessity and proportionality of these provisions, the Scottish Minsters have taken into account the evolving economic context and the likely impact on households resident in the social rented sector, along with evidence from key stakeholders regarding the impact and effect of the measures on landlords and tenants.

7.2.6 The social sector rent cap provisions remain necessary during winter months in order to ensure that social tenants continue to be protected against the impact of the wider economic conditions, through stabilisation and certainty of their housing costs at a time when the cost of living crisis continue to have a detrimental impact on household finances. In the sector, the standard practice is that rents are only raised annually, however, there is no legislative restriction on a more frequent rent increase (like there is in private residential tenancies), therefore, the measures are necessary to provide parity of protection for tenants in the social rented sector too.

7.2.7 In terms of the ongoing operation of the rent cap, the ongoing necessity and proportionality has been assessed through ongoing engagement with the sector and consideration of available evidence. A voluntary agreement has been reached with key social housing sector stakeholders and it has been determined that this supports an approach that will see Scottish Ministers, in line with the duty on contained in section 8(2)(b), expire the rent cap in the social sector as soon as practicable. Regulations will be laid before the Scottish Parliament in January 2023 which will achieve expiry of the rent cap in the social sector by 1 March 2023, to align with the sector's usual annual rent increase process which takes place on 1 April. Please refer to section 6 of this Report for a full statement on this proposed approach.

7.3 Paragraph 4, Part 1, Schedule 1: Rent cap for student residential tenancies

Description and Operation of the Provisions

7.3.1 The Act introduces a temporary cap on in-tenancy rent increases for students who rent college and university halls of residence and Purpose Built Student Accommodation (PBSA). The rent cap is currently set at 0%. If a tenancy agreement includes utilities and the tenancy agreement allows for recovery in respect of excessive use of utilities in addition to the fixed monthly charge, accommodation providers can pass on reasonable costs to tenants to recover such costs relating to excessive use.

7.3.2 The emergency measures set out in the Act only apply to in-tenancy rent increases. Student tenancies are regulated by the terms of the contract between the accommodation provider and the student, and by common law. These contracts typically (but not always) cover the whole academic year. If the contract states that the rent is fixed for the entire year, in the absence of a clause stating otherwise, the landlord would not be able to raise it during the term of the tenancy. Any new contractual agreement would not be covered by the emergency measures which means that providers would be able to set rent levels for new tenancies commencing in the 23/24 academic year.

7.3.3 There is currently limited data on the impact of the provisions in this sector but at the Student Accommodation Group meeting on 14 November, stakeholders advised that the rent cap provisions in the Act were having minimal or no effect on the sector. The group advised that rents were fixed in advance for the whole of the academic year and that in tenancy rent increases did not occur. However, despite the assurances from provider representatives in the Group, there may be a small number of providers whose contracts may allow for in-tenancy rent increase. Members of the group viewed the main impact of the Act to be on the mainstream private rented sector, although it was acknowledged - given the limited time since the implementation of the Act - that data may not yet be available to reflect this. In their view, there was a concern that the emergency measures would lead to increasing demand on purpose built student accommodation and university and college halls of residence, which it would be very difficult to meet.

Consultation

7.3.4 The call for evidence, along with informal consultation with stakeholders, has provided valuable information on the views of key stakeholders - including landlords, tenants, housing rights organisations, investors and educational establishments and providers of student accommodation - on the operation and impact of the measures. These are summarised in section 5 of this report. Scottish Ministers have considered these as part of assessing the continued necessity and proportionality of the measures. Whether there have been any unintended or unanticipated impacts arising from the measures is also being assessed, for example, in relation to investors' behaviour in the sector.

7.3.5 As well as the formal call for evidence issued to a range of student representative bodies and accommodation providers and their representative bodies, there has also been ongoing informal consultation with the sector:

• a discussion at the augmented Student Accommodation Group on 14 November 2022. At that meeting members were asked for information on a range of indicators, including: current rental cost and student tenant number, number of excess utilities payment requests to tenants from providers and the average cost thereof since the Act came into force, number of evictions since the Act came into force and reasons, number of students requesting and permissions granted for a termination of contract because of the impact of costs of living (for example food prices and other costs associated with living in that accommodation) since the Act came into force;
• an email to all the members of the Student Accommodation Group on 22 November 2022 to ask that they further consider this and revert to officials with the information requested at the November meeting; and
• the formal call for evidence highlighted, with regard to colleges and universities (a) from Universities Scotland that there is insufficient evidence on the impact of the Act but they anticipate the main impact of the Act would be on the PRS; (b)from University and College Unions that for staff in the university/college sector who were tenants in the PRS, the Act had provided reassurance and protection against increases in their rent.

Necessity and Proportionality

7.3.6 Whilst the rent cap provisions have only been in place for a short period of time, feedback to date is that they do not impact the student sector to the same extent as the mainstream private rented sector due to the nature of the majority of contractual student tenancy agreements. Notwithstanding this, there is no centralised register of all student sector tenancy agreements so it is possible that a minority may contractually permit in-tenancy rent increases and, given that student tenants may be particularly vulnerable to the impact of the costs crisis, these measures can be considered to be necessary to provide parity of protection with other private sector tenants.

7.3.7 For the student sector providers that have reported that the rent cap has a negligible impact for them, there is minimal or nil interference with their usual practices as a result of the rent cap. In terms of assessing the wider impact of the rent cap in this sector, there is minimal data as yet due to the relatively short period of time that the measures have been in place but this is continuing to be monitored.

7.3.8 Due to the limited data regarding impact we consider that it is appropriate to maintain provisions for the student sector at this time. We will continue to monitor the impact on the sector and keep the measures under review, in terms of whether they remain necessary and proportionate.

7.4 Part 1, Schedule 2: Protection against eviction

Description and Operation of the Provisions

7.4.1 Part 1, Schedule 2: temporarily pauses the enforcement of eviction actions in the private rented, social rented and student accommodation sectors from 6 September 2022 onwards, with relevant exemptions in relation to specified circumstances, and it also amends the process for the determination of damages for an unlawful eviction.

7.4.2 The temporary moratorium on evictions aims to help to reduce the negative impacts on the health and wellbeing of tenants caused by being evicted and/or being made homeless during the costs crisis. It will provide more time for people to seek support and to find alternative accommodation that meets their needs at an affordable rent and some responses to the call for evidence (considered below) indicate that the evictions moratorium provisions are contributing positively to that aim.

7.4.3 A number of safeguards have been put in place to allow evictions in limited circumstances. The pause does not apply where:

• the tenant has engaged in antisocial or criminal behaviour (student residential tenancies, private and social sectors);
• the tenant has abandoned the property (private and social sector);
• where the property is to be sold by a lender (private sector only);
• the tenant is no longer an employee of the landlord (private and social sector); and
• the property is subject to demolition or requires substantial work and suitable alternative accommodation will be available for the tenant (social sector only).

7.4.4 There are also three amended/new temporary grounds for eviction where the moratorium will not apply where:

• landlord intends to sell the let property due to financial hardship (this applies to private sector only)
• landlord intends to live in the let property due to financial hardship (private sector only)
• tenant has substantial rent arrears which add up to 6 months' rent or more in the private rented sector, or £2,250 or more in the social rented sector (private and social rented sectors).

7.4.5 If an eviction order is granted by the Tribunal or Sheriff Court for any of these reasons, the eviction order can be progressed in accordance with the rules that apply to these eviction grounds will apply. Where an eviction order or decree was granted before the legislation comes into force or where the landlord raised eviction proceedings before the legislation came into force and served an eviction notice before the announcement on 6th September 2022, the case will not be caught by the moratorium and will still be able to be enforced in line with current legal requirements.

7.4.6 As set out above, where a landlord is prevented from enforcing an order for eviction while the moratorium is in effect, the enforcement of that order can only be delayed for a maximum period of 6 months.

7.4.7 As of 31 December 2022, the First-tier Tribunal (Housing and Property Chamber) confirmed that it had received 40 applications that fall within the scope of the emergency provisions. As the eviction case decisions which fall into the scope of the emergency provisions are published by the First-tier Tribunal we will review this data once it becomes available.

7.4.8 In the social rented sector the Scottish Housing Regulator have been approached to collect data on evictions from social landlords on a monthly basis, however there is currently no such data available from when the moratorium came into force. Feedback from the call for evidence to date, is showing no significant concerns on the operation of the moratorium. Please refer to the summary cause evictions data at paragraphs 4.28 and 4.29 and the limitations of that data.

7.4.9 In engagement with student sector stakeholders who provide student accommodation, it has been stressed by the sector that evictions are rare, with only one example of eviction in the last 5 years being cited, and that being on the basis of anti-social behaviour, not relating to rent arrears. In addition, to provide an indication as to the impact of these provisions on Sheriff Officers going forward, we are engaging with The Society of Messengers-at-Arms and Sheriff Officers to collect information on enforcement of evictions.

Consultation

7.4.10 In this reporting period, in order to assess the continued necessity and proportionality of the provision, the Scottish Government has considered various sources of information, formally and informally, including a call for evidence to key stakeholders - including landlords, tenants, housing rights organisations, investors and educational establishments and providers of student accommodation. We sought written evidence on the impact of the measures from local authorities and persons who represent the interests of tenants and landlords that may be affected by the provisions, and any other person considered appropriate. These are summarised in Section 5 of this Report

7.4.11 Tenants' representative reported being supportive of the moratorium. Joseph Rowntree Foundation "welcomed the interventions" and noted that they are "very worried for private renters in more vulnerable circumstances, if, and when, current restrictions are lifted, particularly in respect of possession/eviction proceedings". Feedback from Shelter Scotland noted that: "Protections from eviction and increased housing costs are essential during this time of significant financial hardship [….] We have seen the impact of the new Act with our advisers successfully challenging and stopping some evictions and rent increases using this new emergency legislation."

7.4.12 There were criticisms from private and social rented sector landlord representatives that have suggested that the moratorium has encouraged both the non-payment of rent and reduces the incentive for tenants in rent arrears to work with their landlord to repay arrears, leading to larger rent arrears putting the tenancy at risk. In addition, it has been suggested that private landlords may be becoming more cautious in the selection process for new tenancies, which could lead to an increase in homelessness for those more vulnerable households who may be considered a higher risk to house.

7.4.13 Whether there have been any unintended or unanticipated impacts arising from the measures is being assessed, but there is limited data available to date, to verify the extent and validity of the issues raised. This will continue to be investigated and monitored closely.

7.4.14 In addition to the call for evidence, we have engaged with those representing landlords, letting agents and tenants in both the private and social rented sectors as well as Local Authorities, the Scottish Housing Regulator and Lenders. The Social Sector Short Life Task and Finish Group has also provided a mechanism for key social sector stakeholders to discuss key issues arising from the cost of living crisis and it assists in monitoring the impact, and continuing need for, these provisions.

Necessity and Proportionality

7.4.15 During this reporting period, in order to assess the use and continued necessity and proportionality of these provisions across the private, social and student accommodation sectors, the Scottish Minsters have taken into account the evolving economic context of the costs crisis which continues to place pressure on households, along with evidence from key stakeholders regarding the impact and effect of the measures on landlords and tenants. Each sector is considered in turn as follows:

Private rented sector

7.4.16 As noted above, there has been a limited impact on private (and social) landlords evicting a tenant to date. Alongside the moratorium there are existing safeguards for landlords experiencing financial hardship, and there is a maximum additional delay of 6 months. Despite the reportedly minimal impact on landlords, the peace of mind and protection the moratorium provision provides tenants while the rent cap is in place is significant, and it is twofold:

• firstly, avoiding landlords ending a tenancy to raise the rent. Although it is a criminal offence to evict a tenant without a court or Tribunal order or decree, the moratorium provides additional protection to tenants from unfair or unlawful eviction action pursued by private landlords in order to seek a new tenant (which would allow them to set a new, higher rent afresh because the rent cap only applies to in-tenancy rent increases) in direct response to the temporary rent freeze; and
• secondly, to help reduce impacts on the health and wellbeing of tenants associated with being evicted, and by providing those being evicted with additional time to access support and find alternative accommodation.

7.4.17 Therefore, the measures remain a proportionate and necessary approach at this time.

Social Rented Sector

7.4.18 In the social rented sector, the proposal set out in section 6 of this Report is for the rent cap to be expired on from 1 March 2023, however, the evictions moratorium provisions continue to be necessary and proportionate. Social rented households are more likely to have lower incomes than households in other tenures, with Scottish Household Survey results for 2019^[35] showing 60% of social rented households having a net income of £20,000 or less, compared to 38% of private rented households, 41% of households who own outright, and 14% of households buying with a mortgage.

7.4.19 Social rented households are also more likely to be financially vulnerable (defined as households with savings which would cover less than one month of income at the poverty line), with Scottish Government Statistics on Wealth in Scotland^[36] showing 63% of social rented households being estimated to be financially vulnerable, compared to 40% of private rented households, 24% of households buying with a mortgage and 9% of households owning outright.

7.3.18 Around two-thirds (66%) of social rented households are receiving some level of support for housing costs through Housing Benefit or Universal Credit, with the equivalent figure for private rented sector households being 29%^[37].

7.3.19 A number of stakeholders noted that evictions are a last resort and that therefore the moratorium has not imposed a significant impact. Therefore, the evidence of impact indicates that this is not an immediate and significant obstacle to sector practices. We consider that the measures, alongside the landlord safeguard and exemptions, remain proportionate in order to pursue the aim of helping reduce impacts on the health and wellbeing of social sector tenants by being evicted and/or being made homeless at a time when they are already struggling as a result of financial stress resulting from the costs crisis, and providing those being evicted with additional time to access support and find alternative accommodation.

Student rented sector

7.3.20 Whilst evictions in the student sector are reported as rare by sector consultee responses and stakeholder engagement, there remains a possibility that evictions could take place. In addition, the majority of those in halls of residence and PBSA are under 21. Taken alongside the wider economic landscape associated with the ongoing costs crisis, we consider these provisions continue to be necessary in order to help reduce impacts on the health and wellbeing of tenants by being evicted and/or being made homeless at a time when they are already struggling as a result of financial stress resulting from the costs crisis. Given the reported infrequency of eviction action, alongside the landlord safeguard and exemptions, the interference with landlords' rights imposed by the moratorium is relatively minimal and is proportionate with the aim of the Act as regards these provisions and with providing those being evicted with additional time to access support and find alternative accommodation.