The Cost of Living (Tenant Protection) (Scotland) Act 2022: report to the Scottish Parliament - 1 June to 30 September 2023

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

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

Description and Operation of the Provisions

6.1.1 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.

6.1.2 The rent cap was initially set at 0%, and applied to most existing tenancies in the private rented sector. Any rent increase notice issued for applicable tenancies on or after 6 September 2022 was void while the cap was at 0%.

6.1.3 On 1 April 2023, regulations came into force that extended the emergency Act beyond its initial first six month period, for a further 6 months until 30 September 2023. The regulations also varied the rent cap provisions in relation to the private rented sector, increasing the 'permitted rate' by which rent can be increased during a tenancy from 0% to 3%. This decision was taken following a comprehensive overview of the latest economic situation and consideration of a wide range of evidence from stakeholders, and a Statement of Reasons providing a full justification and evidence base underpinning that decision was published alongside the regulations.

6.1.4 This meant that from 1 April 2023, private landlords were once again able to issue a rent increase notice (for applicable tenancies), so long as the increase was within the permitted rate. As before, landlords can still set the rent for any new tenancy, as the rent cap only restricts in-tenancy rent increases.

6.1.5 Notwithstanding the rent cap, landlords continue to 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. The regulations that came into force on the 1 April also varied the prescribed property costs safeguard from 3% to 6%.

6.1.6 An application using the safeguard may only be made if a landlord has had an increase in 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.

6.1.7 A landlord can apply to increase the rent to recover up to the lower of either 50% of the increase in these costs or 6% of the existing rent. The existing protection which only allows a landlord to raise rents once per 12 months still applies.

6.1.8 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.

6.1.9 As of 25 September 2023, RSS have received the following applications:

Summary of applications received by Rent Service Scotland under the Cost of Living (Tenant Protection) (Scotland) Act 2022

6.1.10 A total of 47 Landlord applications for 3% prescribed property costs were received up to 31 March 2023 with 20 incomplete applications having to be returned and 0 withdrawn. 38 decisions were made and 9 decisions have not been made as no supporting documentary evidence of costs were received. Of the 47 applications, 47 were for interest payable in respect of a mortgage or standard security, 0 were for landlord insurance other than general building and contents and 0 were for service charges relating to the property.

6.1.11 Since 1 April 2023, 50 tenant verification applications have been received and 25 decisions have been made. Of the 25:

• 16 were verified at the 3% cap;
• 9 applications had rent increase notices that exceeded the 3% cap and these were capped at 3% by the Rent Officer. Of the 9 which exceeded the cap: 3 were between 5 and 7%; 2 were between 7 and 8%; 2 at 15%; 1 at 25% and 1 at 45%.

6.1.12 Since 01 April 2023, 1,126 Landlord applications for 6% prescribed property costs have been received of which:

• 101 incomplete applications were returned
• 74 applications withdrawn
• 23 applications still to be processed
• 928 decisions were made:

6.1.13 The table below shows a breakdown in the type of prescribed property costs requested:

6.1.14 Of the 928 accepted applications, 35 applied stating they had an increase in more than one prescribed property cost. Additionally, not all applicants requested an increase in rent due to an increase in mortgage costs. One applicant only requested an increase in rent due to an increase in in their insurance costs. This was the only prescribed property cost they claimed for. 7 applicants requested an increase in rent due to an increase in their service costs. This was also the only prescribed property cost all 7 applicants claimed for.

6.1.15 One landlord has challenged the outcome of their application and has requested the First-tier Tribunal review the decision taken by the Rent Officer.

6.1.16 RSS received 465 enquiries regarding the landlord prescribed property cost applications and tenant verification applications. 253 were received by e mail and 212 by telephone.

Consultation

6.1.17 The call for evidence, along with informal consultation with stakeholders, has provided valuable information on the views of key stakeholders on the operation and impact of the rent cap 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.

6.1.18 During this report period the Scottish Government has met with a range of key stakeholders to discuss the ongoing operation and impact of the rent cap provisions. This included:

• a meeting with the Scottish Property Federation on 26 June where challenges with the rent cap were discussed;
• a meeting with investors on 2 August, which included Scottish Property Federation representatives, Goodstone Living, Legal & General, Hub Residential, Scarlett Development, Ryden, Moda Living and Get Living. The message from the group was that clarity regarding future rent controls would help restore investor confidence in Scotland, which they consider has been significantly damaged by the Cost of Living Act. They are keen to understand in detail what will be brought forward in forthcoming legislation and to have a clear line of sight on the timeline; and
• a meeting with tenant representative group Living Rent on 2 August, where they expressed concern that any interval between the emergency measures expiring and future rent controls might lead to steep rent increases for tenants before rent controls are in place.

Necessity and Proportionality

6.1.19 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.

6.1.20 The concerns detailed by consultees in the call for evidence (see section 5 of this Report) are acknowledged. In terms of testing the validity of these concerns, and assessing the wider impact of the rent cap measures, there is limited data available to evidence a direct link between the rent cap provisions and wider changes to the rental market, a key issue flagged by many stakeholders. The Scottish Government will continue to closely monitor information as it becomes available and has considered all available evidence and data at this time.

6.1.21 Having carefully considered the responses from consultees we remain of the view, based on the overall evidence set out in section 4, that the rent cap provisions remain necessary and continue to pursue the prescribed aims of the Act. The economic data demonstrates that the costs crisis continues to have a challenging impact on household finances. The measures remain in the public interest seeking to ensure that tenants are, protected against the impact of the wider economic conditions, through stabilisation of their housing costs.

6.1.22 As set out in section 4 of this report, although fuel poverty rates are showing a recent downward trend, they remain significantly higher than before the cost of living crisis, and it is estimated that 46% of households in the private rented sector and 52% of households in the social rented sector will be in fuel poverty for the first part of the coming winter period.

6.1.23 The Scottish Government remain of the view that the measures have continued to strike a proportionate balance between the protection of tenants and the rights of landlords via the safeguards built into the legislation. The purpose of including the provision for landlords to make an application to have an above cap rent increase to reflect an increase in defined prescribed property costs is to take account of the individual circumstances of landlords. Scottish Ministers made use of the powers to amend the level of the rent cap and the landlord safeguards in April this year – as a direct response to consideration of the available evidence and wider economic circumstances. We have reviewed the level and those property costs that are permitted to ensure that they continue to strike an appropriate balance.

6.1.24 There was limited evidence received from consultees on the operation the prescribed property costs safeguard due to the relatively short period of time that the process has been operational. However it is clear that a proportion of landlords are successfully making use of it as set out in paragraphs 6.1.12 – 6.1.15.

6.1.25 The current framework is finely balanced, and we will continue to closely monitor the available economic data and evidence of the impact of the measures. Evidence on whether, or not, the financial burdens on households begins to ease further will be closely monitored alongside the impacts of the Part 1 measures.

6.1.26 Based on the evidence provided by stakeholders, and the evidence set out in Section 4, we remain of the view that the measures continue to be necessary and proportionate.

6.2 Part 1, Schedule 2: Protection against eviction

Description and Operation of the Provisions

6.2.1 Part 1, Schedule 2, temporarily pauses the enforcement of eviction orders and decrees 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.

6.2.2 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.

6.2.3 A number of safeguards have been put in place to allow the enforcement of 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).

6.2.4 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).

6.2.5 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. Where an eviction order or decree was granted before the legislation came 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.

6.2.6 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.

6.2.7 As of 31st August 2023, data from the First-tier Tribunal (Housing and Property Chamber) shows that there have been a total of 2,097 applications for eviction from September 2022 to 31 August 2023, which compares to 1,958 applications for evictions in the same period in the previous year, although volumes in the previous year will have been impacted by eviction measures in place through the Coronavirus (Scotland) Act 2020. The total number of eviction applications includes eviction action relating to the Coronavirus Act period, post Coronavirus Act period and under the Cost of Living (Tenant Protection) (Scotland) Act 2022. Data on the status of these applications is only available in relation to Coronavirus Act cases and Cost of Living Act cases (detailed below), and it is therefore not possible to indicate how many of the total number of applications resulted in an Order for eviction being granted, refused, or withdrawn.

6.2.8 More recent data from the Tribunal up to 4 October 2023 shows that there have been, 1,552 eviction applications that fall within the scope of the Cost of Living Act's provisions. Of the 1,552 applications received, 631 are awaiting outcome. The remaining 921 applications are broken down as follows:

Number of First-tier Tribunal (Housing and Property Chamber) eviction applications falling within the scope of the Cost of Living Act provisions, by status and month of outcome as at 4 October 2023

6.2.9 The majority of these eviction applications, 1,094, were in relation to private residential tenancies. Of these, 260 were granted, 15 refused, 9 dismissed and 454 awaiting an outcome. The remainder 356 were either rejected (57) or withdrawn (299).

6.2.10 The table on the following page provides a breakdown by grounds used for cases which were granted, refused and dismissed. In addition to the 18 grounds of eviction set out in the Private Housing (Tenancies)(Scotland) Act 2016, there are 3 new grounds under the Act – 1A (landlord intends to sell due to financial hardship), 4A (landlord intends to live in the let property due to financial hardship) and 12A (substantial rent arrears).

6.2.11 Of the 260 granted, the two main grounds used were rent arrears and intention to sell. It is important to note that applications for eviction can use more than one repossession ground, and so the number of grounds in the table, if totalled, will therefore total to more than the number of cases.

6.2.12 Latest available figures from the Scottish Courts on the total number of social sector summary cause eviction applications registered at courts each month show a decrease over the period since August 2022, with the number of applications registered falling from 458 in August 2022 to 225 in April 2023, although numbers across more recent months have risen slightly to 349 in August 2023. It should be noted that these are overall figures and do not specifically identify the number of applications that fall within the scope of the emergency legislation. Also note that whilst eviction application figures in August 2023 remain above the monthly levels seen prior to this each month between April 2020 and July 2022, the Coronavirus (Scotland) Act 2020 was in force from 7 April 2020 to 30 September 2022 and had a significant impact on the number of summary cause eviction applications registered by the courts during this period.

6.2.13 Latest published figures from the Scottish Housing Regulator on the number of social sector properties recovered following court eviction actions^[32] are on a financial year basis only and so provide no information on trends since September 2022, nor do the figures specifically identify the number of properties recovered that fall within the scope of the emergency legislation, of which it could take a number of months for these to progress from application to outcome. Across the latest financial year 2022-23, there were a total of 618 properties recovered, an increase from the 383 properties recovered in the previous year 2021-22, but substantially lower than the 1,866 properties recovered in the pre-pandemic year 2019-20, with numbers since 2019-20 being likely to have been affected by the Coronavirus Act measures in place. Across the latest financial year 2022-23, 17% (104) of the properties recovered were for anti-social behaviour, a higher percentage than the 4% (79) of properties recovered for anti-social behaviour in 2019-20.

6.2.14 Feedback from the call for evidence once again shows that social sector landlord representatives see the eviction moratorium provisions as having a minimal impact, due to eviction already being a last resort for social landlords. However, concerns were raised again about the definition of substantial rent arrears in the emergency Act, as it is being perceived by some tenants as an acceptable level of debt to accrue before action can be taken.

6.2.15 In engagement with student sector stakeholders who provide student accommodation, it remains the position of 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.

6.2.16 Data from the First-tier Tribunal for Scotland (Housing and Property) Chamber indicates that they have received 13 applications for unlawful eviction damages from 1 November 2022 to 31 August 2023. To date no decisions have been published on the Tribunal website that fall within the scope of the Act.

Consultation

6.2.17 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 further call for evidence issued to a range of key stakeholders - including landlords, tenants, housing rights organisations, investors and educational establishments and providers of student accommodation.

6.2.18 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.

6.2.19 Tenants' representatives reported being supportive of the moratorium, with one group reporting that members and tenants feel reassured by the protections of the moratorium on the enforcement of evictions. They note that the evictions moratorium has been especially important in conjunction with the rent cap in order to prevent landlords from abusing grounds for eviction in order to increase rent. In addition, and in written evidence provided in response to a Call for Evidence by the Local Government, Housing and Planning Committee on the draft regulations to extend the Act beyond 30 September, Living Rent commented: "In the last month (June), many tenants have gotten in touch regarding threatened evictions, mentioning that many landlords were seemingly abusing grounds for eviction in order to raise rents. They were reassured by having still the greater protection regarding the enforcement of eviction order, however this shows the need to review grounds for eviction and introduce greater penalties for landlords abusing grounds for eviction and shifting the burden of proof on landlords rather than tenants".

6.2.20 There have been previous criticisms from private and social rented sector landlord representatives suggesting 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.

6.2.21 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.

6.2.22 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. We also continue to engage with The Society of Messengers-at-Arms and Sheriff Officers on the operation of the eviction moratorium in practice.

Necessity and Proportionality

6.2.23 During this reporting period, in order to assess the use and continued necessity and proportionality of the eviction moratorium 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

6.2.24 As noted above, there has been a limited impact on private 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.

6.2.25 We consider that the measures, alongside the landlord safeguard and exemptions, continue to 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 continue to struggle as a result of financial stress caused by the costs crisis, and providing those being evicted with additional time to access support and find alternative accommodation.

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

Social Rented Sector

6.2.27 We know that social rented households are more likely to have lower incomes than households in other tenures, with Scottish Household Survey results for 2019^[33] 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.

6.2.28 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^[34] 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.

6.2.29 Around two-thirds (65%) 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 28%^[35].

6.2.30 Social sector stakeholders continue to note that evictions are always a last resort and therefore the moratorium does not impose 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, continue to 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 continue to struggle as a result of financial stress caused by the costs crisis, and providing those being evicted with additional time to access support and find alternative accommodation.

Student Rented Sector

6.2.31 Whilst evictions in the student sector are reported as being extremely rare by sector, there remains a possibility that evictions could take place.

6.2.32 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.

6.2.33 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.