New deal for tenants - rented sector reform proposals: consultation

Rent Control

The issue

We are aware that rent levels, as set by the market in the private rented sector, can be unaffordable for some tenants in some areas, with rent increases sometimes substantially above the rate of inflation, leading to people struggling to find suitable rented homes. Some of the evidence for this was set out in our draft strategy for the rented sector, A New Deal for Tenants and, in response to this, the Scottish Government has committed to introduce long-term rent controls in Scotland.

There are already protections around rent increases for tenants who have a private residential tenancy. Landlords must give their tenants at least three months' notice of any proposed rent increase (using a specific legal notice, which explains the tenant's rights), and rent for these tenancies cannot be increased more than once in a 12 month period.

At the moment, there are also extra temporary emergency protections in place to cap rent increases within tenancies, in response to the ongoing impacts of the current cost of living crisis (there is more information on our website about the temporary rent cap for landlords and the rent cap and emergency measures for tenants).

The Private Housing (Tenancies) (Scotland) Act 2016, which sets out how private residential tenancies work, allows tenants to apply to a rent officer if they think that a proposed rent increase is unreasonable (while the emergency rules are in place this part is not in operation). A rent officer will set a rent based on a range of information about the property, including comparing the local market rent for similar properties to decide what a reasonable rent for the property is.

As part of our consultation on the draft strategy, we asked questions about our vision for proposed long term rent controls, and the principles which would underpin them. These included a proposal for a national system of rent controls with an appropriate mechanism to allow local authorities to introduce local measures.

Different tenancy types in the private rented sector

1. There are several different types of tenancy which may exist in the private rented sector in Scotland.

2. On 1 December 2017, the private residential tenancy, was introduced in Scotland and all new private rented sector tenancies which started on or after this date will be private residential tenancies.

3. A private residential tenancy is open-ended and will last until the tenant wishes to leave the let property or the landlord evicts the tenant. Eviction can occur where the landlord issues a notice to leave under one (or more) of 18 grounds for eviction and the tenant leaves voluntarily on the date specified in the notice. Alternatively. where the tenant doesn't leave on the date specified in the eviction notice date the tenancy the tenancy would come to an end under the terms of an eviction order granted by the First-tier Tribunal.

4. There are other types of tenancy which existed before 1 December 2017. These tenancies can continue until the tenant or the landlord brings them to an end. There are still some of these tenancies in operation in Scotland, although the number is reducing over time.

5. There are 3 main types of tenancy which were in place before 1 December 2017:

• short assured tenancies (these started after 2 January 1989, but before 1 December 2017 and are tenancies under the Housing (Scotland) Act 1988)
• assured tenancies (these started after 2 January 1989, but before 1 December 2017 and are tenancies under the Housing (Scotland) Act 1988)
• regulated tenancies (these started before 2 January 1989, and are tenancies under the Rent (Scotland) Act 1984)

6. Information about the different types of tenancies in the private rented sector in Scotland, and the differences between them, is available on the Scottish Government's website.

Overview of proposed approach to rent controls

7. The Scottish Government considers that local circumstances in relation to housing should be taken into account in deciding where rent control should apply, and local authorities are best placed to support this. We propose that local authorities would be required to carry out an assessment of conditions in relation to rent in their area and make a recommendation about whether Scottish Ministers should impose rent controls in all or part of their area. The expectation would be that local authorities would assess their whole area and, dependent on the outcome, look in more detail at specific areas where concerns are identified. There would be a mandatory requirement to re-assess rent conditions on a regular basis.

8. Scottish Ministers would be the final decision maker about whether to impose rent control, taking account of the outcome of the assessment process. The introduction of a rent control area will be made through regulations which would be subject to Parliamentary approval. There would be a statutory requirement to consult the local authority and representatives of landlords and tenants before a rent control area can be introduced.

9. It is proposed that any rent control area would be in place for a fixed time period, with re-designation based on further assessment showing a continued need for rent control.

10. In any area where rent controls are introduced, there would be a restriction on the amount by which rents can be increased in that area. This would be via the imposition of a rent cap based on a fixed percentage or a formula by which the increase could be calculated.

11. The existing protections for tenants around rents are focussed on rent increases which take place during a tenancy, and only protect tenants while they are in an existing tenancy. Tenants who are moving from one tenancy to another may face a high increase in rent, even if they are moving to a similar property in the same area.

12. It is proposed that rent controls would apply to increases in rent that take place both during a tenancy and where the rent is set for a new tenant. This could help to stabilise rents in areas where market rents are increasing particularly quickly.

13. At the moment, tenants with a private residential tenancy cannot have their rent increased more than once in a 12 month period. We are proposing that, in most cases, a landlord would not be able to increase their tenant's rent until at least 12 months after the tenancy started. This would provide tenants with certainty about their rent in the first twelve months of their tenancy.

14. However, we are also proposing that rent increases in areas where rent controls are in place would be limited to one increase per property in any 12 month period, even if the tenant changes within that time. If the let property in a new tenancy is substantially the same as the let property in the preceding tenancy, the rent for that property could only be increased once in any 12 month period regardless of how many different tenancies are entered into in that period. Increasing the rent for a property once every 12 months may result in the rent being increased early in a tenancy depending on when the earliest date of increase arises.

Safeguards for landlords

15. Both landlords and tenants have rights in the property. So, in designing new laws we need to take account of both and find the right balance. Given that rent control will restrict what a landlord can charge for their property, the Scottish Government is considering what measures might be included to safeguard landlords interests as part of these proposals.

16. The proposed system of rent control would cap how much rents can increase by. We are considering whether it would be appropriate, in certain circumstances, to allow an increase in rent that is in excess of the rent cap. If increases above the cap were to be allowed, then the specific circumstances when this would be allowed and the process by which any such increases would be agreed could be set out in the Bill, or in Regulations.

17. The Scottish Government wants to see landlords offering high quality properties to tenants, and one circumstance where it may be reasonable for a rent to increase above the cap would be to reflect the cost of certain improvements to the quality of a property, which will benefit current and future tenants.

18. We are aware that some landlords choose not to increase rents during the course of a tenancy, and instead prefer to increase rents between tenancies. If rent controls apply both within and between tenancies, landlords may move to increasing rent during tenancies, where they would not have done before. We are considering the best way to take account of this concern as part of our proposals.

Supporting Tenants

19. The Scottish Government is considering what could be included in the design of the rent control system to support compliance with any rent cap. This could include requirements on the information that landlords must provide to tenants, routes for tenants to check whether a rent cap is in place and options for tenants who think that their landlord may be proposing a rent increase which is above the rent cap.

Exemptions from rent control

20. There are some new tenancies where it may be difficult to determine what the previous tenant's rent was or there may be circumstances where there is no previous tenancy to compare. This would make the rent cap and other controls on the frequency of rent increases difficult to apply as the level and timing of the previous rent increase may not be known. The proposal is to exempt certain "new to market" tenancies from rent controls when they are first entered into, enabling the rent for that tenancy to be set at open market level. Rent controls would then apply to the tenancy and any future tenancy of that property while the rent control area is in effect.

21. The proposal is to class the following types of tenancy as being "new to market" and therefore exempt from rent control:

i. The first tenancy of a property which has not been let as a principal home before.

ii. The first tenancy of a property following it being purchased with vacant possession by the current landlord.

iii. The first tenancy of a property which has been empty for a prolonged period.

iv. The first private residential tenancy of a property where the previous tenancy was a regulated tenancy under the Rent (Scotland) Act 1984.

22. The Scottish Ministers would also propose to retain a power to specify types of tenancy, types of property or other circumstances where the rent cap should be dis-applied.

23. The questionnaire alongside this paper is seeking views on some of the details of these proposals.