Cost of Living (Tenant Protection) (Scotland) Act 2022 - proposed extension: statement of reasons

7. Provisions proposed for extension

7.1 Schedule 1: Rent Cap for residential tenancies (as defined by paragraphs 1 & 2 of Schedule 1 of the Act)

7.1.1 As set out in the recent 1^st report on the Act, the economic data demonstrates that the cost crisis continues to have a significant and detrimental impact on household finances, with fuel poverty on the rise, continued high levels of inflation, and other costs. Rented households are more likely to have lower household incomes, higher levels of poverty, and to be financially vulnerable.^[13]

7.1.2 The Scottish Government therefore considers that it is necessary and proportionate for the measures which cap rents in the private rented sector to be extended, in order to ensure that private tenants continue to be protected against the impact of the wider economic conditions, through stabilisation of their housing costs at a time when the cost of living crisis continues to place exceptional financial pressure on households.

7.1.3 The Scottish Government has considered the implications of expiry or suspension of the rent cap in the private rented sector. With no cap on rent increases, tenants in the private rented sector would have little protection against high in-tenancy rent increases at a time of ongoing pressure on household finances, due to the high increases in market rents.

7.1.4 The Scottish Government is continuing to engage proactively with private rented sector representatives regarding the emergency measures. The carefully considered approach taken to engagement must be approached in a bespoke manner, based on the unique make-up of the sector and lack of common sector-wide practice for rent increases. The private rented sector has a high quantity and range of landlords; it also has a very different statutory regime governing its rent increase process. It was therefore not feasible to replicate the Task Group to that formed in respect of the social rented sector, where all landlords could be effectively represented by membership bodies. The Scottish Government will nonetheless continue to seek the most effective ways in which to engage private landlord representative bodies going forwards.

7.1.5 Whilst the focus of the emergency measures continues to be on protecting tenants, the Scottish Government recognises that the ongoing impacts of the cost crisis may also be experienced by some private landlords. The Scottish Government is therefore of the view that it would be proportionate to raise the rent cap in the private rented sector to allow within-tenancy rent increases of up to 3%.

7.1.6 The voluntary approach to rent setting taken by landlords in the social sector is intended to equate to an approximate average rental increase of less than £5 a week (or less than £22 per month) across the country. As rents in the private rented sector are generally significantly higher than those in the social rented sector, allowing a maximum rent increase of 3% for rents in the private rented sector equates to a similar average rent increase for tenants in two-bedroom properties (the most common property size in the private rented sector). As set out in Annex C, there will be variation around these averages, with higher increases for three-bedroom and four-bedroom properties and lower increases for one-bedroom properties. The Scottish Government considers that this will give a measure of parity to landlords in the private and social sectors in monetary terms, whilst continuing to protect tenants from unaffordable rent increases whilst the pressures of the costs crisis continue. There is also the safeguard that private landlords could, alternatively, opt to apply to Rent Service Scotland for a rent increase of up to 6% if they have had an increase in their defined prescribed property costs within a specified time.

7.1.7 Tenants will continue to have the protections set out in relevant tenancy legislation regarding frequency of rent increases, the notice period required before rent can be increased, and the information which must be included in a rent increase notice in order for it to be valid (including any amendments made to this as a result of the Cost of Living measures).

7.1.8 As a result of the rent cap, the concept of 'market rent' does not apply post 6 September 2022 whilst the Act is in force. If the proposed 3% rent cap is in force from 1 April, the right of a tenant to refer a rent increase to Rent Service Scotland or to the First-tier Tribunal for Scotland for a determination of whether it is in line with local market rents will not apply in the case of rent increases made. Instead, tenants will be protected by the temporary 'verification' process brought in by the Act, whereby tenants can refer a rent increase notice to a Rent Officer to confirm whether a proposed rent increase is in line with the rent cap. This 'verification' process will ensure that a tenant can challenge a landlord if they believe a rent increase notice above the permitted cap has been issued.

7.1.9 It is the intention of the Scottish Government that the safeguard for landlords introduced by the Act, in the form of the ability to apply to a Rent Officer to increase the rent for a let property above the rent cap in connection with defined 'prescribed property costs' will continue to apply.

7.1.10 In recognition of the increase in the rent cap, the extension regulations would amend the maximum percentage increase to the existing rent which can be made using this safeguard, to 6%. The amended safeguard would therefore allow a landlord to apply to increase the rent to recover up to the lower of either 50% of the increase in the prescribed property costs, or 6% of the existing rent. Only one rent increase is possible in any 12 month period so that if the landlord increases rent using the increased cap of 3% they cannot also apply to increase rent using the safeguard.

7.1.11 It is intended that other aspects of the safeguard will remain as they are set out in the Act for the time being. An application to a Rent Officer may therefore still only be made under this safeguard if a landlord has had an increase, during the preceding six months, in 'prescribed property costs', which 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 building and property insurance); and
• any 'service charge(s)' related to the rental property that are recoverable from the tenant as part of the tenancy agreement between tenant and landlord.

7.1.12 In order to continue to protect tenants and ensure that they have sufficient clarity regarding any proposed rent increase, landlords will still be required to give their tenant notice in writing when they make an application to a Rent Officer, and the existing protections regarding the frequency of rent increases will continue to apply.

7.1.13 If an application is approved by the Rent Officer, the resultant rent increase would still not come into effect until (at the earliest) 12 weeks after the date the landlord made the application. Both the landlord and the tenant will still have the ability to appeal the Rent Officer's decision by applying to the First-tier Tribunal for Scotland (Housing and Property Chamber) within 14 days to have the Rent Officer's calculation reviewed.

7.1.14 The Scottish Government considers that this amendment to the safeguard ensures that it remains a suitable safeguard which balances the rights of landlords who may be experiencing the impact of the cost crisis, and their tenants.

7.1.15 As part of assessing the continued necessity and extension of the rent cap provisions, we have reviewed the impact assessments carried out as part of the development of the Act and the available data and evidence on operation of the provisions since they came into force. More information on this can be found in Annexes B and D.

7.1.16 The Scottish Government is of the view that the extension of the rent cap measures in the private rented sector, with the amendments set out in this statement:

• i. is likely to positively impact on equal opportunities and across those with protected characteristics, as this provision will continue to provide tenants with greater confidence about their housing costs and the security of a stable home;
• ii. will not have any detrimental impacts on island communities, local government and sustainable development;
• iii. continues to help address socio economic disadvantage and reduce the inequalities that are associated with being disadvantaged;
• iv. appropriately and proportionately balances the interests of landlords by taking into account that the ongoing impacts of the cost crisis may also be experienced by some landlords, and the application of an amended safeguard allowing a landlord to make an application to increase the rent to a level that is offered by the new rent cap, in connection with prescribed property costs, will allow for the individual circumstances of landlords to be taken into account; and
• v. does not negatively impact the rights and wellbeing of children and by reducing the harms caused by eviction for children and their families, the Act is contributing to promoting the health of children and young people and supporting their education.

7.1.17 The Scottish Government considers that the purpose of the rent cap provisions (as extended by these Regulations), which is the social protection of tenants (by stabilising their housing costs), remains a legitimate aim.

7.1.18 The Scottish Government considers that extension of the rent cap measures, with the amendments described above, is a proportionate and necessary response to the ongoing costs crisis, and strikes an appropriate and proportionate balance between the public interest in the form of protection for tenants during the current economic situation, and the rights of landlords in terms of the use of their property.

7.2 Protection against eviction (Eviction from residential properties: restrictions on enforcement). Schedule 2 of the Act, sections 1, 2, 3, 4, 5 and 6

Private and Social Rented Sectors

7.2.1 Extending these provisions which introduce restrictions on the enforcement of evictions will continue to give tenants more time to access alternative accommodation helping to reduce the negative impacts on the health and wellbeing of tenants caused by being evicted and/or being made homeless at a time of greater financial stress resulting from the ongoing cost of living crisis. For tenants in the private rented sector, it will also continue to provide protection by making it easier and more meaningful for tenants to challenge an unlawful eviction and receive appropriate damages where an unlawful eviction is found to have occurred and continues to make it more difficult, more expensive and higher risk for a landlord to pursue an illegal eviction rather than going through the lawful routes, therefore continuing to dis-incentivise this behaviour.

7.2.2 The Scottish Government has considered the implications of expiring the provisions restricting the enforcement of evictions in certain circumstances. As there has not been any significant change in current economic circumstances, renters remain particularly vulnerable to the continued impacts of the cost crisis. Expiring this protection at this time would mean that tenants in the private rented sector would not be protected from private landlords seeking to end a tenancy to raise rents above the rent cap. In addition, tenants in both the private and social rented sectors would not benefit from the additional time to find alternative accommodation provided by the 6 month pause in the enforcement of eviction action, which could increase the negative impact on those being evicted during the cost of living crisis.

7.2.3 Provisions under the Act include a number of safeguards for landlords. These recognise that there are some circumstances where enforcement of an eviction order or decree should be able to proceed to protect communities and to strike an appropriate balance between protection of tenants and the rights of landlords. For example:

• where a tenant is to be evicted for antisocial and criminal behaviour and the negative impact on the community delaying enforcement of an order would have;
• where landlords themselves are in financial hardship and need to sell or live in the let property; and
• in cases where there are substantial rent arrears given the negative impact of accruing further significant debt on both the tenant and the landlord.

7.2.4 A full list of exemptions provided for under the Act can be found in Schedule 2. These exemptions help to ensure, alongside provision that restricts the pause in any individual enforcement action to a maximum of 6 months, that an extension of the evictions moratorium remains a proportionate and necessary response to the ongoing cost crisis.

7.2.5 As part of assessing the continued necessity and extension of the provisions, we have reviewed the impact assessments carried out as part of the development of the Act and the available data and evidence on operation of the provisions since they came into force. No material changes to the findings from the impact assessments have been identified in relation to the extension of this provision.

7.2.6 The Scottish Government is of the view that extension of measures to prevent the enforcement of evictions in certain circumstances during this period of extraordinary economic challenge:

• i. is likely to positively impact on equal opportunities and across those with protected characteristics, as this provision will continue to provide support to all tenants being evicted with appropriate safeguards for landlords;
• ii. will not have any detrimental impacts on island communities, local government and sustainable development;
• iii. continues to help address socio economic disadvantage and reduce the inequalities that are associated with being disadvantaged;
• iv. appropriately and proportionately balances the interests of landlords to recover their property and support to tenants vulnerable to the impact of the cost crisis by providing greater time to access support and find alternative accommodation; and
• v. does not negatively impact the rights and wellbeing of children and by reducing the harms caused by eviction for children and their families, the Act is contributing to promoting the health of children and young people and supporting their education through the provision of housing stability.

7.2.7 The Scottish Government's view is that extension of this provision continues to be a proportionate and reasonable response to the cost of living emergency and appropriately balances the property rights of landlords and the protection of tenants. This is because this provision includes a range of exemptions to the restrictions on the enforcement of eviction for landlords to ensure that evictions can continue to be enforced in certain circumstances. These include where the landlord is being negatively impacted by the cost crisis and needs to sell or live in the let property to alleviate financial hardship; or where substantial rent arrears are negatively impacting both the landlord and tenant. In addition, where the enforcement of an eviction is prevented, the pause in enforcement of any individual eviction order/decree is for a maximum period of 6 months while the Act is in force providing certainty for both the landlords and tenant.

Student Residential Tenancies

7.2.8 Extending the provisions which introduce restrictions on the enforcement of evictions for student residential tenancies will continue to insulate students living in university or college Halls of Residence or Purpose Built Student Accommodation more time to access alternative accommodation from the negative impacts on their health and wellbeing caused by being evicted and/or being made homeless at a time of greater financial stress resulting from the ongoing cost of living crisis.

7.2.9 The Scottish Government has considered the implications of expiring the provisions restricting the enforcement of evictions in certain circumstances. As there has not been any significant change in current economic circumstances, student tenants also remain particularly vulnerable to the continued impacts of the cost crisis.

7.2.10 Provisions under the Act include a number of safeguards for student accommodation providers - for example where a student has engaged in criminal or anti-social behaviour. These recognise that there are some circumstances where enforcement of an eviction order should be able to proceed to protect those also staying in a particular student accommodation building and to strike an appropriate balance between protection of student tenants and the rights of accommodation providers. These exemptions help to ensure, alongside provision that restricts the pause in any individual enforcement action to a maximum of 6 months, that an extension of these provisions remains a proportionate and reasonable response to the ongoing cost crisis.

7.2.11 As part of assessing the continued necessity and extension of the provisions, we have reviewed the impact assessments carried out as part of the development of the Act and the available data and evidence on operation of the provisions since they came into force. No material changes to the findings from the impact assessments have been identified in relation to the extension of this provision. The Scottish Government is of the view that extension of measures to prevent the enforcement of evictions in certain circumstances during this period of extraordinary economic challenge:

• i. is likely to positively impact on equal opportunities and across those with protected characteristics, as this provision will continue to provide support to all student tenants being evicted with appropriate safeguards for student accommodation providers;
• ii. will not have any detrimental impacts on island communities, local government and sustainable development;
• iii. continues to help address socio economic disadvantage and reduce the inequalities that are associated with being disadvantaged;
• iv. appropriately and proportionately balances the interests of student accommodation providers to recover their property, while supporting students vulnerable to the impact of the cost crisis, by giving them greater time to access support and find alternative accommodation; and
• v. does not negatively impact the rights and wellbeing of children and by reducing the harms caused by eviction for children and their families, the Act is contributing to promoting the health of children and young people and supporting their education^[14].

7.2.12 The Scottish Government consider that the proposed extension of the moratorium on the enforcement of eviction provisions, the purpose of which is the social protection of tenants, remains a legitimate aim

7.2.13 The Scottish Government's view is that extension of this provision continues to be a proportionate and reasonable response to the cost of living emergency and appropriately balances the property rights of student accommodation providers and the protection of students living in university or college Halls of Residence or Purpose Built Student Accommodation. This is because this provision includes a range of exemptions to the restrictions on the enforcement of eviction for student accommodation providers, ensuring that evictions can continue to be enforced in certain circumstances.

7.3 Protection against eviction (Unlawful evictions: notification and determination of damages). Schedule 2, section 7 and 8

7.3.1 Extending these provisions will ensure that measures that make it easier and more meaningful for a tenant to challenge an unlawful eviction and, where an unlawful eviction is found to have occurred, receive an appropriate level of damages, can continue. This will also continue to make it more difficult, more expensive and higher risk for a landlord to pursue an unlawful eviction rather than going through the lawful routes, dis-incentivising this type of behaviour.

7.3.2 No cases within the scope of the Act have been made to the First-tier Tribunal for Scotland (Housing and Property Chamber) since these provisions came into force, however, anecdotal evidence submitted as part of the Call for Evidence from advice services suggests that there may be a small minority of private landlords acting unlawfully.

7.3.3 The Scottish Government considered the implications of not extending this provision, however, the measure remains necessary to support the effective operation of the rent cap and moratorium provisions and support tenants and ensure tenants can more easily challenge any unlawful practices and be appropriately compensated. Under normal legislation tenants would need a professional surveyor valuation of the difference between the landlord's interest in the property with and without a sitting tenant. This is an expensive process but feedback from stakeholders indicates can also lead to a nil valuation creating a significant barrier to challenging an unlawful eviction.

7.3.4 The Scottish Government has assessed the potential impact of the extension of these provisions on human rights, children's rights and equality rights and considers that the extension of these measures will have a positive impact across those with protected characteristics. The Scottish Government also considers that these measures support the right to adequate housing under the International Covenant on Economic, Social and Cultural Rights by ensuring appropriate safeguards are in place to deter unlawful eviction and support those affected.