Rent Adjudication (Temporary Modifications) (Scotland) Regulations 2024 – Business and Regulatory Impact Assessment

Background

The 2022 Act came into force on 28 October 2022 as a temporary response to provide increased support to tenants living in the rental sector through the cost of living crisis.^[1] Currently the emergency rent cap remains in force; however, Part 1 of the Act cannot continue beyond 31 March 2024. The emergency rent cap currently limits rent increases for sitting tenants to a maximum of 3%; alternatively, landlords can apply for an increase of up to 6% on the grounds of certain prescribed property costs.

Under the Private Housing (Tenancies) (Scotland) Act 2016 (‘the 2016 Act’), tenants with a private residential tenancy may make an application to a Rent Officer (Rent Service Scotland (RSS)) for a rent adjudication assessment. The decision by RSS can be appealed to the First-tier Tribunal (FTT) by the landlord or the tenant. These provisions are suspended during the operation of the rent cap under the 2022 Act. A similar rent adjudication process exists for tenants with assured tenancies and short assured tenancies under the Housing (Scotland) Act 1988 (‘the 1988 Act’), although applications are made to the Tribunal rather than to a Rent Officer.

The determination on what the rent for the property should be will be made by the relevant decision-maker by comparing the rent to the market rent for similar properties in the same locality (‘open market rent’).

Once the rent cap expires, it is anticipated that many landlords will propose rent increases which will proceed as normal with tenants agreeing to pay the increased amount. Nonetheless, as a result of the suppression of rents during the rent cap, there could be situations where tenants could experience excessively large rent increases, even though the proposed rent would not exceed the market rent. The temporary change proposed is intended to smooth the transition out of the rent cap and offer protection to tenants from such increases, which could be experienced if there is a sudden move to open market rent.

In recognition of this, Schedule 3 of the 2022 Act provides Scottish Ministers with the ability to temporarily change the current rent adjudication process on or in anticipation of the expiry of the rent cap. When the rent cap expires on 31 March 2024, the pre-2022 Act rent adjudication provisions will come back into force, unless a temporary modification is made using this power. Any change would be subject to the approval of the Scottish Parliament.

The proposed temporary changes to the adjudication process mean that rents would be determined on the basis of the lowest of three factors: open market rent, the rent requested by the landlord, and a new ‘taper’ that supports the transition away from the rent cap. The level of rent that will be set at adjudication can be summarised as follows:

• If the gap between the market rent and the current rent is 6% or less, then the rent will be set in line with the rent proposed by the landlord.
• If the gap between the market rent and the current market is more than 6%, then the rent will be increased by 6% plus one third of a percent for each percent that the gap exceeds 6%.^[2]
• If the gap between the market rent and the current is 24% or higher, the rent increase will be capped at 12% of existing rent.
• All three cases are also subject to the requirement that the RSS and FTT cannot set a higher rent than that requested by the landlord.