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

Consultation

Consultation within Government

A wide range of directorates within the Scottish Government, agencies and non- departmental public bodies were consulted during the development of the transitional provisions, including:

• More Homes Division
• Communities Analysis Division
• Scottish Courts Services
• First Tier Tribunal (Housing and Property Chamber)
• Rent Service Scotland

Consultation with business and organisations representing tenants

A Call for Evidence to support the reporting on the 2022 Act in May 2023 included a number of questions on possible changes to rent adjudication. The Scottish Government received twelve responses to the questions, with the majority of respondents in favour of the proposal to temporarily prevent rents from being increased above the rent proposed by the landlord at adjudication.

A consultation with key rental sector stakeholders (issued on 15 December 2023) sought views on the proposed approach to temporarily modify the rent adjudication process, as part of the transition away from the rent cap.

Table 3 provides a summary of the types of organisations who received the consultation directly, and a breakdown of respondents by organisation type:

A total of 64 responses^[22] were received, representing the views of landlords (including organisations such as the Scottish Association of Landlords, Scottish Land and Estates and Propertymark who represent landlords and letting agents of varying sizes), tenants (including representative groups such as Living Rent and Generation Rent), investors, local authorities and Registered Social Landlords^[23].

A number of broad themes emerged from the responses:

Tapered Approach

• Opinions on the proposed tapered approach to rent adjudication were mixed. Some preferred a return to the pre-2022 Act process, while others welcomed the change as a necessary shift from emergency measures. The tapered approach was seen as a positive move towards market rates, potentially boosting landlord support and investor confidence.
• There were differing views regarding the maximum limit of the taper. The consultation set out two options for the maximum limit, of either 10% or 15%. Both individual landlords and landlord membership organisations tended to favour a higher threshold, with some private landlords suggesting an upper limit of 20% or 25%. Conversely, tenant groups and a third sector organisation favoured a lower threshold than 10%, with one option suggested being to cap rent increases at the rate of inflation. Those advocating a higher limit argued that it would help take account of below-market rents and encourage property investment and maintenance. Those favouring a lower limit cited wage growth statistics and cost of living pressures.
• A number of respondents highlighted a lack of robust data available on actual rents within tenancies.

Communication

• There was a consistent view among stakeholder responses that the proposals are complex, and that the process may only help a limited number of tenants who are aware of, and empowered, to exercise their rights. Suggestions included making it mandatory for landlords to provide guidance on referring a rent increase notice to Rent Service Scotland for adjudication.
• Landlords’ representative bodies felt that it will be difficult for many landlords and tenants to understand how rent increases will work beyond 1 April and that this could lead to frustrations and ultimately a break-down in the landlord/tenant relationship.

Resourcing

• Landlord representative bodies considered that the changes could lead to a significant increase in RSS referrals compared to levels received prior to the 2022 Act being introduced, and raised the need for the RSS to be adequately resourced to meet such an increase in demand.
• Landlord representative bodies similarly expressed concern over the impact on the existing workload of the FTT and the overall length of time any referral to the Tribunal would take to be concluded.

Market Rent

• Concern was expressed that relying on market rent as part of determining rents will make the process unpredictable for both the landlord and tenant, with calls for more transparency about the factors considered in the assessment of market rents by Rent Officers. (It should be noted in the context of this BRIA that any concerns about how market rent is determined would equally apply if the pre-2022 Act procedures were to come back into force without any modification.)
• Landlord representative bodies referred to information they had received from their members, which they consider suggests that the tenants of nearly three-quarters of those members may be paying rent below market value and any continued move to cap rents further penalises landlords whose outgoings have continued to increase and could lead to many landlords exiting the market.

In addition, the proposals have been discussed with the private rented sector stakeholder group, which was set up in March 2023. This group comprises key sector stakeholders, representing the interests of tenants, landlords and investors and developers. Members of the group include Scottish Property Federation, Crisis Scotland, Citizens Advice Scotland, PropertyMark, UK Finance, Living Rent, Scottish Land and Estates, and the Chartered Institute of Housing.