Rent Pressure Zone: application requirements

Requirements that must be met for an RPZ application to be valid

14. An application to the Scottish Ministers for designation must be made in writing. An application template will be made available. The local authority must set out its reasons for requesting a designation along with supporting evidence. A checklist of what information a local authority must submit to Scottish Ministers in its application for an area to be designated is provided at Annex 1 together with guidance on methodology, analytical quality, sample and conducting interviews at Annex 2.

15. Before submitting its application to the Scottish Ministers, the local authority must have published on its website the fully completed application and all supporting evidence.

16. To safeguard the interests of responsible landlords, Ministers are required to ensure that any cap takes account of inflation and other reasonable costs, and to consult tenants, landlords and other relevant stakeholders before designation. As an additional safeguard, landlords would be able to increase the rent reasonably to recover their legitimate costs to reflect property improvements completed after the tenancy started, or (where applicable) since the date of the last rent review (for example, if they had recently replaced the boiler in the let property).

17. Alongside draft regulations designating an RPZ, the Scottish Ministers must also lay before the Scottish Parliament a document which sets out a summary of the consultation responses and the evidence which leads them to believe that in the proposed area: rents are rising by too much; the rises are causing undue hardship to tenants; and the rises are having a detrimental effect on the local authority's broader housing system.

Identifying an area for designation as an RPZ

18. The RPZ provisions are intended to be used by a local authority to deal with rents that are rising by too much for existing tenants in the same properties, who have a private residential tenancy where Ministers consider that:

• rents payable within the proposed RPZ are rising by too much; and
• the rent rises within the proposed zone are causing undue hardship to tenants; and
• the local authority is coming under increasing pressure to provide housing or subsidise the cost of housing as a consequence of the rent rises within the proposed zone.

19. The area to be designated might, for example, be a street(s), a postcode sector or a datazone. The data and evidence provided to support the application must match the area chosen. For example if a street is proposed, evidence must be provided at street level. Therefore, when choosing the extent of the proposed RPZ, local authorities need to give careful consideration as to how they will collect the required data and evidence for that area in a way that is robust. The provisions in the Act on rent pressure zones address the problem of rents rising by too much in hot-spot areas and they are not intended to be applied to a whole local authority area.

Consideration of the application and granting designation

20. Before granting a designation, the Scottish Ministers will have to be satisfied that the application:

• has been made in writing;
• provides a clear description of the area to be designated including its boundary. Ideally this would be a map. There should also be a clear list of the areas within that boundary e.g. datazones, postcodes etc. This should be detailed enough to allow any member of the public to determine if their property is within the designated RPZ;
• sets out how long the local authority would like the designation to last (this cannot exceed five years) and why;
• sets out the date the local authority would like the designation to come into force (this will be a date after the local authority has adequately advertised the designation to relevant persons in the area);
• provides robust evidence to support the application, the methodologies used to collect that evidence and how that evidence leads the local authority to believe that the criteria in paragraph 18 are met;
• states what other steps will be taken, and by when, should the application be successful, to advise the relevant persons that the area has been designated as an RPZ;
• includes a recommended percentage point (X) to be added to CPI + 1 percentage point when calculating a new maximum rent increase in the RPZ (a worked example is shown below in Box 1);
• includes an explanation of why the particular value of X, recommended in the application, has been chosen;
• provides a demonstration of the impact which the recommended level of X would have on rents in the area, and the subsequent impact that these rents would have on easing undue hardship on existing tenants and easing pressure on local authorities to provide housing or subsidising the cost of housing;
• provides evidence in the application that the Local Authority has put in place housing supply plans, policies or strategies; and
• provides confirmation that the fully completed application and all supporting evidence has been published on the local authority's website.

21. The Scottish Ministers will notify the local authority of their decision in writing. Ministers will have 18 weeks from receipt of a valid application to lay before the Scottish Parliament either draft regulations designating an RPZ or a document explaining why they have not done so.

Box 1: Formula used to calculate the new maximum rent in a proposed RPZ

Section 38(1) of the Act sets the formula to be used when calculating the maximum rent which can be charged for a property in an RPZ as:

In the above equation:

• R is the amount of rent payable before the rent increase, in Pounds Sterling.
• CPI is the percentage change (if any) in the Consumer Prices Index over the period from the day of the last rent increase on the property to the date stated on the rent-increase notice, or if the rent has not been increased before, from the date the tenancy began ( CPI is published with a lag, therefore the latest available CPI figure on the date when the rent-increase notice is issued should be used for this calculation).

• X is the number of percentage points to be added to CPI as set out in the regulations made by the Scottish Ministers e.g. 0.5 or 1.0 or 2.3 etc. (Local authorities applying for an RPZ to be designated will be asked to recommend a level for X and explain the reasons for their recommendations).

• Y is the amount (if any), in Pounds Sterling, that the rent officer has allowed the landlord of a property to charge to reflect improvements made to the property. N.B. Landlords must apply to Rent Service Scotland ( RSS) to get a determination for the value of Y.

Rent Increase Calculation: Example

In a situation where:

• The monthly rent payable before the increase was £800

• The percentage point change in CPI over the period from the last increase in rent to the date of the proposed changes was 0.6.

• The percentage point increase set by Ministers was 2.0

• A rent officer has determined that the landlord can charge an additional £30 per month on the new rent to account for an improvement made to the property.

Then the maximum rent to be charged on the property in the next period would be calculated by:

Giving a new maximum rent of £858.80 per month.

Evidence to support the application

22. The Act is not prescriptive about the types of evidence that a local authority would be required to submit with an application. This is because the Scottish Government recognises that authorities may collect and use data which could be unique to each application.

23. The evidence will be a mixture of quantitative analysis e.g. statistics which demonstrate rent increases and qualitative analysis e.g. consultation with tenants. Councils will have to gather specific/ new evidence themselves where they do not hold this information already or where national data collections do not provide the level of detail required for an application. As such, councils might consider contracting with a third party with statistical and research expertise. A short guide to sampling rent data and other relevant research methods is provided at Annex 2 together with some minimum requirements for local authorities on data quality.

24. Excessive rent increases may be a consequence of the demand for housing outstripping the supply (of all tenures) in an area. Designating such an area as an RPZ will only give tenants relief from excessive rent increases for the duration of the designation. It will not of itself do anything to moderate increases in the longer term. For that to happen supply in the area would need to increase. Given that, the Scottish Government expects any local authority seeking a designation to have plans for increasing supply, either in the area to be designated or elsewhere in the authority's area. To help set the application for a designation into the context of the authority's wider plans, the application should refer to those plans – usually by citing relevant parts of the authority's current housing strategies.

Requirement to publish the application and all supporting evidence

25. In the interest of transparency, openness and accountability, before submitting an application to the Scottish Ministers to request an RPZ designation, the local authority must publish on its website the fully completed application and all supporting evidence (ensuring that no individuals or households can be identified).

Advertising that an area has been designated

26. If Ministers make a designation, a local authority will need to publicise that the area has been designated as an RPZ. As the circumstances for each area will differ, the local authority is able to decide the most suitable approach to letting landlords, tenants, letting agents, lenders and the wider community know that the designation has been granted. The application to the Scottish Ministers must set out the approach that the local authority has determined would be the most effective way to advertise the designation has been granted.

27. This could include:

• a letter or email to all registered landlords, letting agents and lenders in the area;
• a letter to all privately rented properties in the area;
• a notice in a local newspaper or community council newsletter;
• local radio adverts;
• information posted on notice boards in a local library, community centre, council or housing association office;
• information posted on-line e.g. via social media using a local community Facebook group;
• engaging with national and local housing organisations and businesses e.g. mortgage lenders, letting agents, Shelter Scotland, Citizens Advice Bureau(s), etc.

28. In its application to the Scottish Ministers, a local authority must include the date it would like the rent cap to come into force. This date must allow a local authority sufficient lead-in time to effectively publicise the designation to relevant persons in the area to ensure that they are fully aware of the forthcoming start date of the rent cap.

29. A local authority, from its knowledge of the community in the area, should consider providing translations into other languages.

30. If, following designation of an RPZ by Scottish Minsters, the local authority subsequently fails to take some (or all) of the steps outlined in its application to publicise the designated zone, Scottish Ministers will consider laying before the Parliament draft regulations revoking the designation.