Rented sector reform: Housing (Scotland) Bill: business and regulatory impact assessment

Keeping Pets

Background, Objective and Rationale

Currently in the PRS, pets are allowed only by explicit agreement. The Scottish Government’s Model Private Residential Tenancy Agreement,^[87] which anecdotal evidence suggest most landlords use, outlines expectations that pet owners must meet where a pet is permitted. The ‘Respect for Others’ clause sets out that tenants should control their pets properly and should not allow them to foul or cause damage to other people’s property. The ‘Pets’ clause sets out that the tenant must not keep any animals or pets in the let property without the prior written consent of the landlord.

Furthermore, the Easy Read Notes^[88] that must accompany every Model Private Residential Tenancy Agreement make clear that if the tenancy agreement bans pets, a tenant can ask the landlord to change it, for example, to allow an assistance dog if the tenant needs one. This is known as making a ‘reasonable adjustment’. The Notes also make clear that if the landlord refuses to make a reasonable adjustment, it may be discrimination on the grounds of a protected characteristic (as defined by the Equality Act 2010) and the landlord could be acting illegally.

However, despite making such clauses and information readily available to help private landlords and tenants put in place an agreement for keeping a pet, keeping of pets in the PRS remains limited. As a result, when in need of a new tenancy, pet owners may find themselves faced with a choice between finding somewhere to live, and being able to keep a beloved pet.

General practice within the social rented sector is to give permission for pets, with landlords acknowledging the beneficial impacts of pets on a tenant and their family’s health and wellbeing. The Model Scottish Secure and Short Scottish Secure Tenancy agreements under the Housing (Scotland) Act 2001 (“2001 Act”), which are published by the Scottish Government to assist social landlords to develop their own tenancy agreements setting out the rights and responsibilities of both tenants and landlords, include both mandatory clauses set out in statute and common law, as well as discretionary clauses. “Keeping of Pets” is a discretionary clause within these Model Tenancy Agreements. Given that this is a discretionary clause it is possible that not all landlords use it.

There is an efficiency argument for government intervention relating to the keeping of pets, which arises from the split incentives facing the parties: the benefits of owning a pet accrue to the tenant, while the landlord may be concerned that the costs, in terms of potential damage to the property, might fall to them.^[89] Research indicates that the benefits from keeping a pet can be considerable,^[90] and thus likely to outweigh the costs in a large majority of cases. For example although the legal framework and other circumstances will vary across different countries, a recent cost-benefit analysis of keeping pets in PRS properties, which was based on an evidence review as well as on primary data collected from English private landlords, found that costs to landlords were outweighed by benefits. ^[91]

This suggests that, provided sufficient assurance can be provided to landlords that they will not suffer financial disadvantage, there are gains to be had from making it easier for tenants to keep pets. This conclusion is strengthened when considering the wider social savings that can flow from better mental and physical health for tenants, including reduced pressure on public health budgets.^[92]

The importance of pets to mental and physical health also supports an equity rationale for intervention: private and social tenants should be able to benefit from the experience of pet ownership, as is the case for home owners.

Sectors and Groups Affected

The main sectors and groups who could be directly affected by the various options considered include:

• Private tenants
• Private landlords
• Social housing tenants
• Social landlords
• Letting agents
• Scottish Courts and Tribunals Service

Option 1 – Do nothing (Business as usual)

In this option, current regulation would remain the same and keeping pets would remain largely at the discretion of the landlord. In the PRS, making terms relating to pets available as part of the model PRT agreement and providing information about keeping pets in the accompanying notes helps to increase the salience of this issue, and makes it easier and less costly for landlords to agree to a pet being kept since they do not need to draft relevant terms themselves. This may make landlords more willing to agree to their tenant’s keeping a pet.

At present, even if a current landlord allows a tenant to keep a pet, they face significant uncertainty as to whether they will be able to keep a pet in future properties. This uncertainty is a significant disincentive to keeping a pet, despite the health and wellbeing benefits that keeping a pet may bring.

In the social rented sector, each landlord sets its own criteria for any restrictions on the number and type of pets allowed within an individual tenancy, whether permission in advance needs to be obtained from the landlord, and any other criteria applied. However, given that “Keeping of Pets” is a discretionary clause, it is possible that not all landlords use it.

Option 2 – Non-regulatory measures

We have considered pursuing non-regulatory action by amending the Scottish Government’s model PRT agreement to include additional terms to keep a pet.

Within the social rented sector, given the general practice of permitting pets, the gains from any further non-regulatory measures are likely to be marginal and will fall short of providing a guarantee that all tenants will be able to keep a pet where reasonable. We have therefore discounted this option for the social rented sector.

Benefits

Private tenants

This approach may encourage some private landlords to provide tenants with additional rights to request a pet through the terms of their tenancy agreement. However, amending the Scottish Government’s model tenancy agreement would not deliver the additional rights to keep a pet being sought for all private residential tenancies. There is no requirement for a private landlord to make use of the Scottish Government’s model tenancy agreement, so not all tenants with a PRT would be afforded the new rights. And even if their current landlord agrees to their keeping a pet, it does not give the tenants confidence that they will be able to keep the pet in subsequent tenancies, which might put them off keeping a pet at all.

In addition, should landlords stop using the model tenancy agreement, they would no longer be required to provide tenants with the accompanying Easy Read notes which provide tenants with vital detailed information on their tenancy rights and would instead only receive information on the statutory terms.

Costs

Private landlords

Private landlords might incur additional costs from any damages due to pets. However, landlords can use existing measures to minimise the impact of any such costs. For example, they ask for a deposit up to the two months’ maximum at the start of the tenancy, and they can also pursue tenants for any costs for damages to property above the deposit amount in the usual way through an application through the Tribunal.

Moreover, any such costs may be partially or more-than offset by the benefits. Where tenants feel at home, they are more likely to look after the property and stay for longer. Evidence suggests that pet owners usually stay longer in their rental homes than other types of renters; ^[93] this could mean lower turnover of properties and reduced operating costs.

Option 3 – Legislate (Preferred option)

This option would bring forward legislative changes that would amend the existing tenancy framework under the 2016 Act and the 2001 Act to introduce a new statutory term to the Private Residential Tenancy and the Scottish Secure and Short Scottish Secure Tenancies, so that all tenants with the relevant tenancies have the right to request to keep a pet that could not be unreasonably refused. This option would ensure that most private and social housing tenants are afforded additional rights to keep a pet while ensuring landlords’ interests are safeguarded. The proposed frameworks for private and social tenancies are set out below.

Private residential tenancies

Private tenants would be required to make a written request to keep a pet, and this must set out specific information as prescribed through secondary legislation. This ensures the landlord has sufficient information to consider the request. Landlords will have 42 days in which to respond to a request in writing. Depending on the individual circumstances of a request, landlords would be able to approve a request, refuse consent where it is reasonable to do so, or set reasonable conditions for approval.

The detail of this framework would be provided via secondary legislation following consultation with the sector. Any disputes around unreasonable refusal, including where a landlord has failed to respond within the prescribed timescale, and unreasonable approval conditions could be brough to the Tribunal.

Scottish secure tenancies

Social landlords would have one month in which to respond to a request in writing. Depending on the individual circumstances of a request, landlords would be able to approve a request, refuse consent where it is reasonable to do so, or set reasonable conditions for approval. If no such response is given the landlord is taken to have consented to the application.

Disputes about unreasonable refusal and unreasonable conditions for approval would be determined, as is currently the case, by the landlord’s formal complaints procedure. A tenant who remains dissatisfied after completing their landlord’s formal complaints procedure could raise their complaint with the Scottish Public Services Ombudsman.

Benefits

Private and social tenants

The proposed legislative option would ensure that all private and social housing tenants with a relevant tenancy are afforded additional rights to request to keep a pet at their let property. This approach intends to more closely align the rights of tenants with other tenures while taking account of the differing legal frameworks, and seeks to appropriately balance the additional rights for tenants with sufficient protections for landlords.

This option also aligns with feedback obtained from the New Deal for Tenants consultation where the most frequently made point for both private and social rented sectors was that, to achieve ‘tenure blind’ housing outcomes and enshrine tenants’ rights to housing, tenants should have the right to keep pets in their home.^[94]

This approach would contribute to improving the renting experience for private and social housing tenants, giving them more control over keeping a pet. It will make a positive difference to people being able to feel ‘at home’ in rented accommodation. Research shows that owning a pet comes with many social, emotional, physical and mental health benefits, from the companionship that pets provide, the opportunity to get outdoors, exercise and meet other people, or other mechanisms. Pets can also be particularly important for older people,^[95] as well as children in terms of their quality of life and helping them to develop pro-social skills.^[96]

Private landlords

Where tenants feel at home, they are more likely to look after the property and stay for longer. Evidence ^[97] suggests that pet owners usually stay longer in their rental homes than other types of renters, this could mean lower turnover of properties and reduced operating costs for landlords. It also suggests that pet ownership can help landlords to foster positive relationships with tenants.

Costs

First-tier Tribunal for Scotland (Housing and Property Chamber)

Provisions in the Bill create new application routes for private sector tenants to the Tribunal in relation to applications to have a pet where:

• a landlord refuses an application and the tenant considers this unreasonable; or
• where the tenant believes the conditions for approval are unreasonable.

These new application routes will result in both additional implementation and operational costs for the Tribunal.

Implementation costs

These provisions are one of a number in the Bill that introduce new application routes for tenant and landlord disputes to be heard by the Tribunal, and the associated set-up costs across all new routes have been set out in the section on Implementation costs for the Tribunal for setting up new application routes.

Operational costs to Tribunal from new application routes related to pets

There will be operational costs for new application routes in relation to requests to keep a pet. Three scenarios have been developed to show costs for a range of application numbers based on a low, medium and high scenario for the caseload, which is then multiplied by the cost per case of £1,093 (from Table 8). The caseload scenarios have been informed by data on the existing caseload at the Tribunal for enforcing the Letting Agent Code of Practice, given the similarities in the type of disputes, as well as data on dispute levels for similar rental rights in Victoria State, Australia. Further detail on these estimates is set out in the Financial Memorandum for the Bill.^[98]

Operational costs to Tribunal from existing application routes related to pets

There may also be an increase in applications to existing Tribunal routes as result of the introduction of new application routes. As it would be difficult to determine the degree to which each new application route could lead to an increase in applications under existing routes, this section sets out a combined estimate of the impact from all new application routes (rent control, pets and personalisation), as set out in Table 27 and Table 28 below. The two exceptions to this approach are the costs related to applications for a payment order where landlord fails to provide information (Table 13) and additional applications for civil proceedings in relation to a PRT (Table 14), which are costed separately and thus are additional to the costs presented in this section.

The existing application routes which may see an increase in applications are:

• Permission to Appeal (Rule 37) – under this rule a party to a case can seek permission to appeal.
• Reviews (Rule 39) – under this rule parties to an application can ask the Tribunal to review a decision.
• Application to draw up terms of tenancy where statutory term is unlawfully displaced (Rule 106) – A tenant may appeal to the Tribunal to request that one of the new statutory terms is added into a tenancy agreement where it has been omitted.
• Application to enforce the Letting Agent Code of Practice (Rule 95) – Where a letting agent is managing a property, cases may be brought against a letting agent by tenants or landlords, in relation to the new rights under these provisions. This could increase the overall volume of cases.

In addition, to the rules outlined above it was also expected that there may be some additional caseload to Rule 111 specifically in relation to pets and personalisation. Under this rule, landlords can apply to the Tribunal for a payment order to help recover costs, for example repairing damage, cleaning, or replacing items because of damage caused by a pet or through personalisation above the amount of tenancy deposit held.

Given the range of variables which will affect the future caseload for these existing applications routes, costs have been estimated on the basis of an increase of current caseload of 5%, 10% or 15%, as outlined in the table below.

* Excluding rent arrears repayment orders

The table below sets out the potential additional costs, using the average cost per application of £1,093 (from Table 8).

* Excluding rent arrears repayment orders

Private landlords

The proposed option includes important safeguards for landlords, which will help to ensure that the measures are reasonable and landlords’ rights are protected. These protections include:

• the right to refuse a request where it is reasonable to do so in the circumstances. These could include that the animal is a breed under the terms of Dangerous Dogs Act 1991, or that there are existing restrictions in the property’s deeds.
• the option to set reasonable conditions for approval; for example, an additional amount of tenancy deposit subject to further consultation.

In addition, landlords will benefit from a clear regulatory framework for considering and responding to requests and from guidance provided by the Scottish Government to support implementation. These will make it easier for a landlord to understand their responsibilities.

Depending on landlords’ existing policies and practice and the types of modification prescribed in regulations there may be additional costs for landlords associated with:

• Stage 1 – considering and responding to a written request to keep a pet.
• Stage 2 – managing and responding to a tenant’s application to the Tribunal to challenge a decision to refuse a pet request or the conditions for approval.
• Stage 3 – to repair damage caused to, or cleaning costs for, the let property resulting from the tenant keeping a pet.

Stage 1 costs

Powers in the Bill enable Ministers to prescribe the information that must be provided in a pet request. This aims to ensure that landlords have all the information required to consider and determine a request, helping to reduce the time required at stage 1.

Exact costs will depend on a landlord’s existing policies and practices. Engagement with landlords indicates that landlords already manage pet request from tenants. Given this and that dealing with any additional requests will result in only minor amounts of additional administrative time, we think any additional costs to landlords from Stage 1 will be negligible.

Stage 2 costs

As with the first stage, costs will depend on the exact circumstances of the case. There may be additional time costs associated with managing and responding to a tenant’s application to the Tribunal to challenge a decision to refuse a pet request or the conditions for approval. Our engagement with landlords and letting agents suggested that the time taken to manage an application to the Tribunal could take several hours. This would include emails, phone calls, the time taken to consider relevant documentation and attendance at a Tribunal case management discussion or hearing. Based on an hourly cost of £25,^[101] this could result in an additional cost for an individual landlord of approximately £125 per Tribunal application based on a total of five hours.

This average cost per application of £1,093 (from Table 8) is then multiplied by the projected number of applications to the Tribunal relating to pets (from Table 26) to derive estimates for the total cost to landlords from such applications.

Stage 3 costs

If the provisions result in more tenants keeping a pet in a let property, this could result in additional damage to the property, and thus costs for the landlord at the end of a tenancy. The costs will vary depending on the type of pet and property and whether it is furnished or not. Recent research^[102] on renting in the PRS which included an evidence review, data collection with English private landlords, and a cost/benefit analysis, found that 76% of landlords surveyed reported no damage caused by pets. Moreover, when evaluating increased wear and tear due to pets, 73% of landlords stated that they did not observe any discernible increase. Additionally, 84% of landlords did not experience noise or other complaints from neighbours regarding these pets. Overall this study concluded that pet damage was infrequent, likely to be minor damage rather than major, and for most landlords there was no loss in comparison to renting to non-pet owners; in fact they concluded in a cost-benefit analysis that renting to pet owners was more beneficial for landlords on the whole.

Responses submitted as part of our BRIA engagement indicated that the most common types of damage resulting from a pet would be replacing carpets, repainting walls and for additional cleaning. Potential indicative costs in these areas are set out in Table 32 in Annex A.

There are already existing protections in place for landlords to recover costs associated with damage to the let property through any tenancy deposit which has been taken at the beginning of the tenancy. Current tenancy deposit requirements limit the deposit to a maximum of twice the monthly rent. Based on the average rent for a 2-bedroom property (the most common property size), the deposit would be around £1,682.^[103] We expect that most of the additional damage caused by a pet could be accommodated within existing tenancy deposit limits.

Furthermore, provisions in the Bill provide powers for Scottish Ministers, following further consultation, to set out reasonable conditions for approval. These could include enabling landlords to ask for a supplementary pet deposit above the current tenancy deposit limit. If following consultation, Ministers decide to exercise their power to allow for an additional supplementary deposit for pets, this would provide landlords with greater financial protection against any additional costs. A further BRIA of the costs associated with the affirmative regulations and reasonable conditions for approval will be prepared to support this secondary legislation.

Where the costs to a landlord exceed the deposit (with or without a supplementary deposit), there are existing legal mechanisms to recover costs from tenants through making an application for a payment order through the Tribunal.

Considering the existing protections as well as the provisions in the Bill that allow a landlord to refuse permission to keep a pet where they have reasonable grounds to so, or to set reasonable conditions when permission is granted, any additional costs for landlords associated with this measure are considered to be negligible. This conclusion is strengthened when taking into account the potential benefits to the landlord from allowing their tenant to keep a pet (discussed above).

Social landlords

We do not anticipate any material additional costs on social landlords from these provisions. Social tenants are currently allowed to keep pets with written permission from their landlord and social landlords set out any rules and processes for keeping pets in their pets policy. Therefore, existing processes will remain largely unchanged.

Costs for repairing damage caused by pets in social housing tenancies would be considered as a rechargeable repair and the costs recharged to the tenant.

Letting agents

Any additional costs to letting agents will depend on what services they provide to an individual landlord, the existing policies and practice of their business and the individual circumstances of any request to keep a pet and whether the request is approved or not.

Recovery of these additional costs will depend on the existing fee structures a letting agent has in place and whether these are based on the work undertaken or a percentage of rental income basis. Where the current business model does not enable the recovery of these costs from the landlord, letting agents may seek to make changes to account for this.

Where a letting agent manages a request for a pet on behalf of a landlord, they will benefit from there being a clear regulatory framework for considering and responding to requests and from guidance provided by the Scottish Government to support implementations. These will make it easier for an agent to manage request on behalf of a landlord.

Tenancy Deposit Schemes

Should the provisions result in more private tenants keeping a pet, there may be additional use of the free tenancy deposit adjudication service. As part of the BRIA process, we consulted the three approved tenancy deposit schemes – LPS (Letting Protection Service) Scotland, mydeposits Scotland and Safe Deposit Scotland – on the potential impact and costs that may arise from the provisions to allow greater flexibility for tenants to personalise their home and flexibility for private tenants to have a pet.

Two schemes provided indication that they expect introduction of these measures will result in an increase of the number of adjudication disputes. However, both schemes noted that any incurred costs would likely be offset by the uplift in interest revenue that may be generated from any additional held funds. One scheme noted that this may result in requirement for additional dispute resolution staff; however, this cannot be confirmed at this stage.

Information from the three approved tenancy deposit schemes suggest that the average cost of a tenancy deposit dispute is approximately £125. If the decision is then subject to a review request by either party, then that is a further approximately £50.

Information from the three approved tenancy deposit schemes shows that the level of adjudications (based on 2022-23 data) is 4,671 and the average cost of a tenancy deposit dispute is £125. Based on a potential 10% increase in tenancy deposit adjudications resulting from pets and personalisation measures (5% for each), this could result in 234 additional adjudications relating to pets across the 3 schemes, at cost of £29,250 per annum.

In 2022-23, the three schemes had 274 requests (6% of adjudications) for review. 31 reviews were accepted and 243 rejected. Based on the current level of accepted review requests, a 10% increase in adjudications from pets and personalisation would result in minimal additional costs across the schemes of approximately £75 per annum in relation to pets.

More disputes will also mean more attempts to resolve the dispute early, which may mean more Alternative Dispute Resolution staff are required.

Any costs incurred would be offset by the uplift in interest revenue that could be generated from additional funds held, if at least some landlords ask for an additional deposit due to a pet (either because they increase the deposit up to the current maximum of two months at the start of a tenancy, or because they allowed to ask for a higher supplementary deposit if the ability to do so is included in future legislation). For these reasons, we do not anticipate a significant increase in costs for tenancy deposit schemes.

Private tenants

Any additional costs for tenants relating to a request to keep a pet are likely to be minimal and associated with the time taken to make a pet request, and where necessary, an application to the Tribunal to challenge a decision to refuse, or a condition for approval by a landlord or agent that a tenant believes is unreasonable. These costs will depend on the individual circumstances of the tenant.

There may also be additional costs for tenants associated with any reasonable condition of approval made by the landlord, for example a supplementary deposit. This deposit, minus any reasonable deductions for damage, should be returned to the tenant at the end of the tenancy. In deciding whether to agree to pay a supplementary deposit, the tenant would be able to challenge the reasonableness of this condition.

The tenant can take the time and financial costs into account when deciding whether to make a request. They would only have to incur these costs where the benefit to them from a pet exceeds these costs. We therefore anticipate that the provisions will result in a significant net benefit to tenants.