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

Ending of joint tenancies

Background, Objective and Rationale

Under the 1988 Act, one joint tenant can end a tenancy with minimal notice to the other joint tenants. If the other joint tenants wanted to remain in the property, they could negotiate with the landlord to enter a new tenancy or seek to assign the departing joint tenant’s interest in the tenancy. However, if negotiations fail the remaining joint tenants could be made inadvertently homeless.

Under the 2016 Act, landlords cannot place time limits on a PRT and one joint tenant can no longer terminate a joint tenancy on behalf of all the joint tenants. This ensures that no tenant can inadvertently be made homeless.

Currently, where there is more than one person named as a tenant on a tenancy, the tenancy will be a joint tenancy. As there is no specified time limit on a PRT – where one tenant seeks to end a joint tenancy, all joint tenants must agree and sign a Notice to Leave, giving the landlord at least 28 days’ notice in writing (unless a shorter notice period has been agreed). If the other joint tenants agree that another joint tenant can leave, but want to continue living in the property, they can try to negotiate a new agreement with the landlord’s permission. Additionally, they can seek to arrange for another tenant to move in to replace the person who wants to leave, and the tenancy can either be assigned to the new tenant or a new tenancy can be created that would replace the existing tenancy of those who wish to remain in the property.

However, if the joint tenants decide to stay on and not to release the tenant who wishes to leave or has left the property, then all tenants, including the tenant that has left, will continue to be jointly and severally liable until the tenancy is ended through mutual agreement. This has the effect of tenants being at risk of remaining liable for rent even if they no longer live at the property.

Concerns have been raised regarding the negative impact of these requirements on tenants, often students, but also those experiencing domestic abuse. Where relationships have broken down and a woman is seeking to leave, this can be used as a method of financial and coercive control.

The overarching policy objective is to reform how joint tenancies under a PRT are ended to enable one joint tenant to end the tenancy for all tenants where there is no mutual agreement between joint tenants to end the tenancy. This would be possible only after the tenant who is seeking to end the tenancy has provided the other joint tenants with appropriate notice. This is intended to:

• ensure no joint tenant can be indefinitely held to a rental contract against their wishes; and;
• ensure a fair process for all joint tenants where one joint tenant wishes to leave the tenancy.

Sectors and Groups affected

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

• Private tenants
• Private landlords

Option 1 – Do nothing (Business as usual)

This option would not address the issues raised regarding the negative impact of the current law on tenants, often students, but also those experiencing domestic abuse. Where relationships have broken down and a victim-survivor is seeking to leave, refusal to allow a person to leave or end a tenancy can be used as a method of financial and coercive control.

For example, where a victim-survivor is seeking to leave a joint tenancy to escape domestic abuse, the victim-survivor may leave the home but have an ongoing liability for rent and other liabilities linked to the tenancy. Where this occurs, this situation will clearly constrain the choices and ability to obtain an independent tenancy of their own.^[123] It is difficult to quantify these costs as they would depend on the individual circumstances of the case, but they could be substantial if rent arrears are involved.

Option 2 – No regulatory measures

Since the way in which joint tenancies are ended can only be changed through primary legislation, Scottish Ministers do not consider that non-regulatory action is an appropriate option.

Benefits

Not applicable.

Costs

Not applicable.

Option 3 – Legislate (preferred option)

Reflecting on the consultation responses and stakeholder feedback this option would see changes made to the 2016 Act that would allow one joint tenant to be able to terminate a joint tenancy for all without the agreement of all joint tenants. This could only be done after the tenant who is seeking to end the tenancy has provided the other joint tenants with 2 months’ appropriate notice of their intention to end the tenancy. Only after that 2 month period has elapsed would the departing joint tenant be able to serve a 28-day notice of termination on the landlord.

The content, form and manner of the evidence of service of the 2-month notice will be set out in regulations. When serving the notice of termination on the landlord after the 2 month period has elapsed, the departing joint tenant must also inform the landlord that the 2 month notice has been served and provide evidence in support of that fact (subject to regulations made by the Sottish Ministers).

Of those responding to the question in the New Deal for Tenants consultation, a very substantial majority (94%) thought that the 2016 Act should be amended.

Benefits

Private tenants

The advantage of this approach is it provides a clear and fair process for all joint tenants. It would ensure no joint tenant can be indefinitely held to a rental contract against their wishes, while providing the remaining joint tenants reasonable notice to allow them to find an alternative tenant where they wish the current tenancy to continue or make alternative plans.

In response to the New Deal for Tenants consultation, around 545 non-campaign respondents commented on reforming how joint tenancies are ended. The ability to terminate an interest in a joint tenancy was seen as both an issue of individual choice for all tenants, but also as an important protection for victim-survivors of domestic abuse. In the latter case it was argued that allowing a joint tenant to terminate their tenancy without the agreement of other joint tenants would remove an element of control currently available to perpetrators, and some respondents included case studies to illustrate situations that are currently possible.

Where a joint tenant needs to make use of the new process, their liabilities for the tenancy would be limited to approximately 3-months (the new 2-month pre-notice period, plus the standard 28-day notice period).

It is expected that in most circumstances a joint tenancy would end with no issues in line with current arrangements e.g. subject to the landlord’s agreement, the exiting tenant’s interest in the tenancy is assigned to another tenant, the remaining tenants take on the exiting tenants’ liability or mutual agreement to end the tenancy is given by all joint tenants. We expect this to continue, with the new process only being used in a minority of cases where it is not possible to reach mutual agreement to either end the tenancy or assign the tenant’s interest to another person.

Private landlords

Private landlords would benefit from clarity of process as well as the requirement for landlords to also be notified of the intention by a joint tenant to end the tenancy. This will help landlords to engage proactively, allowing them and the remaining joint tenants to see if it is possible to agree an assignation or the creation of a new tenancy.

Costs

Private Landlords

Landlords will already be dealing with managing a joint tenancy issue, therefore these changes will represent minimal additional considerations for the landlord.

There is no available data on the number of joint tenancies in operation in Scotland or the number of joint tenants currently trapped in a tenancy who may seek make use of the new procedure. However, the number is expected to be small.

Any additional costs are expected to be negligible and relate to the landlords’ time to carry out checks that the existing joint tenant has properly served the 2 months’ notice to other joint tenants. As is currently the case, this work would generally include emails, other written communications and phone calls with tenants, in line with current practice in managing a joint tenancy.

Letting agents

Any additional costs for letting agents are expected to be minimal and also relate to additional checks required to verify the pre-notice procedure notice has been served correctly and the 28 days’ notice to end the tenancy is valid. These costs are likely to be recoverable from the landlord but 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.

Tenancy deposit schemes

No additional costs for the approved tenancy deposit schemes are expected. Changes to enable one, or more, joint tenants to exit a tenancy where there is no mutual agreement do not impact on the current tenancy deposit system or procedures. As the tenancy would come to an end for all tenants under the provision, the deposits would be dealt with in the same way as normal.

Private tenants

Provisions in the Bill provide powers for Scottish Ministers to set out the information required in the tenant-to-tenant notice and how the notice should be served. Depending on how this power is used, there may be some additional costs for tenants who make use of the new procedure to end a joint tenancy in relation to the serving of the pre-notice procedure. Any additional costs will be considered as part of determining the use of powers for Scottish Ministers.

Where a joint tenant needed to make use of the new process their liabilities for the tenancy would be limited to approximately 3-months(2-month pre-notice, plus 28-day notice). Based on the average rent for a 2-bed property of £841 a month this would limit the liability for rent to approximately £2,523 from the beginning of the notice period. Usually, a joint tenants’ proportion of the rent would be lower than the full 3 months, although they are jointly and severally liable for the full amount. The liability for rent, however, is likely to be significantly lower than it is under the business as usual, where a joint tenant who wishes to leave remains liable for the rent on an ongoing basis unless the other tenants agree to end or assign the tenancy.