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

Converting older tenancies

Background, Objective and Rationale

The 2016 Act created the private residential tenancy (PRT), which was to supersede tenancies under the 1988 Act. Under the 2016 Act, tenancies which began on or after 1 December 2017 would be a PRT unless they were excluded under Schedule 1 of the 2016 Act. Tenancies under the 1988 Act which already existed on this date could continue until they were brought to an end by the landlord or tenant. The intent of the 2016 Act was that PRTs would be the main tenancy for the PRS going forward.^[124]

Scottish Ministers propose to create a regulation-making power which would enable a date to be set on which tenancies under the 1988 Act would convert to PRT under the 2016 Act. Exercise of this power would be subject to a consultation first. If used, this would enable tenants with tenancies under the 1988 Act to benefit from the protections under the 2016 Act, as well as proposed protections in this Bill, and reduce complexity and confusion in the sector.

Sectors and Groups Affected

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

• Tenants in the private rented sector with assured or short assured tenancies
• Private sector landlords who let properties on assured or short assured tenancies
• Letting agents who administer existing assured or short assured tenancies
• SCTS
• Rent Service Scotland

Option 1 – Do nothing

If no action was taken, the current situation would continue. Assured and short assured tenancies would continue to reduce over time; however, this would be a slow process, with a small number of assured and short assured tenancies potentially lasting for a long period of time. Those tenants who remained on assured or short assured tenancies would not benefit from the protections of the 2016 Act, or the provisions in this Bill. In addition, there would continue to be a level of complexity and potential for confusion caused by operating several differing tenancy regimes in the private sector.

Scottish Ministers therefore do not consider this an appropriate option.

Option 2 – Non-regulatory measures

Whilst the Scottish Government will continue to support landlords and tenants in understanding their rights and responsibilities, the inherent differences between the different current tenancy regimes are governed by statute. For this reason, the Scottish Ministers consider that aligning tenancies to allow tenants to benefit from the protections under the 2016 Act, as well as proposed protections in this Bill, requires a change to legislation.

Benefits

Not applicable.

Costs

Not applicable.

Option 3 – Legislate (Preferred option)

The intent of the 2016 Act was that the PRT would supersede tenancies under the 1988 Act, and the provision in Part 4 of the Bill would create a mechanism to achieve this at a faster pace, by enabling the Scottish Ministers to set a date in secondary legislation when tenancies under the 1988 Act will convert to PRT under the 2016 Act. There is a requirement on the Scottish Ministers to consult on this proposal before laying the regulations.

Benefits

Private tenants

If used, this power would enable tenants with tenancies under the 1988 Act to benefit from the protections under the 2016 Act, as well as proposed protections in this Bill, sooner than otherwise would have been the case. A reduction in the number of tenancy regimes in the PRS will also reduce complexity and confusion for tenants.

Private landlords

As for tenants, a reduction in the number of tenancy regimes in the PRS will reduce complexity and confusion for landlords.

Costs

Scottish Government

Implementation costs will include consultation on and implementation of secondary legislation, and costs for providing information and support to landlords, tenants and the sector.

Rent Service Scotland

There could be some additional costs to the RSS due to additional rent adjudication cases if all remaining tenancies under the 1988 Act are converted to PRTs. Furthermore, because tenants with PRTs have greater security of tenure than tenants with legacy short assured tenancies, there might be a slightly higher rate of applications to RSS under the PRT than would have been made to the Tribunal under the 1988 Act tenancies.

However, Tribunal data show that rent adjudication cases concerning assured or short assured tenancies averaged only five cases a year in the period 2017-2018 to 2021-2022 (i.e. before the emergency rent control measures). Given that the number of tenants on assured or short assured tenancies will reduce further over time, this suggests that by the time that Ministers may exercise the power to convert tenancies, the number of tenancies concerned, and thus rent adjudication applications submitted to the RSS by such tenants, will likely be very small. It is even possible that there may be a small overall saving to the Scottish Administration, due to the lower cost of adjudication by a Rent Officer for requests in relation to PRTs, when compared with Tribunal costs for 1988 Act tenancies.

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

As set out above, converting remaining 1988 Act tenancies to PRTs may result in a small fall in Tribunal caseload due to rent adjudication cases now being sent to a Rent Officer in the first instance.

There are though some existing application routes to the Tribunal which could potentially see small increases in case numbers as a result of 1988 Act tenancies being converted to PRTs, in particular via the following routes:

• Application to draw up terms of tenancy (Rule 105)
• Application to draw up terms of tenancy where statutory term is unlawfully displaced (Rule 106)
• Application for payment order where landlord has failed to provide information (Rule 107)

Before making an application to the Tribunal under Rule 105 or Rule 107, a tenant is required to give their landlord notice, and we consider that landlords will take this opportunity to provide the missing information in many cases, resolving the issue without the need for a tenant to apply to the Tribunal for remedy.

Figures provided by SCTS for 2022-2023 indicate that three applications were received by the Tribunal under Rule 105, one application was received under Rule 106, and six applications were received under Rule 107 during that period.

We anticipate a very small number of extra applications to the Tribunal arising as a result of this provision and additional costs, if any arise, would be negligible.

Private landlords

There may be some small administrative costs to some landlords if the Scottish Ministers use the power to set a date in secondary legislation to convert tenancies under the 1988 Act to PRTs under the 2016 Act, as there will be a requirement under Part 3 of the 2016 Act to provide tenants with written tenancy terms and prescribed information reflecting the change.

The number of landlords who could be affected will depend on the number of tenancies under the 1988 Act which remain at the point when the conversion takes place. Any new tenancies in the PRS are PRTs unless they are of a type which is specifically excluded, and, since 2017, it has not been possible to grant a new tenancy under the 1988 Act. As such, the number of tenancies under the 1988 Act has been decreasing over time, and this pattern will continue as existing tenancies reach their end.

The Scottish Government has already produced information for landlords and tenants concerning PRTs, which will support landlords and tenants in understanding any changes to their rights and responsibilities which may result from a tenancy converting to a PRT. The Scottish Government has also provided tools such as the PRT Model Tenancy Agreement creation tool and PRT notice creation tools, to support landlords with PRTs in meeting their duties under the 2016 Act to provide their tenant with copies of the tenancy terms and prescribed information, as well as any relevant notices. These tools are free for landlords to use and may represent a saving for landlords who choose to use them rather than paying for a new tenancy agreement to be drawn up by a third party.

Given the requirement to consult further on the use of this power, the Scottish Government considers that it would be appropriate to consider the costs associated with this at that time, which would allow for consideration of the potential impacts on landlords and businesses in more detail, at the point when the power is to be used.

Letting agents

Similarly to landlords, if remaining 1988 Act tenancies are converted to PRTs on a set date, letting agents may incur some additional costs due to the requirement to provide tenants with written tenancy terms and prescribed information relating to a PRT. However, the number of tenancies involved will be small, and letting agents will be familiar with PRT requirements since the vast majority of their business will likely consist of such tenancies. Any costs they do incur are recoverable from landlords through their usual business charges.