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

Annex A. BRIA engagement – Summary of responses

The Scottish Government worked with the following key stakeholder representative groups to seek direct feedback from businesses on the business and regulatory impact of the proposals on their interests through requesting responses to a BRIA impact template:

• Scottish Association of Landlords and Council of Letting Agents
• Propertymark
• Scottish Land and Estates
• Scottish Federation of Housing Associations
• Scottish Property Federation

This generated 40 responses from a range of individual businesses. These responses have been used to inform this BRIA. Of the 40 responses received, 24 were from landlords, four who were both a landlord and a letting agent, five were letting agents, six were BTR Landlord investors and one a membership organisation. Respondents ranged from individual landlords with one property to large landlords with 3,200+ properties.

Of the landlords who responded and gave an indication of the number of properties in their portfolio, a number were small businesses. Twelve said that they had fewer than 10 properties, six had between 10 and 20 properties (inclusive), four had between 21 and 100 and three had between 101 - 500. There were three landlords who said they had over 501 properties, all of whom were also BTR investors. Of respondents who were letting agents (either solely or as well as being landlords), portfolios of properties managed ranged from just under 50 properties to over 3,000. At least two landlord respondents indicated that they were providers of mid-market rent properties, and several BTR investors also mentioned numbers of properties currently under construction, in planning or under discussion. Overall, those who provided a response on the size of their portfolio owned or managed approximately 14,721 private rented properties (including some in planning and under development) between them across a range of areas across Scotland.

A summary of responses in relation to each of the measures included in the BRIA cost template is set out below. It should be noted that responses were received from those businesses who chose to engage with the survey, and since this was not a random survey, responses might not be representative of the sector as a whole. However, as summarised above, respondents did come from different categories of PRS providers. It should also be noted that the views set out below are those of respondents; the Scottish Government’s assessment of the costs of various measures is set out in the main body of this BRIA, although this assessment has been informed by these responses. Feedback from businesses will continue to inform the implementation process of the Bill, including drafting any relevant secondary legislation.

Rent control responses

Respondents who returned cost templates and answered the questions on rent control represented the different categories of PRS providers. The majority were landlords, with some letting agents, some who were both landlords and letting agents, and some who were landlords and also investors in BTR properties.

Respondents were asked about the local authority area where their properties were located. Some respondents listed more than one local authority area. A handful of respondents did not provide a location or listed ‘various’. All but eight local authority jurisdictions were represented in the responses. Edinburgh and Glasgow were the most listed, followed by Fife, Aberdeen, Aberdeenshire, and Perth and Kinross.

Respondents were asked about areas where there may be potential costs from the proposed measures. Some respondents set out areas of expenditure associated with their let properties, which in many cases were reliant on income from rents, with many emphasising that these costs have increased in recent years.

The figures provided by respondents in response to the open question were not generally comparable with each other. Some responses presented total costs arising from multiple properties, some covered only one or were not clear how many properties were included in the total, some gave monthly or annual costs while others did not state the period covered, some were based on recent figures, while others included costs for appliances or refurbishments undertaken some years ago. As such, the costs provided were not comparable and, given the small sample size, it has not been possible to draw robust conclusions from the information on a consistent picture of specific landlord expenditure which may currently be covered by rental. However, the responses do help to illustrate the types of costs faced by landlords.

The general types of expenditure listed by respondents varied widely but included regularly occurring costs such as:

• mortgage repayments
• insurance costs
• facilities costs where these were included in rent – broadband, gas/electricity, etc
• regular costs of regulatory compliance – landlord registration, gas and electricity certifications, smoke and heat detectors, legionella testing
• letting agent/inventory fees
• factoring fees
• cleaning/upkeep of communal areas
• specific maintenance fees for gardeners, tree surgeons, window cleaners, etc.
• landlord salary

Other costs over the longer term included:

• redecoration
• refurbishment of kitchens/bathrooms, etc.
• maintenance/replacement of white goods, furniture, boiler
• replacement of doors and windows
• roof repairs
• upgrades to meet new statutory standards such as replacement of lead piping and water testing
• energy efficiency measures such as replacement heating, insulation, draft proofing
• costs particularly applicable to rural properties such as emptying septic tanks, supply of fuel, private water supplies, maintenance of roads
• costs of empty properties between tenancies (council tax, power bills, etc.)

Other costs listed by larger/institutional landlords with high numbers of properties in their portfolios included:

• salaries for employees
• office and vehicle costs
• facilities management costs
• commercial waste collection
• lift maintenance
• borrowing to fund investment in building new homes to increase supply of affordable rented homes, or to fund investment in capital works and maintenance

Respondents were also asked about the potential for wider costs or impacts on their business from the proposed measures, or from cumulative impacts of the proposed measures and previous or future additional changes to the regulatory or operating/financial environment of the Scottish PRS.

Whilst in many cases respondents did not consider it possible to give details of potential cost impacts without more in-depth information on the specifics of how rent controls may operate, the following broad concerns were raised by respondents:

• The potential cumulative impact of rent control alongside other requirements such as the requirement to upgrade properties to higher EPC ratings and the move to transition to zero carbon alternatives for heating.
• A view that rent controls may be unfair to landlords where the rent paid includes other living costs (such as heating costs) where the full cost to the landlord is not recovered from the tenant as part of the rent paid.
• Differences in costs incurred by some rural landlords in providing property (water, road maintenance charges, etc.) compared to urban landlords
• Concerns about potential impacts of rent control in view of increases in landlord costs such as mortgage payments, maintenance costs, and potential increases in storm damage costs in some areas as a result of climate change.
• Changes in UK (i.e. reserved) taxation.
• Concern that landlords may be disadvantaged by rent controls if they have rents below market rent, didn't increase rents during a long tenancy or kept rent artificially low to support tenants experiencing financial difficulties or to provide accommodation for employees, and are then not able to charge market rent for subsequent tenancies.
• Concern about landlords leaving sector and the potential impact on supply (from landlords and letting agents).
• Concern that property improvements will be disincentivised.
• Concern from letting agents about the potential for an increased administrative burden.
• Concern from investors about potential impacts on certainty of returns.

Respondents were also asked whether they (or their clients) were considering leaving the sector, and whether they had taken steps to do so to date. Some respondents did indicate that they had sold properties or planned to leave the sector, whilst others stated that they did not currently intend to leave.

A number of investor respondents cited concerns about future rent control and the potential impacts on the certainty of returns on any investment made, which they considered may affect decision making in terms of investing in the sector in Scotland. Some stated that they had already paused investment in Scotland due to uncertainty around proposed rent controls. Specific concerns raised by investor respondents included the need to cover increases in the costs which are borne by BTR landlords (noting that BTR rents are often inclusive of utilities and other amenities, and that BTR developments often have ongoing staffing costs) and the need for pension fund investors, in particular, to be confident that there will be predictable returns on their investment which can be expected to follow the rate of inflation.

Reform of rent adjudication responses

Out of 40 responses to the BRIA impact template, 27 respondents provided a comment in relation to reforming current rent adjudication processes under the 2016 Act to ensure that a determination of rent by the Rent Officer or the Tribunal cannot be higher than the rent increase proposed by the landlord.

Out of the 27 who responded, 12 indicated that they did not agree with the proposal or had concerns. Reasons provided included concerns about the fairness of the proposed change and preference for the existing system. It was suggested that it was fair to allow an appeal on rent to be able to go either way and this would help to stop excess appeals. Other concerns raised related to the length of time a rent adjudication case can take, and concerns that cases where the landlord’s requested rent was below market rent might skew data used for market rent comparisons in future if this was the final rent determined at adjudication.

Five respondents indicated that there would be no additional cost or minimal impact from the proposed change. One respondent set out costs associated with instructing an independent agent to provide evidence of market rent to the rent officer of between £75 - £90. They also indicated a cost of £480 for their own time to provide evidence, deal with agents and respond to claims.

A number of respondents commented more generally on their opposition to rent control and two respondents emphasised the differing nature of BTR and that these differences should be taken into account. Another respondent made a similar comment for mid-market rented properties, in relation to rent control.

A wider concern raised was the need to ensure that RSS are properly resourced to deliver rent adjudication services if there is an increase in applications.

Greater protections during the eviction process responses

Out of 40 responses to the BRIA impact template, 34 responded to the question on proposals for greater protection during eviction process. The majority of responses (26) did not include any specific information on the amount or level of potential costs. eight responses did provide costs and a further three gave non-specific costs (i.e. suggesting multiples of rent which would be lost).

Respondents were asked about any additional costs to their business in relation to loss of rent or increased loss of rent should a tenant stop paying their rent following an order for eviction. While the majority did not provide specific costs, some did indicate concerns about the negative impact of the measures given the length of time the current eviction process can take, which a further delay would exacerbate. This was particularly in relation to rent arrears. It was also suggested that the uncertainty about the length of time to recover a property would act as a disincentive to landlords letting property or remaining in the market. Those who did provide costs indicated it could result in significant arrears, for example 6 to 12 months rental loss. This was particularly problematic where a tenant already had unpaid rent prior to the eviction order and where they would not pay any rent during a delay to enforcement. Several respondents indicated this would usually be three months’ unpaid rent due to the requirements of the 2016 Act. Some respondents raised the difficulty in recouping costs and unpaid rent after an eviction on the ground of arrears, as this would often not be covered by a deposit of two months’ rent.

Respondents were asked about the additional time and administration costs related to providing the Tribunal with any additional evidence required to respond to any proposed delay to the enforcement of an eviction. Responses indicated that there would be an increase in time and other costs related to this measure. One business indicated that dealing with a case going through the Tribunal currently takes several hours of staff time. Based on previous experience another suggested the following Tribunal costs: cost of responding to the tenant – £35, meeting with Tribunal to discuss the case – £70, letter of reference on decision – £35. These were suggested as minimum costs providing there are no problems with the application. There may also be the cost of employing legal representation to ensure all processes are followed correctly. One respondent indicates that their most recent cost for legal representation was £888.

Respondents were asked about potential additional accommodation costs where a landlord who intends to live in the let property is prevented from doing so due to delay to an enforcement of an eviction. No detail on costs were provided in this area, although several respondents raised concerns that landlords who needed to move back into the property themselves might struggle to find alternative accommodation, and that landlords who were seeking to evict in order to sell a property due to financial constraints might be particularly impacted by any delay.

Letting Agent responses indicated costs of around £200 where an extension to the eviction order was granted, including for emails, phone calls, and reading through relevant documentation. One respondent indicated that the measure would see them lose their full management fee of 12% per month, which based on their average rent would be around £162.78 per month, per property. One larger letting agent advised a £2,000 one-off cost to train staff on new processes. One agent indicated that they were generally managing properties for free for as long as a repossession case continued.

Unlawful eviction damages responses

Of the 40 responses to the BRIA impact template, 20 commented on the proposal for changing how civil damages for unlawful eviction are calculated. Out of the 20 who responded, nine agreed there should be no cost or adverse impact to landlords from the measure and 11 made general comments on eviction. Of the 40 responses to the BRIA impact template, 20 commented on the proposal for changing how civil damages for unlawful eviction are calculated. Out of the 20 who responded, nine indicated there should be no cost or adverse impact to landlords from the measure and 11 made general comments on eviction and not specifically around the costs associated with this proposal.

Those who responded to this question all said they would not carry out an unlawful eviction so the question is irrelevant to their operations. Comments noted that as the action is already unlawful there should be no impact for businesses and individual landlords who continue to follow legal requirements.

Pets (Private Rented Sector) responses

Of the 40 respondents who responded to the BRIA impact template, 38 provided a response in relation to the costs and impact of proposals to allow tenants the right to request to have a pet and not be unreasonably refused.

10 respondents said they already have an established pet policy.

Respondents were asked about any additional costs for their business from considering and responding to a written request. Of those who responded, 13 indicated an additional cost for their business, with these costs ranging from £15 to £100 with an average of around £48. The costs were attributed to phone calls and emails to tenants.

Respondents were asked about additional administration costs in relation to 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. Of those who responded, five provided a comment in relation to the time and cost of going through the Tribunal process, ranging from £140 to £200, with an average of £185. The costs highlighted were for additional administration costs associated with application process (making a response, time at tribunal and letter writing).

Respondents were asked about the costs relating to repairing damage caused to, or cleaning costs for, the let property resulting from the tenant keeping a pet. Of those who responded, 21 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 the table below.

Several respondents mentioned a need to allow for depreciation in claiming replacement costs for furnishings, expressing concern that they may be unable to recoup the full cost of replacement where extensive damage rendered this necessary. Others mentioned that the cost of any damage may not be covered by the deposit and may not be recoverable from tenants by other means. A couple of respondents also mentioned the potential for foregone rent due to longer void periods to allow for cleaning and repairs.

Personalisation (Private Rented Sector) responses

Of the 40 responses to the BRIA impact template, 38 provided a response to the questions on proposals to allow tenants to make certain prescribed changes to their rented home without the landlord’s permission and, for certain other changes, to request permission from their landlord and not be unreasonably refused. Of the landlords who responded, 23 provided information on the potential monetary costs related to repairs and redecoration. Of those, 20 indicated that they either already allowed some level of personalisation or were supportive of doing so.

Respondents were asked about any additional costs for their business from considering and responding to a written request to make a change to the let property. Of these, three respondents indicated there would be no or negligible additional costs associated with manging a request. Others indicated a range of costs from £7.50 to £35, with an average of around £27. One landlord/agent suggested costs could be between £100 and £300 for emails to owners, tenants, contractors for estimates, phone calls, property visits and site visits with contractors. A few respondents indicated that they would be inclined to visit any tenant making a request to discuss the proposed change, as part of the consideration process or to inspect after the change had been made. Costs for these types of visits were estimated to be from £21 to £50.

It was also suggested that there may be additional costs resulting from an increase in agent management fees resulting from handling multiple requests. A range of additional costs in relation to letting agents was provided, ranging from an £14 to £65 an hour; another response suggested costs per request could be £100.

Respondents were also asked about additional administrative costs associated with an application to the Tribunal in relation to a refusal by the landlord for the alteration or in relation to a condition for approval that the tenant thinks is unreasonable. The 15 responses received included comment in relation to the time and cost of going through the Tribunal process. The potential additional time implications related to a Tribunal case ranged from one hour to several hours, with some suggesting that it could be considerably more. Potential costs given ranged from £14 an hour agency fees to totals of between £140 to £500. A number of respondents also indicated that there may be additional costs for legal representation.

Respondents were asked about the costs relating to repairing damages from a change undertaken by a tenant. Responses indicated that the most common types of repairs needed following tenants' changes, with or without permission, were redecoration of the property. This ranged from repainting of walls, doors and woodwork of one room to the entire property. A number of respondents also gave examples of the need to replace carpets where they had been damaged by a tenant’s changes (e.g. paint on carpet). One respondent highlighted damage caused by a tenant to a bathroom that required the bathroom to be replaced.

A common concern raised was that the work carried out by tenants (with or without permission) was poor quality and not to at a lettable standard. The table below provides an overview of the range of costs provided by respondents for common repairs.

A further potential cost highlighted by landlords in relation to a more substantial change was additional void time of around one month, where repairs required resulted in a delay to the reletting of the property.

Respondents were also asked about the types of changes that tenants typically wish to make. Responses indicated a range of requests made by tenants including relatively small changes, for example putting up hooks or rails to hang things (e.g. mirrors) on walls; larger changes such as painting or redecoration, putting up wall shelves/cabinets and hanging TVs on walls; through to more substantial alterations such as changing the bathroom, kitchens, carpets or flooring. A number of respondents also mentioned requests for outside changes such as installing a shed/greenhouse and decking.

One respondent who already allows tenants to paint/decorate indicated that almost no-one had done so and the most common request they had was to hang a TV on the wall. Another respondent indicated they would not ask for any additional deposit, where the work was carried out professionally.

Some respondents suggested that the measures might result in changes to landlord behaviour. One landlord indicated that if the measures were introduced, they would stop providing furnished properties or redecorating between tenancies instead allowing tenants to decorate and reletting the property as seen. This was not something they wished to do and they recognised the potentially negative impact of doing so, particularly for low-income tenants. Another respondent suggested they would need to move to requesting the full two months’ deposit legally allowed, which they don’t currently do. A few respondents suggested that some smaller landlords may seek to leave the sector if potential levels of bureaucracy became disproportionately high for a small portfolio. Conversely, some BTR landlords, whilst acknowledging that they already allow some degree of personalisation within certain bounds, also expressed concerns about the cumulative administrative and practical impacts of this measure across their developments – especially as their properties would need to be returned to a situation in keeping with neighbouring properties in the development before they could be made available to the next tenant. One BTR provider which currently does not take a deposit stated that they would start taking a deposit from tenants in order to operate under the new measures.

Unclaimed tenancy deposits responses

The BRIA cost template noted the Scottish Government’s view that there would be no additional costs to landlords or letting agent from proposals to allow for the use of unclaimed deposits. 21 respondents made no comment in response to this part of the costs template. Of those who did respond, some indicated that they agreed with the Scottish Government’s assessment that there would be no additional costs for landlords and agents, with some responses indicating support for the measure and others questioning the approach being proposed and the role of the Scottish Government in administering unclaimed funds. A number of respondents suggested alternative uses of any unclaimed funds, including making them available to landlords to cover damage caused by tenants to a let property or for greater enforcement of the landlord registration requirements.

Ending joint tenancies responses

Of the 40 responses to the BRIA impact template, 20 provided a response to the questions on potential costs/impact of provision to change the process by which a joint tenancy is ended.

Respondents were asked if there would be any additional time and administration costs associated with the proposed changes, such as to review evidence provided that the new process had been complied with and dealing with the return of the deposit at the end of the tenancy. Of the responses received, 6 provided costs in relation to administration time which were:

• Response to request to end tenancy and create new tenancy – between £35 to £45
• Credit checks for remaining tenant – £45
• Check complied with process and deal with any issue with deposits – £100

Another respondent provided an overall cost for these administrative tasks of circa £200.

Respondents were also asked about costs associated with an application to the Tribunal should other joint tenants not vacate the let property at the end of the notice period and the potential for rent arrears, where tenants remain in the property. Four landlords/letting agents mentioned time for application process to the Tribunal where remaining tenants don’t leave, with costs provided being between £140 and £200, with an average of £185.

Responses on wider impacts

Respondents were asked for further comment about any wider costs or impacts on businesses from the proposed measures or any cumulative impacts when considering these measures together with previous or future changes to the regulatory or operating/financial environment of the Scottish PRS. There were 30 responses in relation to this question.

Several respondents expressed that it was difficult to estimate the full impact of any specific, associated costs of proposed measures until full details of how the measures would be applied were known. However, there was consensus amongst respondents that both past, proposed and future legislative changes have and will continue to increase costs within the sector and that this is a disincentive to landlords to continue operating within the PRS.

In particular, BTR Investors noted that their investment and ability to continue developing homes has reduced. They also indicated that they would consider withdrawing investment from the Scottish housing market if their operations became uneconomical. Respondents noted that a decline in investment within the sector would in turn have an adverse effect on economic activity throughout Scotland.

The wider impact on letting agents was also noted, with reference made to decreased earning potential because of landlords choosing to exit the market. A respondent noted they had concerns about ability to continue to pay staff within their letting agency due to increases in costs.

Landlord divestment responses

Respondents were asked whether they, or if an agent, any of their landlord clients, were looking to exit the sector and if so, whether this had translated into sales of properties over the last 12 months. 35 responses were received in relation to this question, with the majority of respondents (26) indicating their intention to leave the industry, having either already sold properties recently, being in the process of selling, making plans to sell or pausing investment until there is further clarity on the proposed regulations. Out of the 35 responses, six respondents did not comment on their intention to leave the industry, and only two respondents (one landlord and one BTR) indicated that they presently have no current intention of selling, leaving the rental market or pausing investment.

Several reasons were referenced for wanting to leave the sector and these included: rent control regulations; EPC upgrade requirements; an increase in mortgage interest rates; changes to taxation; uncertainty about future legislation; divergence from UK legislation; lack of exception for both rural properties and religious manses; lack of Government support; and the eviction ban (in relation to the 2022 Act temporary measures, which came to an end on 31 March 2024). Several respondents indicated that they feel they have lost an element of control over their business and stated that there is no incentive for new landlords to enter the market.

One respondent commented that the Landlord Register did not provide an accurate representation of number of registered properties over the period. Several other respondents noted that the full negative effect of landlords vacating the industry due to both past and proposed legislation will not yet be known, as the effects of legislation take time to filter down.