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

Frequency of Rent Increases in non-rent control areas

Background, Objective and Rationale

While section 19 of the 2016 Act currently provides that the rent payable under a PRT may not be increased more than once in a 12-month period, there is no express restriction on when a landlord can increase the rent following the beginning of the tenancy. This means that a landlord could serve a rent increase notice giving their tenant 3 months’ notice of a rent increase as soon as the start of a lease.

Ensuring that, for tenancies that are not in an RCA, the first increase, as is case for subsequent increases, can only be made after 12 months would give the tenant greater certainty. They will not experience an unexpected rent increase in the first 12 months, which, had they known about it, might have affected their decision about which property to rent. Therefore, at the crucial time when the tenant is searching for properties, they would be able to make a robust comparison of what rent they will be paying for the first 12 months. It would also make their financial planning easier knowing that they will not receive a rent increase for a period of 12 months.

Evidence suggests that feeling secure in a tenancy is important to tenants’ health and wellbeing, and to feeling at home in a property.^[57] This is particularly important for low-income tenants, who can be particularly vulnerable to market forces^[58] and for whom unpredictable rent increases can be a cause of significant stress.^[59]

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
• Private rented sector landlords
• Letting agents

Option 1 – Do nothing

In this option, the current position would be maintained and landlords and letting agents would have the freedom to apply the first rent increase of a PRT at any point, as long as the tenant is given sufficient notice.

This may be of benefit to landlords and agents, particularly those handling large portfolios, who may prefer to increase rents on the same day of the year, as the current position allows them to align rent increases at times convenient to their business (for example, aligning rent increases with the start of a new financial year). While there is limited quantitative evidence directly on this topic, the evidence that is available suggests that such an approach may not be widespread.^[60]

However, the situation where tenants could potentially face an unexpected rent increase shortly after their tenancy began would continue. This could have the effect of reducing tenants’ ability to plan financially in the knowledge that their rent will be stable for a reasonable initial period when taking on a new tenancy, and will also mean they make a less informed decision at the time of choosing which property to rent.

Option 2 – Non-regulatory measures

The Scottish Ministers consider that non-regulatory action would not prevent landlords from having the potential to increase rents within the first 12-month period of a tenancy.

Benefits

Not applicable.

Costs

Not applicable.

Option 3 – Legislate (Preferred option)

The measures in the Bill are intended to build on the existing requirements in the 2016 Act on the frequency at which rents for tenancies that are not in RCAs can be increased, making clear that rent increases cannot take place during the first 12 months of a tenancy (except in such circumstances as may be prescribed by the Scottish Ministers in secondary legislation).

The Scottish Government’s ‘Landlord and tenant engagement questionnaire on rented sector reform’ set out the proposal that in most cases, a landlord would not be able to increase their tenant’s rent until at least 12 months after the tenancy started. Respondents were not asked directly about this proposal, although they were asked whether it should be disapplied in RCAs if rent controls were applied between tenancies.

It is intended that further engagement will be carried out in relation to the measures before implementation. This engagement will allow for detailed feedback on issues such as circumstances where it may be proportionate for Scottish Ministers to disapply the requirement.

Benefits

Tenants entering into a new PRT in an RCA would be in a better position to plan financially, in the knowledge that their rent would be stable for a reasonable initial period when taking on a new tenancy. This would also allow them to make a more informed choice at the crucial point of searching for properties.

Costs

Changes in relation to rent increases in the first 12 months of a tenancy are not anticipated to give rise to material additional costs for the majority of landlords. Whilst some landlords may have sought to increase rents shortly after a tenancy starts, this approach does not appear to be universally applied and the overall potential for impact in terms of foregone rent is considered to be minimal. For those landlords who do want to align rent increase dates across their portfolios, it will still be possible to do so by waiting more than 12 months to apply the first increase after a change in tenancy. This would, however, reduce the rental income available for those tenancies where the landlord would have chosen to increase the rent at a common anniversary date in all cases, irrespective of the start date of the tenancy.