Second Consultation on a New Tenancy for the Private Sector: Analysis of Consultation Responses

Rent levels

The consultation paper asked five questions about rent levels. The first three questions covered rent reviews during a tenancy and the remaining two questions covered the possibility of introducing further rent regulation.

Rent reviews during a tenancy

The consultation paper comments that tenants need to be able to plan, and a system that provides greater predictability will enable them to do so and reduce the risk of them falling into rent arrears. To that end, the Scottish Government proposes that rent reviews should take place no more than once in any 12-month period. They also propose that, to help tenants to plan when managing their finances to cover the rent, landlords should have to give tenants 12 weeks' notice of a change in the rent.

It is also proposed that if a tenant thinks a rent increase would take their rent well over rents charged for comparable properties in the area, they should be able to refer the increase for adjudication, for example to the First-tier Tribunal.

Question 7a: Do you agree that rent reviews should take place no more than once a year?

Summary Findings

There was very strong support for this proposal, with a substantial majority of all respondents (99%) in agreement. Further comments were limited and frequently focused on the approach being fair, and reasonable and in line with normal current practice. The importance of the approach being clear and easily understood was also raised.

Some of those who disagreed with the proposal suggested that the reviews should be limited to no more than every 18 months. In contrast, it was suggested that landlords who have borrowed to purchase a property will be affected by changes to interest rates and may face increases to other costs and should not be constrained by an annual review.

Responses by respondent type are set out in Table 21 below.

Table 21: Question 7a - responses by respondent type

Type of respondent	Yes	No	Mixed view	Don't know	TOTAL
Advice, Information & Ombudsman Services	4	1	0	0	5
Campaign Body or Group	7	2	0	0	9
Industry Body	10	1	0	0	11
Landlord	39	2	0	0	41
Legal Body or Firm	5	0	0	0	5
Letting Agent and/or Property Management	32	2	1	1	36
Local Authority	17	0	0	0	17
Tenant and/or Resident Group	3	0	0	0	3
Union or Political Party	4	0	0	0	4
Other	4	0	0	0	4
Total Organisations	(125)	(8)	(1)	(1)	(135)
Individuals	138	35	1	4	178
Total (excl. campaigns)	263	43	2	5	313
Percentage (excl. campaigns)	84%	14%	1%	2%	100%
Living Rent petition	2127	0	0	0	2127
SAL form-based campaign	65	0	0	0	65
SAL e-petition	3215	0	0	0	3215
Letting Agent campaign	25	0	0	0	25
TOTAL	5695	43	2	5	5745
% of those answering the question	99%	1%	0%	0%	100%

There was very strong support for this proposal, with a substantial majority of all respondents (99% of those answering this question) in agreement. The majority of standard respondents of all types agreed, as did those supporting the Living Rent petition, the SAL petition, the SAL form-based campaign and the letting agent campaign.

Further comments were limited and most frequently focused on the approach being fair, reasonable and in line with normal current practice. The most frequently made comment was that the industry agrees that rent reviews should take place no more than once a year to ensure that tenants are not subject to unreasonable or unexpected rises. This was the view of those supporting the SAL petition. Those supporting the Living Rent petition commented that rents must not increase more than once a year. The importance of the approach being clear and easily understood was also raised. A number of respondents noted the advantages for both tenants and landlords of being able to plan their finances over a reasonable period.

A small number of respondents commented on the difference between a rent review and a rent increase. In particular, it was noted that a review needs to commence three months prior to the anniversary date to allow sufficient time to negotiate and introduce any changes. It was also noted that a rent can be reviewed but an increase not effected at that time. Other comments made about rent reviews and/or changes to the rent included that:

• It should be possible to increase the rent within the annual period if the landlord has made substantial improvements during that year. However, 'substantial' would need to be defined.
• There should be no specific timing required for the increase date. For example, if a lease begins on 1st January 2019, the landlord should be able to increase the rent at any point on or after 1st January 2020, and not be restricted to having to increase it on that specific date. This was the third most frequently made comment.

A small number of respondents commented on the basis on which it should or should not be possible to change the rent charged. There was a suggestion that any rent increases should not be more than the average for the area in which the property is located. However, an alternative perspective was that rents should continue to be market-driven and that there should be no constraints beyond the annual review arrangements.

Some of those who disagreed with the proposal suggested that the reviews should be limited to no more than every 18 months. In contrast, it was suggested that landlords who have borrowed to purchase a property will be affected by changes to interest rates and may face increases to other costs. Further, it was suggested that landlords will have to consider whether costs are likely to rise during the forthcoming 12 months and that annual rental reviews may mean landlords will set rents at a higher level to ensure that any potential increased costs are covered.

Question 7b: Do you agree that a tenant should receive 12 weeks' notice in advance of a change in the rent?

Summary Findings

A majority of respondents (72%) agreed that a tenant should receive 12 weeks' notice in advance of a change in the rent. Comments made by those supporting the proposals included that they are sensible and reasonable and would give tenants time to budget for any changes. Comments made by those who disagreed tended to suggest that the 12-week period is too long: the most frequently suggested alternative was that eight weeks' notice be required. Those supporting the Living Rent petition suggested that notice of increases must be no less than 12 weeks.

Responses by respondent type are set out in Table 22 below.

Table 22: Question 7b - responses by respondent type

Type of respondent	Yes	No	Mixed view	Don't know	TOTAL
Advice, Information & Ombudsman Services	2	2	0	1	5
Campaign Body or Group	7	1	0	1	9
Industry Body	11	0	0	0	11
Landlord	22	15	0	4	41
Legal Body or Firm	5	0	0	0	5
Letting Agent and/or Property Management	22	14	0	0	36
Local Authority	16	0	0	1	17
Tenant and/or Resident Group	3	0	0	0	3
Union or Political Party	2	2	0	0	4
Other	2	1	0	1	4
Total Organisations	(92)	(35)	(0)	(8)	(135)
Individuals	106	64	0	7	177
Total (excl. campaigns)	198	99	0	15	312
Percentage (excl. campaigns)	63%	32%	0%	5%	100%
SAL form-based campaign	65	0	0	0	65
Letting Agent campaign	25	0	0	0	25
TOTAL	288	99	0	15	402
% of those answering the question	72%	25%	0%	4%	100%

A majority of respondents (72% of those answering this question) agreed with the proposal. The majority of standard respondents agreed (63% of those answering), as did those supporting the SAL form-based and the letting agent campaigns. The majority of all groups of respondents agreed, with the exception of advice service and union respondents. These two groups were evenly divided on this question.

Comments made by those supporting the proposals included that they are sensible and reasonable and would give tenants time to budget for any changes. Other issues raised included that:

• Landlords should be able to inform tenants of a planned increase at month 9 of the 12-month period thus allowing the increase to come into effect at the end of the 12-month period. This was the second most frequently made comment with industry bodies, landlords, letting agents, individual respondents and those supporting the SAL form-based campaign amongst those making this point.
• Tenants should be required to dispute any increase within four weeks of notification.

Comments made by those who disagreed tended to suggest that the 12-week period is too long - the most frequently suggested alternative was that eight weeks' notice be required, although some respondents suggested four weeks would be sufficient.

An alternative view was that the implementation of any increase should reflect the duration of the initial period; in other words if a tenant has a six-month initial period, they should be given six months' notice of an increase to their rent. Another view was that tenants should be given at least 16 weeks' notice. Those supporting the Living Rent petition commented that notice of increases must be no less than 12 weeks^[3].

Question 7c: Do you agree that tenants should be able to refer what they regard as unreasonable rent increases for adjudication?

Summary Findings

There was very strong support for this proposal with a substantial majority (97%) of those answering in agreement.

The most frequently made comment was that tenants should have the right to refer unfair rent levels and increases to a tribunal, where rents should be assessed on factors such as size, quality and location but not on market levels. An alternative, and also frequently stated view, was that the First-tier Tribunal should be required to determine a market rent, as opposed to any form of 'capped', rent.

Responses by respondent type are set out in Table 23 below.

Table 23: Question 7c - responses by respondent type

Type of respondent	Yes	No	Mixed view	Don't know	TOTAL
Advice, Information & Ombudsman Services	5	0	1	0	6
Campaign Body or Group	9	0	0	0	9
Industry Body	8	0	1	0	9
Landlord	30	7	1	3	41
Legal Body or Firm	4	0	0	1	5
Letting Agent and/or Property Management	28	7	0	1	36
Local Authority	17	0	0	0	17
Tenant and/or Resident Group	3	0	0	0	3
Union or Political Party	4	0	0	0	4
Other	4	0	0	0	4
Total Organisations	(112)	(14)	(3)	(5)	(134)
Individuals	119	41	1	18	179
Total (excl. campaigns)	231	55	4	23	313
Percentage (excl. campaigns)	74%	18%	1%	7%	100%
Living Rent petition	2127	0	0	0	2127
SAL form-based campaign	65	0	0	0	65
Letting Agent campaign	25	0	0	0	25
TOTAL	2448	55	4	23	2530
% of those answering the question	97%	2%	0%	1%	100%

Again, there was very strong support for this proposal, with a substantial majority of all respondents (97% of those answering this question) in agreement. The majority of standard respondents of all types agreed, as did those supporting the Living Rent petition, the SAL form-based campaign and the letting agent campaign.

The most frequently made comment - supported by signatories to the Living Rent petition - was that tenants should have the right to refer unfair rent levels and increases to a tribunal, where rents should be assessed on factors such as size, quality and location but not on market levels.

Other comments often suggested this proposal seemed fair, although in contrast to supporters of the Living Rent petition, many others went on to suggest that, in line with the operation of the Private Rented Housing Panel (PRHP), the First-tier Tribunal should be required to determine a market, as opposed to any form of 'capped', rent. This was the view of a number of industry bodies, landlords, lettings agents, individual respondents and those supporting the SAL form-based campaign.

It was also suggested that a structured and transparent adjudication process, using clear and publically available assessment criteria, will be required. In particular it was suggested that:

• What is meant by 'comparable properties in the area' will need to be clarified, with consideration of properties of similar standard and amenity offering a possible approach.
• The assessment should recognise the costs associated with the provision of services (such as sewerage or private water supply) to rural properties and that this is often undertaken by the landlord.

Other proposals included that:

• It should be possible to make a referral about an unreasonable rent level and not just an unreasonable rent increase.
• The model tenancy agreement should provide guidelines around what is an acceptable increase, with the rate of inflation +1% suggested as a possibility. Those supporting the letting agent campaign were amongst those making this proposal.

As under Question 7b, a number of respondents also suggested that the tenant should be required to make any referral to the First-tier Tribunal within four weeks of being notified of an increase. It was also stressed that tenants should be required to continue paying the original rent pending the adjudication and that, if a higher rent is awarded, the tenant should be required to pay it from the original increase date proposed by the landlord.

The importance of the First-tier Tribunal being adequately resourced to deal with appeals was commented on, with some respondents suggesting that efforts should be made to deter unfounded or frivolous referrals, not least because of the resource implications for the First-tier Tribunal.

Those who disagreed with the proposal raised many of the same issues as some of those who had agreed, including raising concerns about the volume of referrals and the 'clogging up' of the First-tier Tribunal system. Further clarification was sought as to how a 'reasonable' increase would be determined, while some objected to the proposal as an interference with the operation of the market and as equivalent to a form of rent control.

The possibility of introducing further regulation

In the consultation paper, the Scottish Government is not proposing any further general regulation of rents, but is considering whether specific measures may be justified to protect tenants from excessive increases in hot-spot areas.

If taken forward, a possible approach would enable Ministers to limit the levels of rent increases for sitting tenants in hot-spot areas. As this is intended to be a means of responding to a problem affecting tenants in a local area, it is proposed that this power would be triggered by a local authority applying to Ministers for an affected area to be designated a 'rent pressure area'. Local authorities would have to present evidence to show that rents for sitting tenants in the area were increasing excessively. It would be for Ministers to decide whether, in the light of the evidence presented, to limit the rate of increase in a designated area for a time-limited period. To safeguard the interests of responsible landlords, Ministers would be under duties to ensure that the limit took account of inflation and other reasonable costs and to consult tenants, landlords and other relevant stakeholders before bringing it into force. As an additional safeguard, landlords would be able to challenge at the First-tier Tribunal the use of the limit on their properties in the area if they thought it did not allow them to recover their legitimate costs - for example if they had recently invested heavily in their property.

The details of these proposals would be given effect through secondary legislation following successful passage of the Bill through Parliament. The details would therefore be subject to further consultation on how they would work in practice.

Question 7d: Do you think there is a role for the additional regulation for area based rent limits we discussed above? Please explain your answer setting out what you view as the advantages and disadvantages of such an approach.

Summary Findings

This question had the highest number of responses of all questions in the consultation. The majority of respondents (70%) did not see a role for additional regulation.

Those respondents who disagreed frequently stated their broader and categorical disagreement with any form of rent regulation and there was a broad consensus that the sector should remain market-led. This was the view of signatories to the SAL and PRS4Scotland petitions and of those supporting the SAL form-based campaign. It was also the most frequently made comment amongst standard respondents who disagreed.

The most frequently made comment by those who did think there is a role for the additional regulation of area-based rent limits was that local authorities should be able to implement special local measures when housing costs are more than a third of tenants' incomes. This was the view of those supporting the Living Rent petition. Others who thought there is a role for additional regulation gave examples of difficulties they or others experienced in accessing affordable private rented accommodation, especially in certain parts of Scotland's cities.

Responses by respondent type are set out in Table 24 below.

Table 24: Question 7d - responses by respondent type

Type of respondent	Yes	No	Mixed view	Don't know	TOTAL
Advice, Information & Ombudsman Services	2	0	1	2	5
Campaign Body or Group	7	1	1	0	9
Industry Body	1	12	0	0	13
Landlord	2	34	0	2	38
Legal Body or Firm	0	3	0	1	4
Letting Agent and/or Property Management	0	35	1	0	36
Local Authority	9	1	0	6	16
Tenant and/or Resident Group	3	0	0	0	3
Union or Political Party	3	0	0	1	4
Other	0	4	0	0	4
Total Organisations	(27)	(90)	(3)	(12)	(132)
Individuals	17	151	1	17	186
Total (excl. campaigns)	44	241	4	29	318
Percentage (excl. campaigns)	14%	76%	1%	9%	100%
Living Rent petition	2127	0	0	0	2127
SAL form-based campaign	0	65	0	0	65
SAL e-petition	0	3215	0	0	3215
Letting Agent campaign	0	25	0	0	25
PRS4 Scotland campaign	0	1553	0	0	1553
TOTAL	2171	5099	4	29	7303
% of those answering the question	30%	70%	0%	0%	100%

This question had the highest number of responses of all questions in the consultation. The majority of respondents (70% of those answering) did not see a role for additional regulation. Those taking this view included the majority of standard respondents (76% of those answering) and those supporting the SAL petition, the SAL form-based campaign, the PRS4Scotland petition and the letting agent campaign. The majority of industry body, landlord, legal body, letting agent, 'other' and individual respondents did not see a role for additional regulation. However, the majority of advice service, campaign body, local authority, tenant group and union respondents did, along with those supporting the Living Rent petition.

Those respondents who disagreed frequently stated their broader and categorical disagreement with any form of rent regulation and there was a broad consensus that the sector should remain market-led. This was the view of signatories to the SAL and PRS4Scotland petitions and of those supporting the SAL form-based campaign. It was also the most frequently made comment amongst standard respondents who disagreed.

Concerns about the introduction of any rent controls generally focused on the potential to reduce current or future investment in the sector, which in turn could increase rents, reduce tenant mobility and lead to a deterioration in the condition of the stock. It was also suggested that the Scottish Government's own data does not support the introduction of rent controls. Specific concerns included that:

• Rent 'hot-spots' would be the very areas in which demand outstrips supply and where much-needed investment should be encouraged. However, that investment would be threatened by the imposition of rent limits.
• Rent controls could restrict the amount landlords are willing or able to invest in improving their properties, with a knock-on effect on the standard of accommodation available to tenants.
• It is not clear how any measures would or could take account of the considerable variety of properties available in the private rented market. For example, it was suggested that both social care accommodation and student accommodation offer a very particular package of services, which differ from that generally offered and, as a result, the rents cannot be compared to others simply on the basis of the size and location of the accommodation.
• Taking measures forward through secondary legislation will mean they will be subject to a lower level of scrutiny.

The most frequently made comment by those who did think there is a role for the additional regulation of area-based rent limits was that local authorities should be able to implement special local measures when housing costs are more than a third of tenants' incomes. This was the view of those supporting the Living Rent petition. Others who thought there is a role for additional regulation gave examples of difficulties they or others experienced in accessing affordable private rented accommodation, especially in certain parts of Scotland's cities. In particular, it was suggested that in some areas rent levels make it very difficult for working households to find accommodation they can afford.

A number of the respondents who supported the proposal commented on the complexity of the market place and the need for any proposal taken forward to be well thought through and to reflect that complexity. It was also suggested that the issue needs to be considered as part of a wider housing affordability problem and that the primary focus needs to be on tackling the wider issues of shortage of supply, particularly within the social rented sector.

Local authority respondents generally supported the proposal, although one disagreed and a number did not know. Local authorities went on to comment on how or if they could envisage the measure being implemented in their own area. Further comments suggest that the strength of support for the proposal varied and that while most local authorities saw possible benefits, a number could also identify possible problems. In terms of possible advantages, some local authorities could see the value in being able to introduce targeted measures to tackle particular unaffordability problems in clearly defined areas. However, there were also concerns that such an intervention could have a negative impact on the level of supply in those areas if landlords divert investment into 'non-capped' areas. The resources implications for local authorities were also highlighted.

Question 7e: If we were to legislate for this proposal, what types of evidence should local authorities have to present to Ministers when applying to designate an area as a 'rent pressure area?

Summary Findings

A number of respondents simply reiterated their disagreement in their further comment here. Others made a brief comment that the range of evidence set out within the consultation paper seemed reasonable or appropriate.

Those who went on to make more detailed comments sometimes suggested additional evidence sources that could be considered. The most frequently made suggestion was that an independent assessment of the impact of the proposed designation should be required.

A total of 246 standard respondents commented at this question. Of these 246 respondents, a clear majority (177 respondents) disagreed with area-based limits being possible. A number of these respondents simply reiterated their disagreement in their further comment here. Others made a brief comment that the range of evidence set out within the consultation paper seemed reasonable or appropriate. The paper suggested that evidence might include: statistics on average rent rises, income growth and general price inflation; an increase in the number of rent increases being referred to the First-tier Tribunal; and an increase in the number of PRS tenants approaching the local authority with concerns over their ability to afford excessive and unjustified increases.

Those who went on to make more detailed comments sometimes suggested additional evidence sources that could be considered. The most frequently made suggestion was that an independent assessment of the impact of the proposed designation should be required. It was suggested that such an assessment would conclude that the benefits will outweigh the costs, taking into account the impact on landlords, investors, current/future tenants and the wider economy.

Other suggestions included:

• Evidence that private rents have risen disproportionately faster than both the Retail Price Index, local house prices, social rents and average incomes.
• Affordability assessments, such as a comparison between rent levels and average wages or spending power. A specific suggestion was to consider if housing costs exceed 30% of a tenant's income.
• Comparisons between rent levels and Local Housing Allowance rates.
• Increased applications for Discretionary Housing Payments.
• Information about the number of rent-related cases (rather than just increases in numbers) and other types of cases referred to the First-tier Tribunal or The Property Ombudsman.
• Statutory homeless presentations from households who have lost private rented sector accommodation.
• Evidence from tenants themselves, Rent Officers or from suitably qualified property professionals.

Further comments included that there is not sufficient, reliable data to evidence the case for a rent pressure area. Suggestions around improving data capture included that the role of Rent Officers in each Scottish local authority area could be expanded to include further information gathering and provision.