Blog: Major changes to the private rented sector
James Jack, Associate at law firm Burness Paull has produced a detailed briefing note on the Private Housing (Tenancies) (Scotland) Act 2016.
The Private Housing (Tenancies) (Scotland) Act 2016 was recently passed by the Scottish Parliament. The Act will impose a new private residential tenancy in Scotland. It will replace existing tenancy agreements in Scotland (the vast majority of which are currently short assured tenancies). The Act takes effect in stages. The date for the new tenancy to take effect has yet to be confirmed but is likely to be late 2017 or even 2018.
Certain classes of lets including holiday lets and social, police and military housing will not be subject to the new regime. Student accommodation will also be exempt from the new rules if it is classed as Purpose Built Student Accommodation (PBSA) or is provided by an academic institution – this will allow universities, colleges and PBSA providers to continue to offer fixed-term lets to students.
THE LANDLORD MUST HAVE GROUNDS FOR EVICTION
The Act aims to improve security of tenure for tenants and sets out the grounds on which a landlord can evict a tenant. Many of the grounds are similar to the current short assured tenancy grounds of possession and will, as at present, be a mix of mandatory and discretionary grounds.
Strikingly, the Act removes a landlord’s right to recover possession on the basis a tenancy has reached its end date i.e. the current “no fault” ground. This means tenants will no longer be asked to leave because they have reached the end of their fixed term. Instead, the landlord will have to state one of the eviction grounds.
The grounds for eviction include:
- the landlord intends to put the property up for sale. This is a new ground;
- the landlord intends to refurbish the property to the extent it is impracticable for the tenant to occupy the property. This will be a question of degree and will depend on how much disruption the tenant can live with;
the landlord wants to use the property for a non-residential purpose. This is a new ground;
- the landlord or a family member of the landlord intends to live in the property. Unlike previous legislation, a family member is now defined as a spouse, civil partner, cohabitant, parent, grandparent, child, grandchild or sibling of the landlord;
- the tenant is in rent arrears for 3 or more consecutive months. If such arrears amount to at least 1 month’s rent the tenant will be evicted, if the arrears are less than 1 month’s rent the new Tribunal will have discretion on whether to evict the tenant. This is a significant change as at present the mandatory ground of possession requires 3 whole months’ rent arrears but the Act means the tenant will be evicted if they do not pay a full month’s rent and those arrears are outstanding even if over the next 2 months they pay the full monthly rent;
- the tenant is carrying on criminal or anti-social behaviour at or in the vicinity of the property; and
- the tenant has breached the tenancy agreement. This will be clearer once the model tenancy agreement is produced by the Scottish Government but such breaches will likely include subletting without landlord’s consent, taking in a lodger or assigning the lease, or failing to give the landlord reasonable access on notice.
The inability of a landlord to end a tenancy on the basis the term has expired may well deter landlord investors who will miss the comfort of knowing they can get their property back at the end date.
A NEW TRIBUNAL
A new Tribunal will be set up with the aim of dealing with disputes in a user-friendly fashion and the Act includes safeguards designed to stop landlords getting round the eviction grounds by, for example, putting the property on the market at an unrealistically high price or downgrading the intended refurbishment once the tenant is out.
Therefore, if a landlord is unable to sell and wishes to re-let the property, or the landlord or a family member does not move into the property as intended, the landlord must offer the tenancy to the former tenant again and generally the landlord will have to produce evidence to the Tribunal to support the ground of eviction such as a letter of engagement from a marketing agent or advertising particulars, or an application for planning permission or building warrant in the case of refurbishment, or a change of use application where the landlord intends non-residential use.
Whether these safeguards offer the former tenant much comfort remains to be seen as presumably the former tenant will have meantime moved to another property and will no longer be interested in the former property. However, the Tribunal can make a wrongful termination order and require the landlord to pay the former tenant up to 6 months’ rent. It is not known if further legislation will be introduced to revoke the landlord registration of landlords who are persistently in receipt of wrongful termination orders.
Only once the new Tribunal is up and running will we know whether it will resolve disputes quickly and efficiently without landlord or tenant bias.
MODEL TENANCY AGREEMENT
The Act refers to a model tenancy agreement being imposed on the sector which has yet to be produced by the Scottish Government. The aim will be to introduce consistency of practice across the sector and include all information the tenant needs so that, for example, separate tenant information packs should not be required.
Once the model tenancy agreement is published it will be interesting to see if it strikes a fair balance between the interests of landlords and security of tenure for tenants.
The notice periods to recover possession will change. At present, a landlord can evict a tenant on 2 months’ notice if the lease term has expired. Under the Act a landlord will need to give a tenant 4 weeks’ notice of eviction if the tenant has been in occupation for 6 months or less and 12 weeks’ notice where the tenant has been in occupation for more than 6 months.
Tenants cannot be held to a minimum term under the new rules and will be able to terminate the tenancy at any time on giving the landlord 28 days’ notice. This means a tenant could give notice to terminate shortly after commencement of the tenancy.
RENT INCREASES AND RENT CONTROLS
Landlords will be able to seek an increase in rent by issuing a rent increase notice to the tenant. The rent cannot be increased more than once in any 12 months. If the tenant thinks the proposed rent increase is unreasonable they can refer the matter to a rent officer to determine open market rent whose decision can be appealed to the Tribunal.
Local authorities will be able to apply to the Scottish Government to designate an area as a “rent pressure zone” which, if so designated, means rent increases can be no greater than a percentage set by the Scottish Government.
The Scottish Government have indicated that such zones will likely be occasional to protect tenants from large rent increases in certain areas, but there is concern the use of rent pressure zones could be a wider attempt by the Scottish Government to introduce statutory control of rent which will not be popular with landlords and might deter investment.
REACTION TO THE ACT
Reaction to the Act is mixed with tenant associations welcoming the changes while some landlord bodies are fearful that rent controls and removal of the “no fault” ground of eviction, coupled with the recent increase in land and buildings transaction tax on buy-to-let properties, will mean landlords making cuts elsewhere resulting in lower quality properties or will even deter investors buying rental properties and thus lead to a decline in the availability of private rental properties.