A Sea Change – the perils facing the private rental sector in Scotland

A Sea Change – the perils facing the private rental sector in Scotland

Duncan Bauchop

Duncan Bauchop delves into the repercussions of recent legislative changes in Scotland’s private rental sector, discussing how emergency provisions and impending long-term rent controls are impacting landlords and tenants, potentially eroding the housing base.

On 2nd June 2020, residents of Eastchurch awoke to find “Cliff Hanger” House washed away. The tide had surged forward, boring its way into the cliffs and eroding the foundations of the land that was perilously perched on top. As King Canute will testify, you cannot hold back the tide. Like the incoming tide, the relentless wave of legislation and restrictions over the past 3 years in Scotland threatens to erode the housing base on which the private rental sector relies.

The Scottish Ministers recently extended the emergency provisions outlined under the Cost of Living (Tenancy Protection)(Scotland) Act 2022 to 31st March 2024. Until then, subject to limited exceptions, rent increases are capped at 3% for any 12 month period and “enforcement of evictions will continue to be paused for most tenants”. This follows changes introduced under the Coronavirus legislation, including the introduction of pre-action requirements and retrospectively raising the bar for obtaining orders for possession. The Scottish Ministers have confirmed this will be the last extension. However, their announced Housing Bill, delivering a “New Deal for Tenants, including the introduction of long-term rent controls for the private rented sector.”, has already indicated which direction the wind is blowing.

The barriers for landlords go beyond these changes. Cases are taking a considerable amount of time to conclude. According to the Scottish Minister’s June proposal paper, only 280 of 630 eviction cases lodged between September 2022 and May 2023 had been decided by June. The First-tier Tribunal, with its high case load, has an unenviable task. However, if a tenant is not paying rent or is damaging a property, a landlord cannot afford to wait sometimes in excess of 8 months to obtain an order for possession. Depending on the grounds, they may then have to wait up to a further 6 months to enforce it.

Something which at times is forgotten is that not all landlords are institutional investors with an extensive property portfolio. They also include individuals with young families, using rental income from their previous flat to pay the mortgage on their new family home or the elderly, renting out their former home to pay for care home fees.

The outcomes of the Scottish Minister’s latest consultation are telling. Many landlords and landlord interest groups interviewed, albeit anecdotally, were concerned about the supply of housing. They see landlords exiting the market due to the emergency measures, deeming their businesses no longer financially viable. The Scottish Ministers claim this is not reflected in the number of registered landlords, which has remained steady. However, as they concede, registrations last for 3 years, there can be a lag between a landlord leaving the sector and de-registering a property and the process, between recovering possession and completing a sale, takes at least several months.

Investors are losing confidence. Rent caps, coupled with increased construction costs, are halting mid-market rental home developments, aimed at providing affordable housing to low and middle income households, whilst timescales are dissuading Landlords from making eviction applications.

The outlook is not entirely positive for tenants either. Some landlords are charging higher initial rents to compensate for the rent caps. Others are introducing stricter vetting requirements, resulting in prospective tenants with lower income or prior credit issues struggling to rent.

Clearly, in light of the unprecedented impact of Coronavirus and the Cost of Living Crisis, some form of additional protection had to be introduced. However, a balance requires to be struck. The private rental sector requires further support or, like Cliff Hanger House, its housing stock may experience a sharp fall.

Duncan Bauchop is a senior solicitor at law firm Turcan Connell

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