Margaret McLean and Marc Armstrong ask whether the Private Housing (Tenancies) (Scotland) Bill will deter investment in Scottish PRS and PBSA
On 8 October, the Scottish government published the most hotly anticipated housing bill in decades. The Private Housing (Tenancies) (Scotland) Bill aims to deliver the Scottish government’s vision of “a private rented sector which provides good quality homes and high management standards, inspires consumer confidence and encourages growth through attracting increased investment”.
But does it achieve that? Does it create a “system that works for everyone”? Or will it deter the very investment and growth that underpin government strategy?
Tenure reform
The current no-fault ground of possession (allowing landlords to reclaim possession because a fixed-term tenancy has ended) will be removed. The resultant open-ended tenancies aim to provide better security by ensuring that tenants can only be asked to leave their homes for good reason. Those reasons now include landlord intention to sell/refurbish, as well as arrears and breach of tenancy.
However, removal of the no-fault ground will create difficulties in the marketing and letting of private rented properties, as there can be no certainty of the date on which the current tenant will vacate.
This is a real concern for the purpose-built student accommodation (“PBSA”) sector, which generally starts marketing 10 months’ ahead, and whose stakeholders and students rely on operators being able to provide fixed start and end dates that align with the academic year and semesters.
Length of tenancy
Landlords will have to offer a minimum tenancy of six months, although tenants can request a shorter tenancy to meet their personal circumstances. Flexibility of term is critical to ensure that accommodation is fully utilised, with fewer voids, thus generating a stronger return on investment.
This is a particular issue for the PBSA sector in the context of summer lets to language schools and non-students, and semester lets to overseas students, who could be discouraged from pursuing their studies in Scotland.
Rent increases
Rent increases will be limited to no more than one per year, with landlords giving at least 12 weeks’ notice of a change in the rent. Tenants wishing to challenge an increase will be able to refer their case to a rent officer for adjudication of the market rent, which could result in rents going down.
Parties are free to negotiate the initial starting rent, but the limit on the frequency of increases must be read along with the tenure reform provisions, where a tenant stays for more than one year under the same tenancy agreement.
This is also a particular concern for the PBSA sector, which operates – and prices rents – on an annual model.
Rent controls
Rent controls can be applied for by a local authority to designate all or part of its area as a “rent-pressured zone”. If agreed by ministers, this would cap all rent increases for sitting tenants within that zone at a minimum of CPI plus 1% for a maximum of five years.
For an area to be designated a rent-pressured zone, relatively tough criteria must be met, and while the bill provides that initial rents should continue to be market-led, any form of rent controls could lead to long-term uncertainty and so deter investment in those very cities where there is a lack of private rental sector (“PRS”) stock and where land values and build costs are highest.
Rent control decisions based on area-wide rents (with no regard to quality or services offered) could also impact on standards and deter the development of high-quality build-to-rent properties, which improve and encourage urban place-making in the PRS.
Creation and termination of tenancies
Pre-tenancy notices (Forms AT5) and notices of proceedings are no longer needed. A “notice to leave” is all that is required, with two notice periods for both landlords and tenants (depending on the time the tenant has been in occupation), and a new shorter notice period (28 days) on the grounds of antisocial behaviour, relevant conviction, breach, and abandonment.
The new grounds for possession along with the new First-tier Tribunals should speed up the eviction of problem tenants.
For the PBSA, an additional ground has been added where the tenant is no longer a student, but this does not resolve the uncertainty posed by removal of the no-fault ground where a tenant is continuing as a student but is not required to inform their landlord of their intention to continue the tenancy.
Model tenancy agreement
A new easier-to-understand model tenancy agreement is to be introduced by secondary legislation, and landlords will no longer need to issue tenant information packs.
Concerns amid a tight timetable
The bill has been embraced as introducing “a remarkable amount of common ground” in laying down a clear new model tenancy, comprehensive grounds of possession and a streamlined process, and reassuring landlords that tenants will treat their properties as a long-term home. However, there are concerns that it does not strike the right balance between the interests of landlords, tenants and investors.
The provision that initial rents should continue to be market-led is welcomed. However, rent controls and open-ended tenancies (particularly in the PBSA sector) are seen as harmful to stakeholders, and to investor confidence, which is key to the Scottish government’s objective of significantly expanding capacity in the PRS and ensuring that Scotland remains competitive.
The devil is very much in the detail. There is still opportunity to work through that before the bill progresses, and via the consultation on the content of the new model tenancy. Time is short though. The Scottish government’s Infrastructure & Capital Investment Committee has already issued a call for written evidence to be submitted from interested parties no later than 19 November to assist with its assessment of whether the bill can deliver on government objectives. With the PRS so high on the agenda of Scottish politics, it is anticipated that the bill will be passed before the Scottish Parliament dissolves for the next election in March 2016.
Margaret McLean is a partner and Marc Armstrong is a senior associate at CMS Cameron McKenna
