In October, we considered the “one size fits all” approach of the Private Housing (Tenancies) (Scotland) Bill, and its potential to deter investment in Scotland (“Can one size really fit all?”, EG, 31 October 2015, p116). Now that the bill has been passed, it is time to look at how it evolved in response to strong campaigning and the finished product that will join the Scottish statute book.
Current stage and timescales
The Scottish Parliament’s Infrastructure and Capital Investment Committee (“the committee”) considered stage 2 of the bill on 10 February, when detailed amendments were debated. The final stage 3 debate took place on 17 March and the bill was passed as expected, less than a week before dissolution of the Scottish parliament ahead of the May election. As such, the proposed new tenancy for the private rented sector (“PRS”) will now come into force in December 2017.
PBSA sector – now out of the woods?
In response to concerns raised at stage 1 as to the bespoke needs of the student sector, the Scottish government accepted that purpose-built student accommodation (“PBSA”) is not part of the mainstream PRS, and proposed to exempt PBSA from the bill, in the same way as accommodation provided by universities and other higher education bodies.
At stage 2, the committee agreed to this proposed exemption: to exclude a building or part of the building of which the let property forms part where the permitted planning use is predominantly for housing students.
At stage 3, the Scottish government approved this exemption but extended the qualifying criteria to provide that, in addition to the planning use prerequisite, the landlord must be an institutional provider of student accommodation. This is defined as a landlord who lets, or is entitled to let, other properties in the same building or complex (of at least 30 bedrooms) as the let property and intends to use these for the purpose of housing students.
While this definition is relatively black and white, not all planning consents for PBSA will necessarily refer to student accommodation. During the stage 2 debate, Margaret Burgess, the minister for housing and welfare, confirmed the Scottish government’s intention to define in regulations later exactly what would be included within the ambit of PBSA. The stage 3 debate was not clear whether the meaning of PBSA will be further defined for this purpose, leaving the sector waiting to know how wide (or otherwise) this exemption will be.
The official report from stage 2 also quotes a reference by the minister to PBSA having nomination rights with universities. This was not mentioned at stage 3, but we await the regulations with interest, particularly as many PBSA developments are modelled on direct-lets, as opposed to nominations arrangements. While it is not clear that the Scottish government would look to restrict the exemption for PBSA in this way, this linkage by the minister to nomination rights, plus the fact that PBSA may be further defined, cast a shadow on this otherwise welcomed exemption.
Student lets in mainstream PRS
The Scottish government was not persuaded to treat students who rent houses in multiple occupation in the mainstream PRS any differently to other tenants caught by the bill – creating a rift in the market, with two separate tiers: one for university and PBSA accommodation, and the other for more traditional properties not purpose-built for students.
Grounds for recovering possession
The current no-fault ground of possession, which allows landlords to take back possession because a fixed-term tenancy has ended, has been removed. The Scottish government was intransigent on this – notwithstanding the difficulties in marketing properties let on open-ended tenancies, with no certainty as to when a tenant will or can be required to leave.
Instead, there are 16 fixed grounds for possession in the final bill. The key ones are: intention to sell or refurbish; where the landlord intends to use the property for a non-residential purpose; tenant’s criminal activity or antisocial behaviour on or near the property; and breach of tenancy and arrears.
No minimum term
The initial “lock-in” period – ie the proposal to offer a minimum six-month tenancy – has been removed from the final bill.
Rent controls
The final bill retains provision for rent control measures, in spite of strong representations as to the dangers of rent controls: the risk of long-term uncertainty and deterring investment, particularly in those cities where PRS stock is already scarce.
At the stage 2 debate, the Scottish government assured the committee that any new powers to set rent controls would be discretionary and used in a limited and exceptional way, but the bill provides no further clarity on how these powers would be used or the basis for designating rent control zones, particularly given the perceived lack of reliable data.
We know only that rent increases for sitting tenants in a rent control zone would be set for up to five years with a collar of CPI plus 1% and a CPI-linked cap to be prescribed by the Scottish government for that particular rent zone.
The journey continues
It is evident from both the stage 2 report and the stage 3 debate that the Scottish government has listened to what the industry has had to say on many aspects of the proposed reforms, which is very welcome.
However, the bill’s journey is not yet over – even after it receives Royal Assent and becomes law, there will still be uncertainty given the potential for further changes and restrictions, with separate regulations (providing the detail) to follow.
Margaret McLean is a partner and Amy Campbell is a lawyer at CMS
