The biggest shake-up of the private residential letting sector in almost 30 years is about to go live.
The passing of the Private Housing (Tenancies)(Scotland) Act 2016 ("the Act") last year prompted much discussion at the time but, with the Act due to come into force on 1 December this year, it is worthwhile recapping what the Act will mean for private residential letting in Scotland.
The Act was passed principally to provide increased security for tenants by restricting landlords' ability to bring private residential tenancies to an end, and also includes protections against frequent or excessive rent increases. At present, the vast majority of residential tenancies between private landlords and tenants are "Short Assured Tenancies". But, upon the Act coming into force on 1 December, the familiar Short Assured Tenancy (and its lesser-known cousin, the Assured Tenancy) will no longer be available. From that date, the only form of tenancy open to private landlords and tenants will be the new "Private Residential Tenancy" – albeit existing Short Assured Tenancies and Assured Tenancies will survive and will not automatically be converted into Private Residential Tenancies.
End of "no fault" ground for ending tenancy
From a landlord's perspective, the main benefit of a Short Assured Tenancy has always been that it can be brought to an end without further reason once the agreed period of the lease has expired. However, the most notable and widely-known feature of the new Private Residential Tenancy regime is the end of this "no fault" ground for repossession. Private Residential Tenancies will effectively be open ended, coming to an end only when the tenant wants to leave, or if the landlord can establish one of a number of specific grounds for eviction.
Grounds for eviction
So what are the grounds for eviction under the Act? There are 18 in total. The grounds anticipated to be of most common relevance are:
- The tenant has been in rent arrears for three or more consecutive months, or is otherwise in breach of their obligations under the tenancy agreement
- The tenant is not occupying the property as their only or main home
- Relevant criminal or anti-social behaviour by the tenant
- The landlord (or their mortgage lender) intends to sell the property
- The landlord intends to refurbish the property
- The landlord (or a family member) intends to live in the property as their only or main home
- The landlord intends to use the property for a non-residential purpose
- The property was let to an employee of the landlord and the tenant has since ceased to be an employee
If a landlord wants to remove a tenant from their property, they will first need to serve notice on the tenant specifying the grounds for their removal. If the tenant does not move out at the end of the required notice period, the landlord can then apply to the First-Tier Tribunal for Scotland for an eviction order.
Clearly the intention behind the grounds for eviction is to allow landlords to remove "problem" tenants, or to bring the tenancy to an end if the landlord genuinely needs the property back. Nonetheless, the need to demonstrate (and if necessary prove) grounds for removal, as opposed to simply bringing the tenancy to an end after an agreed expiry date, will be a significant additional hurdle for landlords even where grounds for eviction exist.
Furthermore, landlords should be warned against attempting to manipulate the grounds for removal. If a tenant feels that they have been misled into moving out of a property – for example, by the landlord falsely claiming that they intend to sell the property – they will be able to apply to the Tribunal for a "wrongful termination order". The lease will not be resurrected if a wrongful termination order is granted, but the landlord could be ordered to pay a sum equivalent to up to six months' rent to the wronged former tenant – and, perhaps more significantly, the landlord could later encounter difficulties in renewing their registration as a private landlord.
The benefit of simplicity
Inevitably, the prospect of open-ended tenancies is not a welcome one for many landlords. However, there is one key benefit of the incoming system – simplicity.
Readers familiar with residential letting will know that the current regime of Short Assured Tenancies and Assured Tenancies can at times seem like an administrative minefield. For example, a missing AT5 notice – or even a mistake in the order of signing of the required AT5 notice and the lease itself – can turn a Short Assured Tenancy into an Assured Tenancy, with the tenant then enjoying security of tenure which is arguably stronger than that under the new Private Residential Tenancy. (For example, the fact that a landlord wants to sell the property is not sufficient grounds for removal of a tenant under an Assured Tenancy.)
By contrast, from 1 December, the Private Residential Tenancy will be the only type of tenancy available, and there will be no requirement for pre-tenancy notices similar to the AT5. Landlords will be obliged to provide written lease terms to their tenants before the tenancy begins, but a model tenancy agreement has been prepared by the Scottish Government.
Given the open-ended nature of new Private Residential Tenancies, the ability of the landlord to increase the rent during the lifetime of the lease will be of increased importance. The Act allows landlords to increase the rent, but not more than once a year. The landlord will need to give the tenant at least three months' notice of any proposed rent increase and, in the intervening period, the tenant will have the right to apply to the local rent officer to determine the open market rent – in which case the determined open market rent will apply. However, tenants should be mindful that the rent set by the rent officer could be higher or lower than the rent originally sought by the landlord.
Rent control zones
One of the aspects of the Act to have attracted most attention is the new power for local authorities to apply to the Scottish Ministers to designate areas as "rent pressure zones". Landlords within any designated rent pressure zones will still be free to agree the starting rent with their tenant – but any subsequent rent increases will be limited to 1% above inflation (based on the Consumer Price Index). The extent to which rent pressure zones become a feature of the Scottish rental market remains to be seen, but inevitably this is likely to be of greater relevance to urban areas than to rural Scotland. The City of Edinburgh Council has already indicated its intention to apply for rent pressure zones in the capital.
Exceptions – leases which will not be Private Residential Tenancies
There are a number of important exceptions to the general rule that all residential tenancies created from 1 December 2017 will be Private Residential Tenancies. Of particular relevance to the rural sector:
- tenancies of residential properties let with at least two acres of agricultural land will not be Private Residential Tenancies,
- agricultural tenancies (including the incoming Modern Limited Duration Tenancy and Repairing Tenancy) are specifically excluded from the reach of the Act, provided that the let property is occupied by the person in control of the farm (to include agents and employees of the tenant farmer)
- holiday lets are excluded.
No doubt the introduction of Private Residential Tenancies will take some getting used to for landlords, tenants, agents and lawyers. In the meantime, if you have any queries in relation to the Act or the practicalities of putting in place a residential lease, please speak to your usual Brodies contact.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.