In the biggest change to the private rented sector in Scotland for a generation, new renting laws have come into force that will significantly affect the rights of 760,000 tenants.
From now on anyone signing a new tenancy will sign a new Private Residential Tenancy – a key feature being it will have no end date and can only be terminated by a tenant giving written notice to their landlord or by the landlord using one of 18 grounds for eviction.
This new tenancy will replace the Assured and Short Assured Tenancy Regimes. Please note, this does not affect existing tenancies which will continue on their existing Short Assured Tenancy (or Assured) agreements until terminated by either landlord or tenant.
There are numerous impactful changes and we will cover a few of them below…
THE NEW PRIVATE RENTED TENANCY - SUCCESSION RIGHTS...
Under the new lease a partner, direct family member or carer can inherit a sole tenancy if the tenancy has not been inherited before and it was the successor's principal home for 12 months or more before the death. For example if Joe Blogs was living with his partner for 12 months in your property and died, Joe Blogs’ partner could inherit the lease - however this can only be done once.
MANDATORY CLAUSES IN THE NEW PRIVATE RENTED TENANCY LEASE...
Under the new lease there are 24 Mandatory clauses that must be included within a tenancy agreement and these relate to the following topics:
- Landlord
- Letting Agent
- Factor/Managing Agents
- Tenants
- Details of the Let Property
- Date of Tenancy Start
- Occupation in Use
- The Rent
- Rent Receipts
- Rent Increases
- Deposit
- Notification about other Residents
- Overcrowding
- Subletting and Assignation
- Insurance
- Reasonable Care
- Respect for others
- Equality Requirements
- Repairing Standards
- Legionella
- Access for Repairs
- Data Protection
- Ending the Tenancy
- Declaration
Further information and example leases can be found at https://beta.gov.scot/publications/private-residential-tenancies-landlords-guide/
DISCRETIONARY CLAUSES IN YOUR NEW LEASE...
Your new lease, if you are writing it yourself, can have other clauses in it but these are non-mandatory.
These include the following:
- Communication
- Landlords’ Costs and Interests
- Contents and Condition
- Location Authority Taxes and Charges
- Utilities
- Absences
- Alterations
- Common Parts
- Private Garden
- Roof
- Bins and Recycling
- Storage
- Dangerous Substances
- Pets
- Smoking
- Guarantor
GROUNDS FOR REPOSSESSION...
The landlord can only end the tenancy if one of 18 grounds for possession apply. These are summarised below and noted if they are Mandatory (i.e. we would always get an eviction notice) or discretionary:
- Landlord intends to sell the property at market value within 3 months of tenant leaving (mandatory)
- Property is to be sold by mortgage lender (mandatory)
- Landlord intends to refurbish which will entail significantly disruptive works and it will be impracticable for the tenant to occupy the property during the work (mandatory)
- Landlord intends to occupy the property as their principal home for at least 3 months (mandatory)
- Family member intends to occupy the property as their principal home for at least 3 months (discretionary)
- Landlord intends to use property for non-residential purpose (mandatory)
- Property required for religious purpose (mandatory)
- Tenant is no longer an employee of landlord (mandatory if application made within 12 months of tenant ceasing to be employee)
- Tenant is no longer in need of supported accommodation (discretionary)
- Tenant is not occupying the property (mandatory)
- Tenant has breached tenancy agreement (but not rent clauses) (discretionary)
- Tenant has owed some rent for 3 consecutive months (mandatory if on day of tribunal hearing tenant owes at least one months’ rent and arrears are not due to delay/failure in benefit payment)
- Tenant convicted of using property for immoral/illegal purpose or convicted of offence committed at/near property (mandatory)
- Tenant has acted in anti-social manner (discretionary)
- Tenant associates with someone who has a criminal conviction or who has engaged in anti-social behaviour (discretionary)
- Landlord has been refused registration or had registration revoked (discretionary)
- Landlord’s HMO licence has been revoked (discretionary)
- Overcrowding statutory notice has been served on the landlord (discretionary)
NOTICE TO LEAVE BY LANDLORD...
If a tenant has rented a property from you for a period longer than 6 months, you are now required to give at least 84 days’ notice to leave – unless your tenant is at fault. What this essentially means is the end to ‘no-fault’ grounds of repossession.
Under the SAT regime you could simply end the tenancy by issuing a notice to quit at an ‘ish date’ (click here for more on ISH dates) without specifying any other reason or fault. Now though you will need to cite a reason (see Grounds of Repossession above) which may be due to a sale, major renovation, rent arrears etc. Tenants will ultimately have the right to challenge what they believe to be a wrongful termination and so a landlord may need to prove the Ground used, if challenged Even after your tenant has left the property and they think they have been misled into leaving the property, they can apply to the First-tier Tribunal for a 'wrongful termination order'
The New Act does away with the current system of a ‘Notice to Quit’ (we used to use a Form AT6 or Section 33 Notice and will continue to do so for any tenancies that remain on a Short Assured Regime). The new model removes the need for multiple forms and has replaced those with a simpler ‘Notice to Leave’. This details various important pieces of information that must be given by the tenant.
It must be noted though, that even though you need to give either 28 or 84 days notice you have to allow an additional 2 days to assume the tenant has received the notice before the clock starts to tick on the notice count down.
OTHER USEFUL INFORMATION TO NOTE ABOUT THE NEW PRIVATE RENTED TENANCY...
New 48 hours’ notice for access to repairs, unless there is an emergency - this is longer than the 24 hour notice before.
If the work to be carried out is deemed urgent or you need to assess what work you are obliged or entitled to carry out, then you don't have to give 48 hours' notice. However, unless it is an emergency, you should not enter the property without your tenant’s consent.
Your tenant must give you reasonable access to the property. This includes letting you:
- carry out work when you need to or are allowed to
- inspect the property to see if any work is needed
- carry out a valuation of the property.
RENT CONTROLS, INCREASES AND RENT PRESSURE ZONES UNDER THE NEW PRIVATE RENTED TENANCY…
Local authorities are able to ask the Scottish Government to impose rent controls in areas where there are excessive rent increases and a number of councils, including Edinburgh and Glasgow, have already indicated that they are considering zoning. Key criteria must be met concerning the rate of rental growth, undue hardship being caused to tenants and pressure on the authority to subsidise housing or provide additional housing.
A consultation would then need to take place by Ministers along with Landlords and Tenants. If an area does become a RPZ (Rent Pressure Zone) then this means that the landlord will only be able to increase rents by a percentage above the CPI (Consumer Price Index) plus 1% for up to 3 years.
However, this cap will only apply to existing tenancies - once your tenant moves out you can remarket the property at the new market rental value. In addition, if substantial changes have been made to the property a landlord could apply to a Rent Officer for an additional rent increase to reflect any improvements made to the let property. This does not include decoration.
Under the new legislation rents will be allowed to be increased once in a 12 month period per property - up until now landlords generally have not sought rent increases if they had good long term tenants who paid their rent on time and looked after the property.
However, Chapmans feel that there will be an upward trend on rental values as landlords seek to increase rent annually in order to mitigate the concerns of their property ending up in an RPZ and to ensure rents are kept at the highest market value possible. A further upside of the RPZ is that upward rent pressure may arise in rental properties near a RPZ boundary.
Please note that with regards to an increase in rent you are required to give tenants three months’ written notice. Tenants can challenge this rise if they think it is unfair.
OVERVIEW AND UPSIDES TO THE NEW PRIVATE RENTED TENANCY...
In essence, we cannot fully tell whether this will have a major impact on the sector until it beds in and the new leases are tested in practise and when issues are taken to the First Tier Tribunal.
However, on the face of it the upsides look to be as follows:
- Potential for longer term tenancies
- More confidence for tenants applying for a property knowing there is potential for a longer term tenancy (or being able to leave sooner if circumstances require).
- There is a little more protection for landlords if a tenant cannot afford to pay the rent - especially in the first 6 months of a tenancy.
- The likelihood of rent pressure zones will lead to annual rent rises becoming common practices.
The concerns we have are to do with the loss of the no fault ground of repossession - there will be more onus on the landlord to prove why they wish to end the tenancy. From a lenders point of view there is a mandatory ground of repossession - which is new - and relates to the property needing to be sold, so this should help with lender confidence.
And again, from a landlord’s point of view - if they wish to sell or move back into the property - this is also covered by the mandatory grounds. Our two main concerns at this early stage is the ability to prove antisocial behaviour has taken place and also how to terminate student tenancies in good time to allow us to confidently market them for the following academic year. However, we feel the latter will probably be solved by negotiation with the tenants and improved dialogue with them throughout the lease. It may however affect the traditional February/March time for remarketing the property (in Edinburgh) and lead to a surge of new tenancies being created in September with upward rent pressure due to a potential shortage of properties being available. Although we will need to rely on the tenants to end the tenancy, I am sure most tenants will not wish to remain liable for a high rent following the end of their academic year.
At Chapmans we rigorously reference our tenants and so we would hope to avoid any concerns of antisocial behaviour, however, we do feel that the new lease will favour the best tenants and those on the peripherals may lose out in the bid of secure good quality accommodation.
As with any change, it will take time for the real implications and effects to become clear along with what pitfalls will need to be avoided or mitigated going forward. We do feel extremely confident that we are keeping ahead of the game and working out how the new regime could work to the advantage of our landlords. And as always, we will keep you up-to-date with how we need to adapt to stay ahead of the curve.