Rent Control and Prohibition of Evictions in Scotland
The Scottish Parliament last week introduced and passed in near record time the Cost of Living (Tenant Protection) (Scotland) Bill. It will become an Act as soon as Royal Assent is given and comes into force the following day.
While this will only be relevant in Scotland the structure it sets up is quite interesting as there will no doubt be pressure to do the same thing in England. However, I am not suggesting for a moment that the current government is very likely to succumb to that pressure and do anything like this in England.
The bill actually does two very distinct things:
- It creates a form of in-tenancy rent control;
- It makes it much harder to evict tenants for breaches of their tenancy agreement.
Rent Control
The form of control here is what is commonly referred to as third generation rent control (pages 9-10 of this paper) has a good short explainer of the varying rent control structures). What this ultimately means is that rents are controlled within tenancies but float freely between tenancies.
The Bill modifies existing private residential tenancy law in Scotland to limit the amount that landlords may raise rents by during a tenancy. This is modifying both the Private Housing (Tenancies) (Scotland) Act 2016 as well as the Housing (Scotland) Act 1988 so it will cover almost all extant private sector tenancies in Scotland. The Bill restricts rent increases to the “Permitted Rate”. The bill sets this at 0% so prevents rent rises at all but Scottish Ministers do have the power to increase that rate by way of regulations. The restriction is also back-dated to 6 September 2022 which is when it was first announced by the First Minister so anyone who rushed through a rent increase on the back of that speech will find that it is ineffective.
A landlord can apply to the Rent Officer for an increase. If the increase is only at or less than the Permitted Rate (clearly that will not be the case right now) then the Rent Officer must make that increase. If it is more than the Permitted Rate then the Rent Officer must determine the rate. The landlord can only seek an increase over the Permitted Rate from the Rent Officer if his mortgage, insurance, or service charge costs (called the Property Costs in the Bill) have increased. The Rent Officer must then set the rent as the lower of either half of the increase in the Property Costs or a 3% increase in the existing rent. If the landlord has asked for a lesser sum than these two figures, then the Rent Officer will set that figure.
The decisions of the Rent Officer can be appealed to the First Tier Tribunal.
Therefore, it can be seen that the Bill is absolutely intending to ensure that landlords absorb a share of any increase in costs as even if the Permitted Rate is increased landlords are not going to be able to increase the rent to offset more than half of any increase in costs they have to bear.
Protection From Eviction
Rent control is only have the picture however. The Bill also prevents anyone from being evicted from their property by prohibiting a decree of removing (the Scots version of a Warrant of Possession) as from 6 September 2022. To be more precise this is not a prohibition but actually gives a tenant six months notice of the making of the decree. There are exemptions for criminal and anti-social behaviour, substantial arrears and landlords needing property back to sell due to financial hardship or to occupy themselves. However, it is worth noting that the Bill also amends previous legislation such that substantial rent arrears means that the tenant is in six months of arrears, which is rather higher than now. The clear direction of travel is to force landlords to bear more of the debt burden and to given them options to leave the sector if they want out.
Sunset Clause
The Bill has a built in expiry date, commonly known as a sunset clause. This brings the provisions in it to an end on 31 March 2023. However, it is not quite that simple as Scottish Ministers can extend that date to 30 September 2023 and ultimate 31 March 2024. They may also make regulations to end the provisions earlier but I do not really see that happening. If they wanted to extend this beyond March 2024 then it will need new legislation. I suspect that the Scottish Ministers will see what emerges in terms of legal challenges and how the market reacts and may well then seek to make this permanent but that will require them to return to the Scottish Parliament with a new Bill to modify the sunset provisions.
Will It Work?
This is a bit of a dangerous gamble by the Scottish Government. If it does not work then they will have shot their bolt and will not have much more in terms of further options. They will also get the blame from tenants if they see little improvement. There is also unlikely to be much longer term reduction in rent levels. Third generation rent control does not really reduce the overall increases in rent over the longer term as rents free-float between tenancies and so then rise to the market level. What third generation rent control does do is motivate tenants not to leave property, even where they might be better served by moving because while in tenancy their rent is restricted while by moving they will have to pay the (often higher) market level. That means that there is less property churn and lower availability for those coming into the market looking for properties. Given that Scotland is already suffering from a shortage of available rented property it seems likely that this Bill will make that problem worse rather than better. Ironically therefore, the Bill might actually increase rent levels by reducing supply of property coming on to the market at a time of high demand leading to surges in market rents as tenants compete for scarce property.
What of England?
Anyone who reads my writing regularly will know that I am not qualified in Scotland despite the fact that I know a fair bit about Scots law. So inevitably most readers will want to know whether the Scots provisions can be enacted in England. At the moment I do not see that happening. The current government, with its growth agenda, is not one I can see showing much interest in any form of price control, and that includes in the rental sector. The current utility caps are not really a form of price control as the utility companies are going to be paid the difference between the price cap and their actual charges by the state. However, it is worth noting that the proposals to get rid of s21 and to move to tenancies that were periodic from the start with no defined fixed terms as was found in the Fairer Renting White Paper owed a great deal to the structure of the Private Housing (Tenancies) (Scotland) Act 2016. So it is not inconceivable that the rent control proposals will appear in some form, especially under a different government. As regards further restrictions on eviction I have already written about this and I both do not see it happening at the moment and have some doubts as to whether it will be lawful to do so.