It has been mentioned in previous blogs that the Scottish Government intends to bring forward a new Housing Bill in the latter part of this year which is to include, what were described as ‘meaningful rent controls’. The background to the intended new Housing Bill was the ‘New Deal for Tenants: Draft PRS Strategy’, published in December 2021, which was followed by an analysis of responses published in August 2022. Due to the limits of this blog, we will only look at the proposals in so far as they relate to rent controls, although there are other areas in the proposals that are relevant and may be the subject of further blogs.
On 29 September 2023, the Scottish Government published their ‘current proposals’ for what might be included in the forthcoming Housing Bill. The proposal document can be found here:
What is suggested is that it will be for Local Authorities, based on their assessment of local circumstances, to decide whether to introduce a Rent Control Area in whole or part of their local authority area, with the Scottish Government as the final decision maker (subject to an obligation to consult on proposals). Rent Control Areas will be subject to a ‘rent cap’ or a set formula which would limit rent increases.
Such control areas would be in place for a specified period, and subject to review ‘regularly’. To be renewed only if a local authority can demonstrate a continued need for rent control. The focus is therefore on rent increases, not initial rents. However, there is a sting in the tail. The current ‘temporary’ rent cap operates to limit ‘in tenancy’ rent increases, but that allows rents to be reset to market levels with new tenancies.
What is suggested in these proposals is that any rent cap (or statutory formula) will apply not only to ‘in tenancy’ rent increases, but also to any new tenancies that may be created if an existing tenancy comes to an end (effectively rolling onto the next tenancy). Rent increases would also be limited to once every year with no increase for the first year of a tenancy. The effect of such controls would therefore be to artificially depress rental prices over the term of the Rent Control Area. It that were to happen, assuming that rent controls are lifted from a particular area after being in place for a few years, it will lead to a sudden and sharp realignment of local rents rather than the more traditional gradual increases that move with the market.
The Scottish Government has suggested that they may build in what they call ‘safeguards’ that will allow ‘above rent cap’ increases. When that might be the case is not really expanded upon, but one example given an above rent cap increase to reflect the costs of certain improvements which are to the benefit of tenants.
What is suggested is that certain ‘new to market’ tenancies would be exempted from any rent controls. That would allow landlords to set a market rate for any new tenancies. Rent controls would thereafter apply to control subsequent increases and any subsequent tenancies.
- What ‘new to market’ may include is:
- The first tenancy of a property not previously let as a principal home.
- The first tenancy of a property after it is purchased with vacant possession.
- The first tenancy after been empty for ‘prolonged period’ (which is not defined).
- The first tenancy after a previous tenancy that was a regulated tenancy under the Rent (Scotland) Act 1984.
If these proposals seem familiar, that is because they are. They mirror quite closely the way Rent Protection Zones (RPZ) were supposed to work when the Private Housing (Tenancies)(Scotland) Act 2016 came into force back in December 2017. We of course have not seen a RPZ partly because it was left to local authorities to pursue the creation of a RPZ and to empirically justify that controls were necessary. Something they were either unwilling or unable to do. The proposals were only open for comment and response for a very short period, and that period has now passed and all responses that will be considered are now in. There is the further question about how all of this may be monitored or policed, but further details will follow in due course.
If you require any further information or advice, please contact us or watch our blogs for further updates.