How New Rent Regulations Affect Investors

The Scottish residential rental market is buoyant. Potential void periods are down and average rents have risen marginally.

Assured and short assured tenancies have been replaced with private residential tenancies (SATs). This new type of tenancy lasts until either party brings it to an end. SATs are subject to a number of statutory regulations.

Supply and Demand

The Scottish property market remains resilient. Across the country, there were 9% more net agreed sales above PS500,000 in Q2 2023 than in the same period last year, according to research from TwentyCi. But uncertainty over rent controls is affecting investor appetite for new build-to-rent (BTR) investment.

Edinburgh and Glasgow are struggling with a shortfall in properties available to rent, while demand is still sky high. When a rental property comes on the market it is often snapped up within days. In fact, letting agents are saying they have never been busier.

The way in which renting is regulated in Scotland is slightly different from England and Wales. As a general rule, tenants are granted private residential tenancies which are legally enforceable until a landlord evicts them for a reason such as a change of ownership or for a breach of the terms of the tenancy. Landlords and letting agents are not allowed to charge fees for granting or renewing a tenancy.

The Private Residential Tenancy

Most tenancies starting on or after 1 December 2017 will be private residential tenancies (PRTs). If you let properties under these new arrangements, you must give tenants the Scottish Government's model PRT agreement and a pack of easy read notes on their rights and responsibilities. You may also use a different type of tenancy agreement but it must comply with the law.

A landlord can increase the rent of a PRT only in certain ways. Landlords must consult tenants' and their representatives before putting up the rent by more than consumer price index plus one per cent. They must also give the tenant at least three months' notice.

The law also changes how landlords can get their property back if they need to do so. It introduces 18 new grounds for repossession. Some local authorities can apply to Scottish Ministers to have their area designated a "rent pressure zone". This will limit future rent increases in those areas by up to the consumer price index plus one per cent.

Rent Controls

In Scotland the rent regulation laws are based upon the statutory codes relating to private sector residential tenancies. This includes assured tenancies as well as regulated and part VII contracts.

It excludes tenancies in shops, office buildings, factories and restaurants but does include dwellings occupied as the principal home of the landlord. There are also special provisions for persons sharing accommodation with the owner of a property where this accommodation is not part of a full tenancy (see House rules for lodgers in addition to a tenancy agreement).

Currently there are caps on rental increases during private tenancies and a pause on evictions. However these are temporary measures.

The legislation does allow tenants to apply to a Rent Officer for an increase in costs to cover increased costs. Currently this can be up to 3% of the existing rent. The application has to be made to Rent Service Scotland and the landlord must tell the tenant they are applying.

Evictions

The process of ending a tenancy is different depending on whether the landlord is private, or a local authority, housing association or other registered social landlord. Landlords must follow specific procedures including giving the tenant the correct notice period. If the tenancy isn’t ended correctly the landlord may be charged damages.

In response to the cost of living crisis, emergency legislation introduced a rent increase cap for tenants in private rented accommodation and a moratorium on evictions. The restrictions will continue until 30 September 2022.

However, the moratorium won’t stop landlords from raising a court action to evict a tenant where the case is in relation to serious criminal or antisocial behaviour or if the landlord has arrears of rent. This will continue to apply unless an exemption applies. If you are worried about an eviction it’s best to get advice from your local Citizens Advice Bureau or a solicitor as soon as possible. They can check if you can challenge the eviction and help you write a letter.