The Private Housing Tenancies (Scotland) Bill was introduced to the Scottish Parliament on 7 October 2015.
In the consultations which preceded the Bill, the possibility of the introduction of rent controls was the most contentious issue for many landlords and investors who argued that rent controls would discourage investment in the private rented sector.
In the Policy Memorandum published alongside the Bill, the Scottish Government states that it is not proposing the introduction of national rent controls "which, while seeking to tackle high rents in the short term, could jeopardise efforts to improve affordability through increasing supply by discouraging much-needed investment". The rent control measures which have been included in the Bill are described in the Policy Memorandum as follows:
The Bill provides that rent increases can take place no more than once in any 12 month period. Landlords will have to give tenants at least 12 weeks’ notice of a change in the rent, a measure which is intended to provide tenants with "sufficient notice to help them plan their finances".
Protection against rent hikes
Under the Bill, if a tenant considers that any proposed rent increase would take their rent beyond rents charged for comparable properties in the area, they will be able to refer the increase for adjudication to a rent officer at Rent Service Scotland. This measure is intended to protect tenants against the possibility of "unscrupulous landlords using large and unjustified rent increases to force tenants from their homes where they are otherwise complying with their tenancy agreement".
Capping rent increases for sitting tenants in areas where rents are rising excessively
The Policy Memorandum explains that, under the Bill, Scottish Ministers will have power to cap levels of rent increases for sitting tenants in areas where rents are rising "excessively". The use of this power would be triggered by a local authority applying to Scottish Ministers for a specified area to be designated as a "rent pressure zone". Any application to designate an area as a "rent pressure zone" would have to be accompanied by detailed supporting evidence. Scottish Ministers would then have power to decide whether to cap the rate of rent increases in the designated zone for a limited period, which could not exceed five years.
In relation to capping rent increases, is there any guidance on what 'excessive' means?
The Bill itself does not include any reference to (let alone a definition of) 'excessive'. The Policy Memorandum refers to "excessive" rent increases, but does not provide any in-depth guidance on what the term means. There is more detailed discussion in the second consultation paper which preceded the Bill. This contains the following comment:
"Local authorities would have to present evidence to show that rents for sitting tenants in the area were increasing excessively. This evidence may include: statistics on average rent rises, income growth and general price inflation; an increase in the number of rent increases being referred to the First-tier Tribunal; and an increase in the number of PRS tenants approaching the council with concerns over their ability to afford excessive and unjustified increases. It would be for Ministers to decide whether, in the light of the evidence presented, to limit the rate of increase in a designated area for a time-limited period."
Do the rent capping provisions in the Bill still allow inflation or some other index linked increases?
Yes. The Bill (at section 31) contains a formula setting the cap at no less than the Consumer Price Index (CPI) plus 1%. This is commented on in the Policy Memorandum as follows:
"To safeguard the interests of responsible landlords, Ministers would be under duties to ensure that any cap took account of inflation and other reasonable costs and to consult tenants, landlords and other relevant stakeholders before designation. Any cap would be at least the Consumer Price Index (CPI) plus 1%. As an additional safeguard, landlords would be able to increase the rent reasonably to recover their legitimate property improvement costs (for example, if they had recently replaced the boiler in their property)."
We expect there to be detailed consideration of the rent control provisions during the Bill's passage through the Scottish Parliament and we will be following its progress with interest.
The Bill (and related publications) are available on the Scottish Parliament's web page.