Major changes to the tenancy laws in Scotland will give more security to tenants, but also produce hazards for landlords.
The Private Housing (Tenancies) (Scotland) Act will commence in stages later this year and will come into force in 2017. The Act sees the current system of tenancy agreements swept away and replaced with a single ‘private residential tenancy’ (PRT).
The Scottish Government claims the Act that was driven by a wish to given more security to tenants, will also safeguard lenders, landlords and investors.
But there are concerns that provisions to limit rent rises and repossess properties are going to adversely affect landlords.
The main change for tenants will be that their tenancies can continue indefinitely, unless the landlord is able to invoke specific criteria to end them. The no fault ground for eviction disappears. Tenancies will also last for a minimum of six months, unless both parties agree otherwise.
Another restriction on landlords is that rents can only be reviewed annually, with at least three months advance notice given of any intended increase. Tenants can appeal to the rent officer who will then set an ‘open market rent’. This, in turn, can be challenged by the landlord at the First-tier Tribunal (FTT).
There are worries that this change may have unfortunate consequences for both sides. Landlords may find it hard to fix rents that anticipate all their costs over a year. This could mean some having problems keeping up mortgage repayments. Equally, there is a risk that rent as set too high as an insurance against unforeseen eventualities, to the detriment of tenants.
Another hazard for landlords is that they may find their properties in a designated ‘rent pressure zone’. This will mean only being allowed to increase rents by a percentage above the consumer price index plus one per cent for up to five years.
But perhaps the biggest change is that the Act makes it much harder to repossess a property at the end of a tenancy. The process of terminating has arguably been streamlined, but the practice of repossession will get harder.
For example, there will be no need to serve both a Notice to Quit and a Notice of Proceedings. Both are replaced by a single Notice to Leave. But this can only be served on the basis of at least one of the fewer available grounds for repossession.
There is a further significant potential issue over repossession. Where tenancies have been in place for more than six months the landlord must give 12 weeks’ notice. There are concerns that a tenant could leave immediately a Notice to Leave was issued, but the landlord will not gain possession for 12 weeks. There may also be an impact on rent revenue during the notice period that could make it hard to meet buy-to-let mortgage payments.
If a Notice to Leave is ignored, the landlord should apply to the FTT, which will issue an eviction order provided the statutory grounds for doing so have been established.
Most of these are mandatory, which means the court must grant an order. They include if the property is 'intended' to be sold by the landlord with a reasonable prospect of succeeding, or is sold by the lender, criminal behaviour by the tenant, breach of the tenancy agreement or rent arrears of at least three consecutive months.
Tenants, in turn, may apply to the FTT for a Wrongful Termination Order, which the FTT may make if it was misled into issuing an eviction order, perhaps over the ‘landlord intends’ grounds. But it is hard to see how a tenant will prove that a landlord did not have a sale intention.
Only one outcome is currently clear from the new Act: It is going to significantly change the relationship between landlords and tenants.