Second Consultation on a New Tenancy for the Private Sector: Analysis of Consultation Responses

Executive Summary

Introduction

This second consultation on a new tenancy regime for the private sector follows a 2014 consultation that set out the Scottish Government's initial proposals. As the first consultation paper noted, the overall aim of the proposed new system is to improve security of tenure for tenants, while giving suitable safeguards for landlords, lenders and investors. The Scottish Government has also made a commitment to developing a system that strikes a fair balance between the interests of tenants and landlords, and supports a professionally-run sector that is managed for the long-term benefit of landlords and lenders, as well as tenants.

In the second consultation, the Scottish Government set out those areas in which it intended to proceed with its initial proposals. Further detail has been provided about some proposals (particularly in relation to grounds for repossession), and in some cases proposals have been amended. Having invited views and gathered information about rent levels in the first consultation, the Scottish Government has now made specific proposals in this area. They also considered an approach which would enable Ministers to limit the levels of rent increases for sitting tenants in hot-spot areas.

The consultation ran from 30 March to 10 May 2015 and asked 26 questions. A total of 7,689 consultation responses were received. Of these 340 were standard responses and 7,349 supported one of the campaigns that were organised. The petition and postcard campaigns addressed only a small number of the issues covered by the consultation.

Type of respondent	Number
Standard, organisation respondents	147
Standard, individual respondents	193
Living Rent Campaign petition (e-petition and postcards)	2,127
Living Rent Campaign postcards (alternative text)	364
Scottish Association of Landlords e-petition	3,215
Scottish Association of Landlords form-based campaign	65
PRS4Scotland petition	1,553
Letting Agent campaign	25
TOTAL	7,689

Length of tenancy

The proposal is to introduce a statutory Scottish Private Rented Tenancy (SPRT) for all Private Rented Sector (PRS) lets. For the first six months of a tenancy a tenant would be unable to give notice and a landlord would be unable to regain possession of the property unless specified circumstances arose of the tenant being at fault or the landlord's mortgage lender intending to sell because the landlord had broken their loan conditions.

Although the standard would be for a six-month initial period, a tenant and landlord could agree a longer period. Alternatively, where the tenant has requested it and the landlord agrees, a shorter initial period could be agreed. After the initial period had expired, the tenancy would continue indefinitely. Both the tenant and landlord would then be able to give notice to end the tenancy at any time, with the required notice periods.

The majority of respondents (86%) disagreed with there being an initial tenancy period during which tenants and landlords would be unable to give notice unless certain specified circumstances existed. Those disagreeing included those supporting the Living Rent petition. However, the majority of standard respondents (77%) and those supporting the SAL form-based and the letting agent campaigns agreed.

The most frequently made point overall - and put forward by those supporting the Living Rent petition - was that there should be no initial period during which a tenant cannot leave and that tenants should be able to serve notice at any time. The most frequently raised issue amongst those agreeing with the proposal, including the SAL form-based campaign, was that the six-month period would be long enough to justify the resources required, in terms of both time and money, to set up a tenancy and lead to a reasonable rental income.

There was strong support for the proposal that, after the initial period, a tenant or landlord would be able to serve notice at any time with the relevant notice periods. A substantial majority of respondents (91%) agreed, including the majority of standard responses and those supporting the SAL form-based and the letting agent campaigns. Further comments tended to be limited, often focusing on the approach offering flexibility and/or clarity.

Notice to Leave

The proposal is that instead of two separate notices (Notice to Quit and Notice of Proceedings) only one notice would be required (Notice to Leave). The content of the Notice to Leave would be set out in secondary legislation rather than in the forthcoming Bill. This would allow stakeholders to be consulted during its development.

There was strong support (95%) for the proposal to combine the two separate notices into one Notice to Leave. Those agreeing tended to make only limited further comments that focused on the proposed change offering a simpler and easier to understand alternative to the current arrangements. The concerns of those disagreeing with the proposal, or who did not know, included that the change could erode rights of tenants.

Notice periods from landlord to tenant

The first consultation proposed there would be four notice periods from landlord to tenant. The revised proposal is for two notice periods as follows:

• Six months or less in the property = 28 days' notice (four weeks).
• More than six months = 84 days' notice (12 weeks).

The substantial majority of respondents (95%) disagreed with the proposed notice periods, including the majority of standard respondents (67%) and those supporting the Living Rent petition and the SAL form-based campaign.

Those who disagreed with the proposal often suggested alternatives. These were many and varied, although there were three most frequently made suggestions. These were that:

• Tenants should receive a minimum of 12 weeks' notice. This was the most frequently made suggestion overall and was made by those supporting the Living Rent petition amongst others. Other respondents suggested an eight week minimum.
• There should be three notice periods. A specific suggestion was: up to six months - four weeks; six to 24 months - eight weeks; and over 24 months - 12 weeks. This was the second most frequently made suggestion and was raised by those supporting the SAL form-based campaign amongst others.
• The longer notice period should be reduced to eight weeks. This was the third most frequently made suggestion and was raised by a number of standard respondents.

Those agreeing with the proposed notice periods sometimes noted their agreement with the issues discussed in the consultation paper, including that the first consultation's proposal for four notice periods may have been overly complicated and/or that the 16-week notice period may have been too long.

Accelerated notice period for rent arrears

An accelerated process for rent arrears cases is proposed. If a tenant has failed to pay any amount of rent lawfully due for a period of two consecutive months, then before taking any repossession action, the landlord would have to send the tenant a Notice to Leave saying they have fallen into rent arrears. If the tenant fails to pay the rent lawfully due by the end of the following month, repossession may be sought at the First-tier Tribunal. If after three consecutive months the tenant is still in rent arrears, further notice will not be required. Instead, a landlord would be able to immediately refer the case to the First-tier Tribunal. The amount of rent arrears would determine whether the mandatory or discretionary repossession ground would apply.

The majority of respondents (86%) disagreed with a landlord being able to serve a Notice to Leave when a tenant has been in rent arrears for two consecutive months. Those disagreeing included those supporting the Living Rent petition. However, the majority of standard respondents (77%) and those supporting the SAL form-based and the letting agent campaigns agreed with the proposal.

The period and/or extent of the rent arrears was the most frequently raised issue amongst those disagreeing with the proposal. Those supporting the Living Rent petition suggested that tenants should always receive a minimum of 12 weeks' notice of eviction, including in rent arrears-related cases. A concern of some standard respondents was that tenants could be required to leave their tenancy because only a small amount of their rent had not been paid or because of delays in processing benefit payments.

The most frequently given reasons for supporting the proposal were that it represents a fair compromise between offering security to tenants and giving confidence to landlords and that it is important of offer landlords sufficient safeguards to encourage them to remain in the market.

Both amongst those agreeing or disagreeing with the proposal, some respondents sought clarification about how the provision would work in practice. Specific queries included whether a landlord could serve a Notice to Leave as soon as the second months' rent fell due but was not fully paid or would need to wait until the end of the rental period.

The majority of respondents (76%) agreed that a landlord should be able to refer a case to the First-tier Tribunal when a tenant has reached three consecutive months of rent arrears. Those agreeing included the majority of standard respondents (70%) and those supporting the SAL form-based and letting agent campaigns.

The most frequently raised point by those supporting the proposal made support conditional on it being possible to issue the Notice to Leave as soon as the second month's rent falls due with the referral to the First-tier Tribunal being possible as soon as the third month's rent falls due. The next most frequently raised point noted the importance of landlords being able to rely on a secure and steady income stream.

Those who disagreed were most likely to be concerned that the three month period is too long and could result in landlords suffering significant financial losses, including because of the time taken to take a case to the First-tier Tribunal.

Another view amongst those disagreeing was that the First-tier Tribunal should always be able to exercise an element of discretion and particularly in cases where the amount of the arrears is relatively low.

Grounds for Repossession

The proposal is for there to be 11 grounds through which a landlord could seek repossession of their property. Eight of these would be mandatory grounds; this would mean that if the ground is established, the First-tier Tribunal would have to grant the landlord possession. However, there would be three grounds for which an element of discretion could be applied. The proposed grounds with a discretionary element are Grounds 6, 7 and 8. For Ground 6 the discretionary element would be if the arrears were less than one month's full rent or if failure to pay rent is due to a delay in housing benefit. For Ground 7 it would be less serious antisocial behaviour and for Ground 8 if the tenant has otherwise breached a non-mandatory tenancy agreement condition. Should these circumstances exist, the First-tier Tribunal would have discretion to consider whether wider circumstances justify ordering possession, even though the basic ground for possession is established.

The majority of respondents (71%) did not agree that the list of repossession grounds now covers all reasonable circumstances where a landlord may wish to recover possession. Those disagreeing included the majority of standard respondents (63%) and those supporting the SAL form-based and the letting agent campaigns. Respondents disagreeing with the exclusion of the no-fault ground appeared to be a key driver of disagreement that the proposed list covers all reasonable circumstances where a landlord may wish to recover possession.

Those who disagreed that the list of repossession grounds now covers all reasonable circumstances often pointed to other grounds required. The most frequently sought grounds (other than a no-fault ground) were to cover student lets or to allow a landlord who has received an Overcrowding Statutory Notice to be able to bring the tenancy to an end.

Those who agreed that the list of repossession grounds now covers all reasonable circumstances tended to make only limited further comments, generally focusing on the proposals appearing reasonable and likely to cover the majority of circumstances.

The majority of respondents (68%) disagreed that the First-tier Tribunal should have an element of discretion in grounds 6, 7 and 8. Those disagreeing included the majority of standard respondents (59%) and those supporting the SAL form-based campaign and the letting agent campaign.

Those who disagreed most frequently noted their disappointment that the grounds are no longer proposed as being entirely mandatory, particularly in the light of the decision not to include a no-fault ground for ending a tenancy. Further points raised by this group of respondents included that landlords should not be expected to and may not be able to cope with loss of rental income caused by delays in processing housing benefit.

Those who agreed with the proposal most frequently noted the importance of the First-tier Tribunal being able to exercise discretion. The next most frequently made point was that discretion should apply to some, if not all, of the other eight proposed grounds.

Proposed Grounds for Repossession

Respondents were asked to comment on each of the 11 proposed grounds and consider whether, from the details provided in the consultation paper, they agreed that each of the repossession grounds will work effectively. The most frequent suggestion by some degree was that tenants should have the right to contest all evictions. Those supporting the Living Rent petition were of this view^[1] and a number of standard respondents made a similar point about some or all of the 11 proposed grounds.

In terms of the specific grounds, the first five proposed grounds are all to be mandatory grounds and focus on the landlord or property. Respondents were relatively evenly divided on four of these grounds: Ground 1 (the landlord selling the home); Ground 3 (the landlord or a family member of the landlord wanting to move into the property as their principal home); Ground 4 (refurbishment); and Ground 5 (change of business use). The most frequently raised concern was around the reasonableness and practicality of expecting a landlord to contact a former tenant and offer them a new tenancy, or of requiring a landlord to cover a tenant's removal expenses. Those who agreed that these grounds would work effectively tended to make very limited further comments.

The clear majority of respondents agreed that Ground 2 (the mortgage lender is selling the home because the landlord has broken the loan conditions) would work effectively.

Grounds 6, 7 and 8 have a tenant focus and all are proposed as having both mandatory and discretionary elements. Ground 6 covers the tenant failing to pay full rent over three consecutive months. It would be a mandatory ground where the arrears equate to at least one month's full rent and discretionary if the arrears were less than one month's full rent or if failure to pay rent is due to a delay in housing benefit.

The majority of respondents (60%) did not agree that Ground 6 would work effectively. Those disagreeing included a little under half (48%) of standard respondents and those supporting the SAL form-based and the letting agent campaigns. The majority of advice service, industry body, legal body, letting agent, 'other' and individual respondents disagreed, while the majority of campaign body, landlord, local authority, tenant group and union respondents agreed.

One of the two most frequently raised issues by those disagreeing at Ground 6 was that the Ground will not work as currently proposed but would operate effectively if the Notice to Leave could be issued as soon as the second month's rent falls due, with the referral to the First-tier tribunal possible as soon as the third month's rent falls due. The other most frequently raised point was that, as currently constituted, the Ground would not address or prevent persistent arrears that are less than one month's rent.

Others who disagreed that Ground 6 would work effectively did so for very different reasons. These respondents were tending to look for the First-tier Tribunal to be able to exercise much wider discretion, with some suggesting there should be no arrears-related circumstances under which it should be mandatory to grant possession.

Comments made by those supporting Ground 6 tended to be brief and included that the proposal seems fair or reasonable.

Ground 7 covers a tenant displaying antisocial behaviour and would be a mandatory ground where a tenant has a relevant conviction, and a discretionary ground where judgment must be exercised.

Respondents were again divided on Ground 7 with no clear majority in agreement or disagreement. The largest proportion of respondents (46%) thought that Ground 7 would work effectively. Of the remainder, 45% thought it would not and 8% did not know. However, a small majority of standard respondents (52%) did support the Ground.

Those agreeing with this proposal sometimes welcomed the introduction of a discretionary element at this Ground, although the most frequently made comment by those who agreed - including those supporting the letting agent campaign - was that the ground should be mandatory.

Those who disagreed most frequently pointed to the difficulties in proving that antisocial behaviour is taking place and suggested that it would be helpful to set clear parameters as to the evidence considered reasonable to secure an eviction. It was suggested that the mandatory element should be extended to cover cases where confirmation of at least two instances of antisocial behaviour by tenants or their visitors at the property is given by the police or a local authority noise or antisocial behaviour team.

Others also commented on the definitions to be used, including noting that antisocial behaviour is very difficult to prove and that this places extra importance on definitions being clear and watertight.

Ground 8 covers a tenant otherwise breaching the clauses of their tenancy agreement and would be mandatory or discretionary depending on which of the clauses had been breached. The majority of respondents (60%) agreed that Ground 8 would work effectively. However, a number of respondents, drawn from those who answered yes, no, don't know or gave a mixed answer, felt that they needed first sight of a draft model tenancy agreement in order to assess the viability and then give a clear view on this Ground.

The final three Grounds have been added at this second consultation stage. Ground 9 covers abandonment, Ground 10 covers a property which was let to the tenant because they were employed by the landlord but the tenant is no longer employed by the landlord and Ground 11 covers a property normally needed to house a full-time religious worker of a religious denomination, and which is required for this purpose. In each case, a clear majority of those answering the relevant question agreed that these grounds would work effectively.

Rent reviews during a tenancy

The consultation paper comments that tenants need to be able to plan, and a system that provides greater predictability will enable them to do so and reduce the risk of them falling into rent arrears. To this end, The Scottish Government proposes that rent reviews should take place no more than once in any 12-month period. They also propose that, to help tenants to plan when managing their finances to cover the rent, landlords should have to give tenants 12 weeks' notice of a change in the rent.

It is also proposed that if a tenant thinks a rent increase would take their rent well over rents charged for comparable properties in the area, they should be able to refer the increase for adjudication, for example to the First-tier Tribunal.

Respondents were asked if they agreed that rent reviews should take place no more than once a year. There was very strong support for this proposal, with a substantial majority of all respondents (99%) being in agreement. Further comments were limited and frequently focused on the approach being fair, and reasonable and in line with normal current practice. The importance of the approach being clear and easily understood was also raised.

Some of those who disagreed with the proposal suggested that the reviews should be limited to no more than every 18 months. In contrast, it was suggested that landlords who have borrowed to purchase a property will be affected by changes to interest rates and may face increases to other costs and should not be constrained by an annual review.

A majority of respondents (72%) agreed that a tenant should receive 12 weeks' notice in advance of a change in the rent. Comments made by those supporting the proposals included that they are sensible and reasonable and would give tenants time to budget for any changes. Comments made by those who disagreed tended to suggest that the 12-week period is too long: the most frequently suggested alternative was that eight weeks' notice be required. Those supporting the Living Rent petition suggested that notice of increases must be no less than 12 weeks.

There was very strong support for the proposal that tenants should be able to refer what they regard as unreasonable rent increase for adjudication, with a substantial majority of all respondents (99%) in agreement. Further comments were limited and frequently focused on the approach being fair, and reasonable and in line with normal current practice. The importance of the approach being clear and easily understood was also raised. The most frequently made comment was that tenants should have the right to refer unfair rent levels and increases to a tribunal, where rents should be assessed on factors such as size, quality and location but not on market levels. An alternative, and also frequently stated view, was that the First-tier Tribunal should be required to determine a market rent, as opposed to any form of 'capped', rent.

The possibility of introducing further regulation

The consultation paper stated that the Scottish Government is not proposing any further general regulation of rents, but is considering whether specific measures may be justified to protect tenants from excessive increases in hot-spot areas. If taken forward, a possible approach would enable Ministers to limit the levels of rent increases for sitting tenants in hot-spot areas. As this is intended to be a means of responding to a problem affecting tenants in a local area, it is proposed that this power would be triggered by a local authority applying to Ministers for an affected area to be designated a 'rent pressure area'.

Respondents were asked if they thought there was a role for the additional regulation for area-based rent limits and what they saw as the advantages and disadvantages of such an approach.

This question had the highest number of responses of all questions in the consultation. The majority of respondents (70%) did not see a role for additional regulation.

Those respondents who disagreed frequently stated their broader and categorical disagreement with any form of rent regulation and there was a broad consensus that the sector should remain market-led. This was the view of signatories to the SAL and PRS4Scotland petitions and of those supporting the SAL form-based campaign. It was also the most frequently made comment amongst standard respondents who disagreed.

The most frequently made comment by those who did think there is a role for the additional regulation of area-based rent limits was that local authorities should be able to implement special local measures when housing costs are more than a third of tenants' incomes. This was the view of those supporting the Living Rent petition. Others who thought there is a role for additional regulation gave examples of difficulties they or others experienced in accessing affordable private rented accommodation, especially in certain parts of Scotland's cities.

Respondents were then asked what types of evidence local authorities should have to present to Ministers if applying to designate an area as a 'rent pressure area'. A number of respondents simply reiterated their disagreement in their further comment here. Others made a brief comment that the range of evidence set out within the consultation paper seemed reasonable or appropriate.

Those who went on to make more detailed comments sometimes suggested additional evidence sources that could be considered. The most frequently made suggestion was that an independent assessment of the impact of the proposed designation should be required.

Partial EQIA and BRIA

The final two questions asked for comments on the partial Equality Impact Assessment (EQIA) and the partial Business and Regulatory Impact Assessment (BRIA). A total of 118 respondents commented on the partial EQIA and 245 respondents commented on the partial BRIA.

With regard to the partial EQIA, around 1 in 6 of the standard respondents who commented simply suggested the partial EQIA appeared reasonable or to have covered the necessary issues.

However, the most frequently raised issue did not refer to any of the protected characteristics but rather suggested that the proposals do not represent the interests of landlords and tenants equally and/or that the partial EQIA does not consider whether the proposals discriminate against landlords. Around 1 in 4 of the standard respondents who commented were of this view.

In terms of the impact on tenants, a small number of respondents agreed with the partial EQIA's suggestion that the proposals would benefit vulnerable tenants, although other respondents were unconvinced. Suggestions as to particular types of tenants who could be adversely affected included students, tenants with no renting history or those who have lost a tenancy under the proposed repossession Grounds 6, 7 or 8.

Many of the comments focused on the partial BRIA's coverage of the impact of the proposals on landlords and letting agents. Although a small number of respondents did not think the proposals would have any negative impact on businesses (around 1 in 20 standard respondents), one of the most frequently made comments by some degree was that the partial BRIA under-estimates the likely negative impact on one or both groups. More than 3 in 5 standard respondents and those supporting the SAL form-based campaign were of this view. Many of these comments focused specifically on coverage of the student and holiday let markets.

The other most frequently raised issue (also raised by more than 3 in 5 standard respondents and those supporting the SAL form-based campaign) focused on the potential impact of seeking possession through the First-tier Tribunal, particularly if using Grounds 6, 7 or 8. Common concerns included the financial cost to the landlord of tenants breaching the terms of the tenancy but being allowed to remain in the property, or of it taking a long time to evict a tenant.

With regard to letting agents, it was suggested that the impact of landlords choosing to exit the sector, with the follow-on impact on letting agents' turnover and profitability, has not been properly considered.

A small number of respondents commented on the coverage of the impact on tenants, with issues raised including that some of the identified benefits for tenants are debatable and that if some landlords exit the sector and/or further investment in the sector is curtailed, choice will be reduced, standards may fall and rents may rise.