Housing (Scotland) Bill - use of powers: consultation analysis - final report

Chapter 2: Properties subject to modified rent control area restrictions

The Bill includes a provision that would enable Scottish Ministers to specify the circumstances in which a landlord of a property in a rent control area could increase the rent by more than the level of the rent cap. This would be done through regulations, and those regulations could also specify whether a landlord would be required to obtain approval for such an increase, and any approval process. The purpose of this power is to ensure that the individual circumstances of landlords who may be disproportionately impacted by rent control can be taken into account, balancing the interests of tenants with the property rights of landlords.

The consultation paper noted two specific circumstances where it may be appropriate for landlords to be allowed to raise the rent for a property in a rent control area by more than the rent cap:

• where significant improvements to the property are undertaken
• where a landlord is letting a property to a tenant at a rent significantly below market rates

There was also an opportunity for respondents to highlight other circumstances where a modified rent cap might be appropriate.

Landlords who charge rent significantly below advertised rates

The consultation paper reported that engagement with stakeholders has highlighted that landlords can choose not to increase rents for sitting tenants every year or choose to only increase rents by a small amount, even though market changes would allow them to increase rents at a higher rate. It went on to note that landlords who have historically charged a rent significantly lower than that for similar properties in the area could be disadvantaged relative to those landlords who are already charging market rent when a rent control area is put in place. Knowing that this could happen might make landlords less willing to charge a rent below market rent in future, or more likely to increase rents regularly during a tenancy, where they would not have done so before.

The consultation sought views on allowing landlords to increase the rent above the level of the rent cap between tenancies, in cases where the rent for their property is significantly below the advertised rents for similar properties in the same area.

Question 16: Should landlords be able to increase their rent by more than the level of the rent cap at the beginning of a new tenancy, where the previous tenancy was let significantly below market rates?

A total of 4,683 respondents (or 98% of all respondents) answered the closed element of Question 16. Responses by respondent type are set out in Table 11 below.

Table 11: Question 16

Respondent type	Yes	No	Total
Advice organisation and third sector	5	5	10
Developer or investor	15	0	15
Local authority	12	1	13
Private landlord, letting agent or their representative bodies	40	0	40
Professional or representative body	3	0	3
Public body	2	0	2
Social landlord or their representative bodies	5	2	7
Tenant, community group or union	3	3	6
Total organisations	85	11	96
% of organisations	89%	11%	100%
Individuals	353	86	439
% of individuals	80%	20%	100%
All non-campaign respondents	438	97	535
% of all non-campaign respondents	82%	18%	100%
Campaign respondents	0	4148	4148
% of campaign respondents	0%	100%	100%
All respondents	438	4245	4683
% of all respondents	9%	91%	100%

A substantial majority of respondents – 91% of those answering the question, including ‘Campaign’ respondents – did not think landlords should be able to increase their rent by more than the level of the rent cap at the beginning of a new tenancy, where the previous tenancy was let significantly below market rates.

However, a clear majority of non-campaign respondents – 82% of those answering the question – supported landlords being able to increase the rent. This rose to 89% of organisation respondents but fell to 80% of individuals answering the question.

All of the ‘Private landlord, letting agent or their representative bodies’ and ‘Developer or investor’ respondents supported a modification, as did the clear majority of ‘Local authority’ respondents. ‘Advice organisation and third sector’ and ‘Tenant, community group or union’ respondents were evenly divided on the possible modification.

Please explain your answer

Around 480 non-campaign respondents explained their answer at Question 16. ‘Campaign’ respondents also made a comment.

Concerns about application of a modified rent cap in relation to below-market rent at the beginning of a new tenancy

Those who did not agree that landlords should be able to increase their rent by more than the level of the rent cap at the beginning of a new tenancy were most likely to raise concerns about undermining the overall efficacy of rent controls, with the suggestion that introducing modifications to the rent cap in general, and this modification in particular, would lead to complexity, particularly for tenants, and an overall approach that is neither clear nor consistent. Associated points included that modifications would make:

• enforcement of regulations difficult, including because of the potential for loopholes to be created
• it more difficult for tenants to understand and potentially exercise their rights

‘Campaign’ respondents, ‘Individuals’ and ‘Tenant, community group and union’ respondents were among those highlighting these issues, with further points raised including that individualised modifications would lead to a system that is a repeat of the rent adjudication system, which was described as promoting higher ‘new market rent’ levels.

Other frequently made points also related to market conditions and affordability and included that landlords are businesses and have had ample opportunity to make business decisions to increase their rents. It was also suggested that:

• in a rent control area, the CPI +1% formula will already enable landlords to make “above inflation profits”
• if a landlord is struggling to make a profit, they have the option to sell

There was a view that, at a point when market rates are already unaffordable, the introduction of the new tenancy modification would result in rent inflation, which would affect low-income renters in particular. This potential to result in increases in rental values was seen as directly contrary to the intended purpose of the legislation, and it was suggested that the aim should not be to allow all rents to rise to a ‘market rate’ that is already unaffordable to most.

Finally, there was a concern that permitting landlords to increase rent by more than the level of the rent cap at the beginning of a new tenancy could result in landlords seeking to evict tenants in favour of starting a new tenancy at a higher rate. An ‘Advice organisation or third sector’ respondent amongst those raising this possibility reported that they had seen this type of practice when the temporary rent cap brought in by the Cost of Living (Tenant Protection) Act 2022 was in place.

Views from the consultation sessions

Tenant participants thought that, if this modification were to be permitted, the rules around eviction would need to be tightened. They were concerned that otherwise it could create an opportunity or loophole for landlords to force the end of tenancies to increase the rent.

Reasons for supporting the proposal

In their comments in support of the proposals, a number of respondents echoed the suggestions set out in the consultation paper that landlords should be able to raise the rent by more than the rent cap where significant improvements have been undertaken or if they have been letting a property at a rent significantly below market rates. The approach was described as fair or reasonable, and sometimes simply linked to landlords being able to ask for market level rent if they so choose.

Further comments tended to address the circumstances set out in the consultation paper, namely that significant improvements to the property may have been undertaken or that the landlord may have been letting a property at a rent significantly below market rates. In relation to improvements, it was noted that landlords will often carry out major improvements between tenancies, with a view that this should be encouraged rather than disincentivised. It was also noted that these works may be connected to meeting new regulatory standards for the sector, for example relating to Energy Performance Certificates (EPCs). The relationship between improvement works and rent levels is covered in greater detail at Questions 18 - 21.

Points raised in relation to having been renting at below market rates included that it is fundamentally unreasonable and unfair to penalise a landlord because they have been, and have continued to, rent to an existing tenant at below market rate. It was suggested that this would equate to penalising the good practice of landlords who have been doing their best to support existing tenants by not bringing in rent increases, with ‘Private landlord, letting agent or their representative bodies’ respondents amongst those reporting that this is not unusual practice. This included respondents who identified themselves as private landlords reporting that they have done, or continue to do, this themselves.

Examples of when below market rent may be charged included for long-standing tenants. A specific example given was of a rural landlord charging a retired tenant a lower rent because they know them personally and wish to help them. There were also references to:

• when renting to family or friends
• employment-linked housing and properties resumed from agricultural tenancies or that have been let under a protected tenancy (as at Question 11 above)
• when making properties available to people seeking refuge, for example through the Homes for Ukraine scheme

However, it was also noted that charging a below market rent might only be affordable for the landlord for a certain period. In terms of the potential implications of not bringing in a provision which allows them to increase the rent between tenancies, there was reference to the potential to create a two-tier market where properties newer to the market have rents roughly aligned with market levels and others which have been let long-term, particularly where the landlord has not been proactive with annual rent increases, have rents well below market levels. Other concerns related to:

• undermining financial viability, with landlords potentially leaving the sector, and investors choosing not to enter, or increase their exposure to, the sector
• encouraging or essentially forcing landlords to raise rents at every other opportunity, including in advance of the Housing Bill provisions coming into force

This latter point was linked to the potential to drive, rather than limit, rent inflation.

Question 17: Should the rent be a certain amount below advertised rents for similar properties for this allowance to apply?

A total of 4,638 respondents (or 97% of all respondents) answered the closed element of Question 17. Responses by respondent type are set out in Table 12 below.

Table 12: Question 17

Respondent type	Yes	No	Total
Advice organisation and third sector	3	5	8
Developer or investor	9	6	15
Local authority	7	5	12
Private landlord, letting agent or their representative bodies	9	30	39
Professional or representative body	0	2	2
Public body	0	0	0
Social landlord or their representative bodies	4	3	7
Tenant, community group or union	2	4	6
Total organisations	34	55	89
% of organisations	38%	62%	100%
Individuals	105	296	401
% of individuals	26%	74%	100%
All non-campaign respondents	139	351	490
% of all non-campaign respondents	28%	72%	100%
Campaign respondents	0	4148	4148
% of campaign respondents	0%	100%	100%
All respondents	139	4499	4638
% of all respondents	3%	97%	100%

A substantial majority of respondents – 97% of those answering the question, including ‘Campaign’ respondents – answered no to this question. Further comments suggested that for many of these respondents, including ‘Campaign’ respondents, their opposition was to there being a modification (as at Question 16), rather than the circumstances under which a modification might be an option.

A majority of non-campaign respondents – 72% of those answering the question – did not think the rent should be a certain amount below advertised rents for similar properties for this allowance to apply. This rose to 74% of individuals but fell to 62% of organisations.

‘Developer or investor’, ‘Local authority’ and ‘Social landlord or their representative bodies’ were the only groups of respondents in which the majority agreed that the rent should be a certain amount below advertised rents for similar properties for any modification to be available.

Please explain your answer. If yes, what amount or percentage below the advertised rent for similar properties should a rent be before this should be allowed, and why?

Around 410 non-campaign respondents explained their answer to Question 17. ‘Campaign respondents’ also made a comment.

Most of those who did not agree with the proposal in this question, including ‘Campaign’ respondents, did so because they did not think there should be any potential modifications to rent control arrangements. Further comments very much reflected the arguments set out in the ‘Overarching themes relating to rent controls’ chapter (above), including in relation to clarity and affordability. Other points included that there is no clear definition of market rent, and it was also suggested that the lack of reliable rent data creates problems and inconsistences with Rent Service Scotland’s assessments.

Reasons for disagreeing with a set amount or percentage

An alternative perspective, but again very much reflecting issues set out in the ‘Overarching themes relating to rent controls’ chapter, was that there should be no rent controls and/or that market circumstances should determine the rent. Others who had not agreed that the rent should be a certain amount below advertised rents were disagreeing with the suggestion that an amount or percentage below market rent should apply; it was noted that a rent is either below market level, or it is not. ‘Individual’ and ‘Private landlord, letting agent or their representative bodies’ were amongst those making these points.

There were also some concerns about the practicality and/or bureaucratic burden associated with setting a fixed threshold. Potential challenges identified included the lack of market evidence in some places, and that advertised rents may not always reflect actual agreed rents. It was reported that platforms often show aspirational pricing rather than settled market values.

The inherent variability in market rents was also highlighted, and it was noted that they can reflect the characteristics of individual properties as well as a range of localised factors such as street-level desirability and proximity to amenities; it was reported that two properties in the same postcode can command very different rents.

Issues such as these were seen as suggesting that a more flexible, alternative approach to a set amount or percentage could work better, with possible approaches including allowing landlords to provide evidence that the previous rent was significantly below comparable properties in the immediate area, using a range of sources (e.g. letting agent data, rental listings, or valuation reports). It was suggested that the Scottish Government, potentially with input from local authorities or independent valuation bodies, should develop guidance or a framework for determining when a property is being rented at under possible value.

Amount or percentage options

Respondents who did support an amount or percentage approach were most likely to suggest that 10% below market level would seem to be a reasonable benchmark. The 10% level was described as fair, significant or impactful, demonstrable with reasonable ease, easy to understand and apply, and measurable. It was also suggested that this level of increase should help support the financial viability of well-meaning landlords, and that a figure below 10% risks disadvantaging well-meaning landlords and causing them financial difficulty.

A range of other options were also proposed, including:

• a figure of 20% below market value
• related to, or the same as the allowance for rent increases i.e. CPI +1% or 6%, whichever is the lower
• a figure of 5% or more below market rent
• below local median, reflecting the criteria as is already applied to MMR, i.e. rent charged should be no higher than the median rent for the private rented sector at BRMA

An alternative suggestion was that two or more years of no rent increase could be an appropriate threshold.

Views from the consultation sessions

Tenant participants thought that any set percentage for rent should be significantly below similar properties, at around 25 – 30%.

They also called for any approach to be tightly regulated.

Landlords who make improvements to their property

The consultation paper noted that private landlords are already required to ensure that any property they rent to tenants meets the repairing standard, and it is not anticipated that landlords would be able to increase rents above the level of the rent cap:

• to reflect the cost of meeting these minimum standards
• for meeting the cost of ongoing regular maintenance of a property
• where improvements have been fully paid for by grant funding
• where the tenant has paid for the improvement themself

However, the consultation paper also noted that the Scottish Government does want to incentivise landlords to go beyond minimum standards and make improvements that bring additional value to the property, and which have the potential to bring additional benefit to the tenant.

The consultation sought views on whether landlords in rent control areas should be allowed to increase rent by more than the rent cap, where certain types of improvement have been undertaken and after the work has been completed.

Question 18: Should landlords be able to increase rents by more than the level of the rent cap to recover costs, where they have undertaken certain improvements which may enhance the rental value or bring additional benefit to the tenant?

A total of 4,682 respondents (or 98% of all respondents) answered the closed element of Question 18. Responses by respondent type are set out in Table 13 below.

Table 13: Question 18

Respondent type	Yes	No	Total
Advice organisation and third sector	5	5	10
Developer or investor	15	0	15
Local authority	6	6	12
Private landlord, letting agent or their representative bodies	39	1	40
Professional or representative body	3	0	3
Public body	2	0	2
Social landlord or their representative bodies	6	1	7
Tenant, community group or union	1	7	8
Total organisations	77	20	97
% of organisations	79%	21%	100%
Individuals	343	94	437
% of individuals	78%	22%	100%
All non-campaign respondents	420	114	534
% of all non-campaign respondents	79%	21%	100%
Campaign respondents	0	4148	4148
% of campaign respondents	0%	100%	100%
All respondents	420	4262	4682
% of all respondents	9%	91%	100%

A substantial majority of respondents – 91% of those answering the question, including ‘Campaign’ respondents – did not think landlords should be able to increase rents by more than the level of the rent cap to recover costs, where they have undertaken certain improvements which may enhance the rental value or bring additional benefit to the tenant.

However, a clear majority of non-campaign respondents – 79% of those answering the question – supported landlords being able to increase the rent. Organisations and individuals were in accord on this issue, with 79% of organisations and 78% of individuals agreeing.

All of the ‘Developer or investor’, ‘Professional or representative body’ and ‘Public body’ respondents supported the potential for modifications, as did the considerable majority of ‘Private landlord, letting agent or their representative bodies’ and ‘Social landlord or their representative bodies’ respondents. ‘Advice organisation and third sector’ and ‘Local authority’ respondents were evenly divided, and a clear majority of ‘Tenant, community group or union’ respondents did not support the modification option.

Please explain your answer.

Around 490 non-campaign respondents explained their answer to Question 18. Campaign respondents also made a comment.

Concerns about the application of a modified rent cap in relation to improvements

As with the new tenancy modification, frequent concerns (particularly from ‘Campaign’ respondents) included that modifications will lead to a patchy system, with little protections for tenants and unequal and unclear rights.

There was also a view that quality issues should be addressed through universal standards, rather than potential modifications to the application of rent controls, with ‘Local authority’ respondents amongst those commenting that landlords should be carrying out routine maintenance and repairs as standard, or that there are already obligations in place to bring rented properties to certain standards in relation to net zero and energy efficiency, with set timescales for improvements to be carried out. It was also noted that landlords will still be able to increase rents by CPI +1% up to a maximum of 6% every year, with a view that this should allow them to make necessary upgrades. There was also reference to many improvements, especially in older rural stock, that are being supported by grants and advice.

With specific reference to being able to increase rents to recover the cost of improvements, concerns or problems highlighted included that:

• there is no data on the conditions of individual properties and hence no starting point for an evaluation of improvements
• there is a risk that the modification could result in ‘renovictions’, whereby landlords use a modification to increase the rent beyond what is affordable, and tenants have to move out as they can no longer afford the rent
• any improvement will increase the value of the property and is essentially an investment which will be ‘paid off’ if and when it is sold
• tenants could be left to police the system but may not feel able to risk doing so, because of a fear of eviction or retaliation from their landlord

A ‘Local authority’ respondent confirmed that the modification would be difficult for local authorities to monitor and would need additional resources.

It was also noted that the proposed rent control formula does not take quality of housing into account in the calculation of the cap; the associated concern was that landlords currently providing poor quality housing would effectively be rewarded – via a modification – for bringing properties up to a better standard.

Views from the consultation sessions

Tenant participants considered that private landlords should not be able to recoup the costs of improvements as, if they lived in the property, they would be expected to take on the costs.

Reasons for supporting application of a modified rent cap in relation to improvements

Along with general comments that the approach seems fair and reasonable there were concerns that not taking this approach may result in some landlords leaving the sector, including because their businesses are no longer viable.

The most frequently made case for a potential modification was that it would encourage investment, and that landlords might not choose or be able to make improvements if it is not in place. ‘Developer or investor’ and ‘Private landlord, letting agent or their representative bodies’ respondents were among those highlighting this issue. They suggested that landlords might otherwise restrict property work to essential repairs only and that, over time, this will lead to a deterioration in the condition of the PRS housing stock. Reflecting this wider concern, a respondent who had identified themselves as a private landlord commented that they buy tenement flats that have not been well looked after and carry out significant improvements but would not be able to do so unless this could be reflected in the rent.

‘Social landlord or their representative bodies’ respondents noted a potential impact on mixed ownership blocks, highlighting the already considerable difficulties in gaining consents for repairs and maintenance in mixed tenure tenements. While work is underway through the Tenement Maintenance Working Group to resolve some of these challenges, restrictions on rent increases could result in private landlords being less likely to agree to funding communal ‘improvement’ measures. It was noted that this would create barriers for RSLs who own properties in the same block.

With specific reference to the rural housing stock, it was noted that tenancies are often long term, with properties often needing significant upgrades between tenancies. A ‘Professional or representative body respondent’ reported that it is not uncommon for costs to exceed £40,000 (upgrades to kitchens, bathrooms, connectivity etc), and that when energy efficiency upgrades are included, renovation costs can easily reach upwards of £70,000.

More generally, it was suggested that property improvements simply increase the rental value of the property and landlords should be permitted to increase their rents in line with market values. Supporting arguments included that improvements may:

• provide tangible benefits to the tenant, including through modernising kitchens or bathrooms or adding new amenities
• help reduce energy costs and mitigate fuel poverty in the case of energy efficiency improvements

It was also noted that improvements, including energy efficiency-related works, may be required to meet new regulatory requirements, including the forthcoming PRS Minimum Energy Efficiency Standard, and may also support the delivery of national policy objectives, for example in relation to Net Zero. However, it was also observed that any modification should not apply to works that simply relate to meeting the Repairing Standard.

Conditions in the event of the modification being an option

In terms of how any possible modification should be framed, ‘Developer or investor’ and ‘Local authority’ respondents were among those calling for a clear definition of what constitutes an improvement and when the increase can be applied. They were looking for clear criteria set out in guidance, such as requiring that the improvements are properly documented, and are demonstrably above and beyond the minimum standard set out in the Repairing Standard. It was suggested that this would prevent abuse while still rewarding responsible investment.

Other comments and suggestions included that:

• any rent increases should be justifiable, proportionate, transparent, and not result in displacement or financial hardship for tenants
• where there is a sitting tenant, tenant consent should be required, and improvements should only be made upon their request or with their explicit approval
• tenants should be provided with information about any increase to the rent
• landlords should be able to demonstrate that they have not accessed support to cover costs of improvements from a public funding scheme
• the application or notification process should avoid unnecessary bureaucracy whilst still providing transparency

There was also reference to rent increases being subject to local authority approval, and to challenges from tenants being submitted to the Rent Officer.

Question 19: Should landlords who make improvements to a property which improve energy efficiency (for example by making specific improvements which improve the Energy Performance Certificate (EPC) rating of the property, or by installing an upgraded heating system) be allowed to raise the rent above the level of the rent cap?

A total of 4,663 respondents (or 97% of all respondents) answered the closed element of Question 19. Responses by respondent type are set out in Table 14 below.

Table 14: Question 19

Respondent type	Yes	No	Total
Advice organisation and third sector	5	5	10
Developer or investor	15	0	15
Local authority	7	4	11
Private landlord, letting agent or their representative bodies	39	1	40
Professional or representative body	2	0	2
Public body	2	0	2
Social landlord or their representative bodies	4	1	5
Tenant, community group or union	2	5	7
Total organisations	76	16	92
% of organisations	83%	17%	100%
Individuals	332	91	423
% of individuals	78%	22%	100%
All non-campaign respondents	408	107	515
% of all non-campaign respondents	79%	21%	100%
Campaign respondents	0	4148	4148
% of campaign respondents	0%	100%	100%
All respondents	408	4255	4663
% of all respondents	9%	91%	100%

In line with responses to the previous question, a substantial majority of respondents – 91% of those answering the question, including ‘Campaign’ respondents – did not think landlords who make energy efficient-related improvements to a property should be allowed to raise the rent above the level of the rent cap.

However, a clear majority of non-campaign respondents – 79% of all those answering the question and 83% of organisation respondents – supported landlords being able to increase the rent. This fell slightly to 78% of individuals.

All of the ‘Developer or investor’, ‘Professional or representative body’ and ‘Public body’ respondents supported the potential modification, as did the considerable majority of ‘Private landlord, letting agent or their representative bodies’ and ‘Social landlord or their representative bodies’ respondents, along with most ‘Local authority’ respondents. ‘Advice organisation and third sector’ respondents were evenly divided, and a majority of ‘Tenant, community group or union’ respondents did not support the potential modification.

Please explain your answer

Around 450 non-campaign respondents explained their answer to Question 19. Campaign respondents also made a comment.

The issues raised were very much in line with those at the previous question (in relation to improvements more generally). The analysis presented below focuses only on specific issues relating to energy efficiency-related improvements.

Concerns about application of a modified rent cap in relation to energy efficiency improvements

Points raised by those who did not support a possible modification included that the type of works described (relating to EPCs and heating systems) are a core cost of operating a landlord business, with minimum energy efficiency standards and timescales already in place. The associated view was that any costs to landlords to ensure they continue to meet or exceed energy or quality standards should be incorporated into their rent structure as part of a fully transparent process.

There was also reference to grant assistance often being available, and that this may be connected with the tenant’s eligibility. It was suggested that, where public money has been used to finance some or all of the improvement work, landlords should not be able to raise the rent by more than the cap, to make sure that public money benefits tenants, allowing them to enjoy warmer and cheaper homes.

Views from the consultation sessions

Tenant participants considered that any modification should only apply to improvements that benefit tenants in terms of comfort and reductions to their energy bills.

It was also noted that any improvements, for example to an EPC rating, would help to add value to a property, and by extension that the landlord also benefits, but also that the Scottish Government needs to consider how it can support and incentivise private landlords to make energy efficiency improvements.

Reasons for supporting application of a modified rent cap in relation to energy efficiency improvements

As at the previous question, those who supported a modification being an option when energy efficiency-related improvements have been made often referred to the potential for the works to benefit the tenant, including through lower energy bills. There was also a view, including from a ‘Public body’ respondent, that landlords should only be able to raise the rent where the upgrades result in a corresponding reduction in the tenant’s energy bills, and that the financial benefits should be shared between the tenant and the landlord. For example, it was suggested that the tenant’s overall housing or living cost should remain cost neutral as a minimum and, ideally, be improved.

The importance of incentivising landlords to carry out energy efficiency-related work was also a frequently raised issue. It was noted that the national policy is now looking to EPC C (as reformed) for new PRS tenants in 2028, and for the market as a whole by 2033. ‘Private landlord, letting agent or their representative bodies’ respondents were amongst those suggesting that the rent control modification will be critical to incentivising landlords to improve properties and, by extension, enabling national EPC targets to be met. It was also seen as simply unfair to treat a landlord who has invested in energy-saving measures the same as one who has not.

A ‘Professional or representative body’ respondent reported that the level of investment required to achieve EPC C for a typical traditional cottage may be £100,000 or more;^[13] they went on to comment that, in many cases, it will simply not be feasible to carry out improvements if this cannot be reflected in the rent and that this will potentially leave many rural houses uninhabitable in future.

With regard to ensuring that private landlords are in a position to make improvements, the connection was again made to mixed ownership tenements and, in this instance, the forthcoming Social Housing Net Zero Standard and Heat in Buildings Bill. There were calls for the Scottish Government to consider whether allowing further flexibility for private landlords would help to progress communal solutions or whether alternative routes such as Area Based Schemes, Private Rented Sector Landlord Loans, and Energy Company Obligations, could be used more effectively to incentivise private landlords to participate in retrofit projects.

Question 20: Are there any other types of improvements that should potentially qualify for this kind of increase above the level of the cap?

A total of 4,623 respondents (or 97% of all respondents) answered the closed element of Question 20. Responses by respondent type are set out in Table 15 below.

Table 15: Question 20

Respondent type	Yes	No	Total
Advice organisation and third sector	5	4	9
Developer or investor	11	1	12
Local authority	6	8	14
Private landlord, letting agent or their representative bodies	33	6	39
Professional or representative body	2	0	2
Public body	1	0	1
Social landlord or their representative bodies	3	2	5
Tenant, community group or union	1	6	7
Total organisations	62	27	89
% of organisations	70%	30%	100%
Individuals	265	121	386
% of individuals	69%	31%	100%
All non-campaign respondents	327	148	475
% of all non-campaign respondents	69%	31%	100%
Campaign respondents	0	4148	4148
% of campaign respondents	0%	100%	100%
All respondents	327	4296	4623
% of all respondents	7%	93%	100%

A substantial majority of respondents – 93% of those answering the question, including ‘Campaign’ respondents – did not think that there are any other types of improvements that should potentially qualify for the kind of increase above the level of the cap set out in the consultation paper.

However, a majority of non-campaign respondents – 69% of all those answering the question – thought there are other types of improvements that should be included. Organisations and individuals were in accord on this issue, with 70% of organisations and 69% of individuals agreeing that other types of improvements should potentially qualify.

‘Tenant, community group or union’ and ‘Local authority’ respondents were the only types of organisations where a majority did not think there were any other types of improvements that should potentially qualify for this kind of increase above the level of the cap.

Please explain your answer

Around 420 non-campaign respondents explained their answer to Question 20. ‘Campaign’ respondents also made a comment. Many of the comments simply reiterated opposition to either potential modifications or to the introduction of any rent caps. The analysis presented below focuses only on other types of improvements that could or should qualify for an increase above the level of the rent cap.

General comments included both that it would be unhelpful to be too prescriptive about types of improvements, including because it could disincentivise landlords from carrying out improvements not on the list, but also that there should be a clear definition as to what constitutes an improvement.

There was a view, including from a number of ‘Private landlord, letting agent or their representative bodies’ respondents, that any definition or list should cover all general works that fall outwith routine property maintenance. Examples given included significant energy efficiency works, major refurbishments, or the addition of new amenities or space.

In addition to the works listed in the consultation paper, specific suggestions included:

• accessibility-related improvements, and adaptations to meet the needs of a disabled resident
• extensive redecoration, replacement of flooring, rewiring or replumbing work
• significant upgrades to the fabric of the building, like a replacement roof/harling/cladding
• extension to the space and size of property, for example through a loft conversion
• common repairs, such as roof repairs or repairs to door entry systems, and improvements to common areas, such as soundproofing or landscaping
• improvement to access roads and outside spaces
• addition of or improvement to outbuildings and storage facilities
• replacement of garden walls or fences
• investment in, and improvements to, private water supplies and private sewerage
• upgrading of security features or systems
• provision of (additional) parking areas or of Electric Vehicle charging points
• investments in (additional) flood prevention measures (or other measures) to satisfy insurers
• improvements to digital infrastructure, including upgrades to broadband speeds/infrastructure (if their cost is included in the rent)

Views from the consultation sessions

Tenant participants considered that the only type of improvement that should potentially qualify would be if the improvements are requested by the tenant and are beyond the scope of the lettable standards and expectations of the tenancy agreement.

Question 21: How do you think improvements that might qualify for this increase above the level of the cap should be distinguished from work that would be expected as part of routine property maintenance?

Around 460 non-campaign respondents answered Question 21. ‘Campaign’ respondents also answered the question, albeit by simply commenting that there should be no improvements that lead to above rent cap increases. Others, including ‘Tenant, community group or union’ respondents reiterated their concerns about any improvements enabling landlords to bring in above rent cap increases, including the lack of data to evaluate whether an improvement qualifies for an increase or not.

Views from the consultation sessions

Tenant participants commented that they expect repairs and maintenance to be undertaken when required to ensure tenants live in warm, safe, affordable homes.

They suggested that any additional qualifying improvements should be made according to legislative or regulatory requirements. They also suggested that a review of what is included in legislative and regulatory requirements should be undertaken.

In terms of distinguishing improvements from work that would be expected as part of routine property maintenance, some ‘Local authority’ respondents were among those noting that the distinction between a repair and an improvement is already established in law, and also that other landlords, including local authorities, separate out revenue and capital spend.

However, other ‘Local authority’ respondents were among those calling for a clear distinction, including a definition of improvements, to be set out in guidance for both tenants and landlords. It was suggested that the guidance should clearly state which measures will qualify, as well as measures that would not qualify.

Suggestions with respect to how improvements could be defined included:

• as significant refurbishments that have meaningfully changed the quality of the home, or which reduce tenants’ utility costs
• if carried out at the tenant’s request, including to meet their evolving needs
• if classed as capital expenditure as defined by HMRC, or using the accounting definition of capital expenditure
• through measurable metrics, such as uplift in EPC or demonstrable carbon savings
• based on an expenditure threshold

In terms of an expenditure threshold, specific suggestions included £1,000 or more on any one improvement, or works in excess of £2,000. There was also a suggestion that the threshold could be set at the discretion of local authorities to reflect their particular level of concern about the quality of local housing stock, and to reflect local labour and material costs.

There were also suggestions about what should not be considered an improvement, including like-for-like replacements, and it was suggested that routine maintenance should be defined by reference to low cost works which do not increase the market value of the property.

Other comments addressed possible approaches to identifying or evidencing that improvements have been undertaken, with points including that:

• EPCs provide a record of performance enhancements
• all claims should be subject to independent verification and local authority scrutiny
• the tenant should be entitled to make submissions against an increase
• a schedule of condition could include notable improvements

An associated suggestion was that every landlord should be required to have a schedule of condition, which in turn would allow for monitoring of progress across the rental market.

Question 22: Do you think that a rent increase above the cap should be calculated by:

– improved rental value basis

– cost recovery basis

– other

A total of 4,607 respondents (or 96% of all respondents) answered the closed element of Question 22. Responses by respondent type are set out in Table 16 below.

Table 16: Question 22

Respondent type	Improved rental value basis	Cost recovery basis	Other	Total
Advice organisation and third sector	1	2	2	5
Developer or investor	8	3	1	12
Local authority	3	5	2	10
Private landlord, letting agent or their representative bodies	18	7	12	37
Professional or representative body	0	0	2	2
Public body	0	1	0	1
Social landlord or their representative bodies	1	3	1	5
Tenant, community group or union	1	1	3	5
Total organisations	32	22	23	77
% of organisations	42%	29%	30%	100%
Individuals	170	77	135	382
% of individuals	45%	20%	35%	100%
All non-campaign respondents	202	99	158	459
% of all non-campaign respondents	44%	22%	34%	100%
Campaign respondents	0	0	4148	4148
% of campaign respondents	0%	0%	100%	100%
All respondents	202	99	4306	4607
% of all respondents	4%	2%	93%	100%

Percentages may not sum to 100% due to rounding

Although a substantial majority of respondents – 93% of those answering the question, including ‘Campaign’ respondents – chose the ‘Other’ option, this was generally either to restate their opposition to there being any circumstances under which rent could be increased above the cap, or to state their opposition to the introduction of rent caps. However, some of the non-campaign respondents who selected the ‘Other’ option did go on to suggest an alternative to the two options set out (with their views summarised below).

In terms of the two options set out within the consultation paper, non-campaign respondents were more likely to favour an improved rental value calculation (44% of non-campaign respondents who answered the question) than a cost recovery basis (22% of non-campaign respondents who answered the question).

‘Developer or investor’ and ‘Private landlord, letting agent or their representative bodies’ respondents were more likely to support an improved rental value approach, while ‘Local authority’ respondents were more likely to favour the cost recovery approach.

Please give us your views

Around 380 non-campaign respondents explained their answer to Question 22. ‘Campaign’ respondents also made a comment. However, as noted above, many of the comments focused on support for, or opposition to, either rent controls or exemptions to rent controls.

The analysis presented below focuses only on comments that specifically address the question.

Positive aspects of an improved rental value basis

Those favouring the improved rental value basis for calculating a rent increase above the cap tended to the view that it would best reflect the rent the property would achieve on the open market, including by recognising that upgrades, such as energy efficiency measures, refurbishments or added amenities, enhance tenant benefit and the overall rental value. The associated concern was that selecting any calculation other than by reference to rental values risks the rent falling out of line with the market.

It was also described as the fairest approach, including for the tenant, because they would be less directly affected by the highly variable and potentially significant costs of improvements works; this was seen as fair given that the majority of tenants may only live in a property for a short period of time and hence would not fully benefit from the full lifespan of the improvements.

The improved rental value option was also seen as offering the most easily established methodology, including one which would align with how rent is typically assessed.

Negative aspects of an improved rental value basis

Concerns about the improved rental value route included that increases in rental value could outweigh the costs of any improvements that have been made, and also that the approach could create uncertainty and instability around rent levels, undermining the purpose of rent caps and potentially resulting in unjustified rent inflation.

There was also a view that the improved rental value basis would be very difficult to assess in the absence of sufficient data to allow for comparison with other local properties, which might vary in terms of quality, size and amenities.

Positive aspects of cost recovery

Those favouring the cost recovery basis tended to see it as the best route to ensuring that landlords can be fairly compensated for carrying out improvements, and continue to have a viable business, without there being excessive rent increases. In terms of avoiding higher levels of rent increase, it was noted that cost recovery is spread out over years and considers the lifespan of the improvement.

As an approach, it was described as fairer, more transparent and evidence-based than a market value uplift, including because increases could be directly proportionate to the actual, evidenced cost of qualifying improvements, rather than speculative market value. In terms of how the approach might be framed, suggestions included that increases could:

• be subject to reasonable limits
• take public grants or subsidies received by the landlord to undertake the works into account
• be scrutinised by the local authority or an independent body

There was also a view, including from some ‘Developer or investor’ and ‘Private landlord, letting agent or their representative bodies’ respondents who generally favoured the improved rental value approach, that the cost recovery approach could have merits with respect to upgrades that do not significantly change the market rental value but are nonetheless capital-intensive; they made reference to allowing for modest increases based on a proportion of the capital outlay, perhaps amortised over time, and within reasonable limits. The hybrid option (with both improved rental value and cost recovery available) is discussed further below under ‘Other suggestions’.

Views from the consultation sessions

Tenant participants considered that any increase above the cap should be proportionate to the cost of improvement, spread over time, and capped at a reasonable percentage (e.g. 7.5%).

They also called for independent oversight.

Negative aspects of cost recovery

Concerns about the cost recovery route included that it would risk creating a situation where the approved rent for a property is above that which could reasonably be achieved in that market.

Specifically, it was suggested that selecting any calculation other than by reference to rental values risks the rent falling out of line with the market, and that this does not make any sense when the mechanism used to challenge or assess rents outwith rent control areas is by reference to market values. The associated concern was that cost recovery could lead to undesirable outcomes, for example with an uplift calculated using the cost recovery basis subsequently being significantly increased or reduced when the rent control area ends, and a tenant challenges a rent increase to Rent Service Scotland who re-align it with market rates.

Other suggestions

Among the issues raised by those who favoured another approach (and who primarily selected the ‘Other’ option at the closed question) was that there is unlikely to be a one-size-fits-all solution, and that too prescriptive an approach could create the fear of unintended consequences, resulting in disincentivising improvements.

Calls for flexibility were sometimes associated with allowing a hybrid approach in which both improved rental value and cost recovery are options. It was suggested that such an approach would recognise the wide variety of improvement types, regional differences in market rents, and the nature of the landlord-tenant relationship; an associated point was that it is important to avoid introducing a calculation method that unintentionally disadvantages landlords in rural or island areas, as this could discourage them from making any improvements at all.

Additional comments or suggestions relating to a hybrid model included that it should still include a cap on the allowable increase to ensure fairness and consistency.

Question 23: If a cost-recovery basis was used, what kind of factors should be taken into consideration when deciding how it should be applied?

Around 370 non-campaign respondents answered Question 23, as did ‘Campaign’ respondents who were amongst those restating their opposition to exemptions to rent controls. Other respondents, including ‘Individual’ and ‘Private landlord, letting agent or their representative bodies’ respondents, restated their opposition to rent controls.

With direct reference to the kind of factors that should be taken into consideration when determining the level of any increase if a cost recovery basis is used, one proposal was costs incurred. It was suggested that this could be based on invoices or estimates, should recognise that upfront costs may be funded through borrowing, and should allow for staff time for managing the works or legal or factoring costs incurred.

Other suggestions included:

• the nature and scope of the works undertaken
• the expected lifespan of the works, with a suggestion that costs could be recovered over the expected useful life of the improvement, allowing for a reasonable and phased uplift in rent
• benefit to the tenant, such as lower energy bills or improved living conditions, with an associated suggestion that, if the tenant has requested the works, this should allow for a higher or faster recovery
• any grants and support received by the landlord

Views from the consultation sessions

Tenant participants suggested that benefit to the tenant, the life expectancy of improvements, whether public funding or grants were used and actual costs should be considered.

They suggested that, where public or grant funding is used to make the improvements, the cost should not be passed to the tenant via rent increases as it is the landlord who benefits in the long term from an increase in property value.

Comments on the process tended to focus on the importance of keeping it simple, with ‘Developer or investor’ and ‘Private landlord, letting agent or their representative bodies’ respondents amongst those calling for a light-touch notification or self-certification system rather than a lengthy approval mechanism.

It was also argued that if improvements were treated as an exemption and recorded as an “event”, the process would align with how other exemptions are handled. This would make it easier for both landlords and tenants to understand and manage, while also allowing authorities to review the information more efficiently.

Other suggestions included that:

• an external body, such as the FTT or Rent Service Scotland, should determine or approve the proposed new rent level on receipt of evidence to verify works completed
• increases should only apply after the work is completed and with proper notice

Other costs a landlord may face

The consultation paper notes that a rent control area may last up to five years and, within this time, landlords may experience other increases in the costs of offering the property to let that are not included in the examples already covered. Many of these costs are likely be correlated with inflation. The Scottish Government lodged amendments to the Bill at Stage 2 of the Bill process to set out the form of the rent cap on the face of the Bill, and this amendment was approved by the Committee. The amendment provided that rent increases in rent control areas will be limited to a rate equal to the lower of (i) the percentage change in the Consumer Price Index (CPI) plus 1% and (ii) 6%. The expectation is that a rent increase within the proposed rent cap, based on the CPI annual rate of inflation plus one percentage point, would adequately cover most of these increases in landlord costs.

However, it is recognised that increases in costs may impact certain groups of landlords more acutely than others. In particular, stakeholders have highlighted some utility and service costs for landlords which may be more likely to affect rural properties.

Question 24: Are there any other cost increases for rental properties that would justify raising the rent above the level of the cap?

A total of 4,602 respondents (or 96% of all respondents) answered the closed element of Question 24. Responses by respondent type are set out in Table 17 below.

Table 17: Question 24

Respondent type	Yes	No	Total
Advice organisation and third sector	4	4	8
Developer or investor	11	1	12
Local authority	4	9	13
Private landlord, letting agent or their representative bodies	36	2	38
Professional or representative body	1	0	1
Public body	1	0	1
Social landlord or their representative bodies	2	2	4
Tenant, community group or union	0	7	7
Total organisations	59	25	84
% of organisations	70%	30%	100%
Individuals	256	114	370
% of individuals	69%	31%	100%
All non-campaign respondents	315	139	454
% of all non-campaign respondents	69%	31%	100%
Campaign respondents	0	4148	4148
% of campaign respondents	0%	100%	100%
All respondents	315	4287	4602
% of all respondents	7%	93%	100%

A substantial majority – 93% of those answering the question, including ‘Campaign’ respondents – did not think that there are other cost increases for rental properties that would justify raising the rent above the level of the cap.

In contrast, among non-campaign respondents 69% thought that there are such cost increases. Organisations and individuals were in accord on this issue, with 70% of organisations and 69% of individuals agreeing that other cost increases would justify raising the rent above the level of the cap.

While a large proportion of ‘Developer or investor’ and ‘Private landlord, letting agent or their representative bodies’ respondents thought that there are other costs, all ‘Tenant, community group or union’ and a majority of ‘Local authority’ respondents did not.

Please explain your answer

Around 390 respondents explained their answer to Question 24. ‘Campaign’ respondents also made a comment.

No other cost increases

Those who did not agree that there are any other cost increases for rental properties that would justify raising the rent above the level of the cap tended to suggest that other costs will easily be priced into the above inflation rent control formula and that no further provisions are or should be required. This was also connected to private landlords being businesses that should be able to shoulder some risks.

Support for other possible cost increases

General issues raised by respondents who did think there were other cost increases that would justify raising the rent above the level of the cap included that landlords operate in a rising cost environment, and many of these pressures are outside their control.

Other general comments or suggestions included a number of references to inflation or inflationary pressures, and that any above inflation increases in any services included in the rent should justify raising the rent above the level of the cap. There was also reference to some acceptance by the Committee during consideration at Stage 2 of the Housing Bill that, when referring to rent controls, the “rent payable” in relation to a tenancy should mean the amount that is payable in rent, excluding any charges for utilities which are directly payable to the landlord under the tenancy agreement.^[14]

Respondents also identified a number of specific cost areas which they thought should be taken into consideration, with the connection often made to these costs being unavoidable and potentially significant. They included:

• mortgage and financing costs, including as a result of rising interest rates, with reports that sustained interest rate increases can have a significant impact on viability for landlords operating with mortgage finance
• insurance costs, where there have been sharp rises in insurance premiums, especially in areas affected by flood risk, cladding issues, or changes in underwriting practices
• utility costs, where rents are inclusive of these costs and, particularly in rural areas, specific costs associated with private water and sewerage
• service charge or factoring fees cost increases, for example in flats or multi-unit buildings, where service charges can rise due to maintenance of shared areas, building safety compliance, or inflationary pressures from suppliers
• major refurbishment, including that required by external events, such as remediation works imposed by local authorities, environmental upgrades, or essential retrofitting to meet changing standards
• legislative and regulatory compliance costs, with reference to minimum energy efficiency standards, electrical safety, or building safety often carrying financial implications, and to any potential increases in licencing fees

Views from the consultation sessions

Tenant participants thought that any other circumstances considered should be very limited, for example, to when an improvement is in response to a legislative requirement.

Other less frequently made suggestions included rising costs associated with any (additional) taxes or rates of tax, and employer obligations and taxation changes specifically. It was reported that increases to National Insurance contributions, pension auto-enrolment costs, and other employment-related obligations directly affect operating budgets, especially for landlords running professionally managed BtR schemes with on-site teams. A related point concerned support services provided alongside accommodation, including staffing costs, with a suggestion that exemptions for support providers who deliver both support and accommodation would be welcome.

External economic pressures, including supply chain disruptions were also highlighted as having potential to cause cost increases that would justify raising the rent above the rent cap level. There was reference to price volatility in construction materials, labour and services increasing the overall cost of property management.

Question 25: Are there any other circumstances under which landlords should be allowed to raise rents above the level of the rent cap?

A total of 4,563 respondents (or 95% of all respondents) answered the closed element of Question 25. Responses by respondent type are set out in Table 18 below.

Table 18: Question 25

Respondent type	Yes	No	Total
Advice organisation and third sector	3	5	8
Developer or investor	13	1	14
Local authority	3	10	13
Private landlord, letting agent or their representative bodies	31	5	36
Professional or representative body	1	0	1
Public body	0	1	1
Social landlord or their representative bodies	2	2	4
Tenant, community group or union	0	7	7
Total organisations	53	31	84
% of organisations	63%	37%	100%
Individuals	215	116	331
% of individuals	65%	35%	100%
All non-campaign respondents	268	147	415
% of all non-campaign respondents	65%	35%	100%
Campaign respondents	0	4148	4148
% of campaign respondents	0	100%	100%
All respondents	268	4295	4563
% of all respondents	6%	94%	100%

A substantial majority of respondents – 94% of those answering the question, including ‘Campaign’ respondents – did not think there are any other circumstances under which landlords should be allowed to raise rents above the level of the rent cap.

However, a majority of non-campaign respondents – 65% of those answering the question – did think there are other circumstances under which landlords should be allowed to raise rents above the level of the rent cap. Organisations were slightly less likely to think so than individuals, at 63% and 65% respectively.

While ‘Developer or investor’ and ‘Private landlord, letting agent or their representative bodies’ respondents generally thought there were other circumstances to consider, ‘Advice organisation and third sector’, ‘Local authority’ and ‘Tenant, community group or union’ respondents tended to think there are not.

Please explain your answer

Around 325 respondents explained their answer to Question 25. ‘Campaign’ respondents also provided a comment.

No other circumstances

Those who did not think there are other circumstances under which landlords should be allowed to raise rents above the level of the rent cap, including ‘Individual’ respondents, tended to reference the potential to undermine the general purpose of rent control measures. An ‘Advice organisation and third sector’ respondent commented that a failure to protect the affordability of homes will have disproportionate impacts on Black and minority ethnic households, who are over-represented in the private rental sector and are more likely to experience financial hardship due to their housing costs.

‘Local authority’ respondents were among those referring to the importance of the system being as simple as possible, to ensure that all involved understand it properly, or to the risk that the permitted modifications could become too difficult to control or monitor.

‘Campaign’ respondents were among those commenting that, while there are no circumstances under which landlords should be allowed to raise rents above the level of the rent cap, there should be circumstances where they have to abide by a lower cap. ‘Tenant, community group or union’ respondents went on to give examples of where properties have poor energy efficiency or mould and damp, or when repairs have not been undertaken.

Other circumstances suggested

General points made included that a modification of the rent cap arrangements should only be permitted in exceptional and clearly defined circumstances. The ‘Local authority’ respondent making this point gave an example of significant hardship, where a landlord can demonstrate that the capped rent level is unsustainable and risks withdrawal from the sector.

Others, including some ‘Private landlord, letting agent or their representative bodies’ respondents, also highlighted the financial sustainability for landlords, with references to some of the potential cost increases for landlords covered at Question 24. With specific reference to portfolio-level investment by professional landlords or institutional investors, some ‘Developer or investor’ and ‘Private landlord, letting agent or their representative bodies’ respondents commented that the ability to rebase rents across a portfolio (subject to market limits) may be necessary to meet lender covenants or reinvestment strategies, particularly where large-scale improvement programmes are being delivered.

‘Developer or investor’ and ‘Private landlord, letting agent or their representative bodies’ respondents were also among those referring to significant changes to the local market. For example, it was reported that in areas where demand has surged due to significant economic, infrastructure, or population changes, a capped rent may become wholly disconnected from local rental values. It was suggested that, in such cases, a mechanism for review or adjustment will be important to maintain supply.

Other comments and suggestions tended to reflect points raised at earlier questions, including those in Chapter 1: properties exempt from rent control area restrictions. For example, a ‘Professional or representative body’ respondent referred to the types of property and circumstances they had listed at Question 11,^[15] including employment-linked housing, properties returning to the market after service occupation, housing for retired employees, rural housing with long-term tenancies, properties let for the first time after converting to a PRT, properties let under protected tenancies on a fair rent, and properties resumed from agricultural tenancy.

Reflecting issues covered at Questions 19-21, there were also suggestions that landlords should be allowed to raise rents above the level of the rent cap when:

• meeting the disability needs of an existing tenant
• tenants request significant alterations
• properties have been let at a discount, for example to friends or family
• the landlord reduces the rent to assist a tenant in financial difficulty, after an agreed period
• immediate investment is required to meet unexpected government-imposed building standards
• a landlord provides additional services, for example in supported accommodation
• a landlord provides accommodation under contract to a local authority or support service for use as temporary or supported housing
• costs that are not strictly ‘rent’ are included, for example related to private water or electricity supplies
• a property has returned to the PRS from temporary accommodation use or after being let through a social housing provider, for example under a private sector leasing scheme

Other suggestions, all from ‘Private landlord, letting agent or their representative bodies’ respondents, included:

• by mutual agreement with the tenant, for example relating to permitting pets, business use or additional occupants
• where the property is a council tax HMO^[16] (House in Multiple Occupation) and a tenant-related exemption or discount no longer applies due to a change in the tenant’s circumstances
• where the landlord obtains an HMO licence to allow more unrelated occupants to live in the property than were previously allowed
• if a landlord is forced to sell and wishes to maintain a tenancy, as an incentive to a new investor

Also with reference to change of ownership, a ‘Developer or investor’ respondent commented that when charities act as landlords, they typically charge low rents, often at or below LHA rates. They went on to note that these charities may dispose of properties that no longer align with their operational needs and that if the rent caps applicable under the charity’ ownership were to extend to a potential new landlord, this could depress the property’s market price.

Demonstrating eligibility for an increase above the level of the cap

The consultation paper set out that, in cases where a landlord is allowed to increase the rent above the amount allowed by the rent cap, the landlord could be required to apply to an external decision maker, such as a rent officer (part of Rent Service Scotland) or the FTT before increasing the rent, in order to confirm the increase is allowed. This process could involve the landlord providing evidence of the reason for the increase (for example, evidence of the cost of any improvements they have made).

Alternatively, landlords could be allowed to increase the rent for the property above the rent cap, without requiring approval. Tenants could then have the right to challenge any increase that they did not feel was correct. The Bill, as introduced, already allows for a tenant to refer a case to a rent officer for verification if the tenant considers that the amount of the proposed increase of rent is more than is permitted. A process could be provided to allow tenants to challenge rent increases where a landlord is allowed to increase rent above the level of the cap.

Question 26: What should the process be if a landlord seeks to make a rent increase above the level of the rent cap for any of the reasons referred to in the previous sections in this chapter?

Please choose your preferred option:

(a) landlords should be required to seek approval before raising the rent above the rent cap

(b) landlords should be allowed to raise rents above the cap without a requirement to apply to an external decision maker

A total of 436 respondents (9% of all respondents or 69% of all non-campaign respondents) answered the closed element of Question 26. ‘Campaign’ respondents did not answer this question. Responses by respondent type are set out in Table 19 below.

Table 19: Question 26

Respondent type	Landlords should be required to seek approval before raising the rent above the rent cap	Landlords should be allowed to raise rents above the cap without applying to an external decision maker	Total
Advice organisation and third sector	6	2	8
Developer or investor	0	14	14
Local authority	8	3	11
Private landlord, letting agent or their representative bodies	5	32	37
Professional or representative body	0	3	3
Public body	1	0	1
Social landlord or their representative bodies	2	1	3
Tenant, community group or union	5	0	5
Total organisations	27	55	82
% of organisations	33%	67%	100%
Individuals	110	244	354
% of individuals	31%	69%	100%
All non-campaign respondents	137	299	436
% of all non-campaign respondents	31%	69%	100%
Campaign respondents	0	0	0
% of campaign respondents	0%	0%	0%
All respondents	137	299	436
% of all respondents	31%	69%	100%

A majority of those answering the question – 69% – thought that landlords should be allowed to raise rents above the cap without applying to an external decision maker, while the remaining 31% thought landlords should be required to seek approval before raising the rent above the rent cap. Organisations were slightly more likely to favour landlords being required to seek approval than individuals (at 33% and 31% of those answering respectively).

All ‘Developer or investor’ and ‘Professional or representative body’ respondents favoured landlords not needing to apply to an external decision maker, as did most ‘Private landlord, letting agent or their representative bodies’ respondents. However, all ‘Tenant, community group or union’ respondents, and most ‘Advice organisation and third sector’ and ‘Local authority’ respondents thought that landlords should be required to seek approval.

Please explain your answer

Around 370 respondents explained their answer to Question 26. ‘Campaign respondents’ (who had not answered the closed question) also provided a comment.

Landlords should be allowed to raise rents above the cap without applying to an external decision maker

There were concerns, particularly from ‘Developer or investor’ and ‘Private landlord, letting agent or their representative bodies’ respondents, that having to seek approval would delay the re-letting process leading to an extended void period which could have serious financial repercussions for landlords. It was also noted that extended voids mean homes sit empty, reducing available housing stock and worsening the rental shortage. With specific reference to rural supply, it was suggested that this could result in people being unable to take up employment or other opportunities due to a lack of housing.

There were also concerns that any approvals process would not only be an administrative burden for landlords, but would also place an unnecessary workload on the body or bodies charged with giving approval. ‘Professional or representative body’ respondents were amongst those commenting specifically on the capacity of Rent Service Scotland and the FTT, with the suggestion that introducing an additional approval process may place further strain on services that are already under pressure. A ‘Private landlord, letting agent or their representative bodies’ respondent referred to potentially seeking approval from local authorities, and raised concerns about the capacity of local authorities to process approvals in a timely fashion.

It was suggested that a streamlined, self-certification model would have a number of advantages, including:

• striking the right balance between protecting tenants and allowing landlords to operate sustainably
• giving tenants the autonomy to decide if the increase is justified, respecting the fact that many tenant-landlord relationships are cooperative rather than adversarial
• supporting property upgrades, with the associated concern that a bureaucratic process may discourage property improvements if there is a risk that their approval request is delayed
• maintaining investor confidence in the rental sector

Some respondents went on to comment on how a self-certification model could operate, with the focus tending to be on how tenants should be notified and on clear and transparent record keeping. These issues are covered in greater detail at Questions 29-31.

Landlords should be required to seek approval before raising the rent above the rent cap

Those favouring landlords being required to seek approval before raising the rent above the rent cap tended to focus on the importance of ensuring transparency, which was often connected to protecting tenants’ rights. It was seen as essential that the onus should be on the landlord to justify an increase, rather than the tenant having to challenge it.

Views from the consultation sessions

Tenant participants considered there should be a proper, regulated application process for landlords to go through in order to raise rents above the cap, similar to that for planning applications.

An ‘Advice organisation and third sector’ respondent was among those reporting that tenants are unlikely to challenge decisions made by landlords, and ‘Tenant, community group or union’ respondents were among those raising concerns that tenants will not be able to contest their rent increases for fear of eviction. This group of respondents went on to suggest that requiring landlords to seek approval would add in a safety measure that ensures decisions being made around rent increases are fair, and that some landlords do not abuse the system.

Other points raised by those who thought landlords should be required to seek approval before raising the rent above the rent cap included that:

• consideration should be given to the impact this will have on existing services such as the FTT and Rent Service Scotland
• it would allow for data on the reasons for and volume of applications to be captured

Some respondents went on to comment on how any approvals system should be framed. These issues are covered in greater detail at Questions 27 and 28.

Question 27: If landlords were required to seek approval before raising the rent above the rent cap, what kind of information should landlords have to provide to tenants after the rent increase has been approved, and when?

Around 365 respondents answered Question 27. ‘Campaign’ respondents also answered the question.

A general observation, including from ‘Developer or investor’ and ‘Private landlord, letting agent or their representative bodies’ respondents who disagreed with landlords being required to seek approval, was that any process should be clear, proportionate, and designed to minimise disruption to both landlords and tenants. There were also references to any approach being transparent, with clear, accessible and timely information for tenants.

Types of information

In terms of what types of information landlords should have to provide to tenants after the rent increase has been approved, the most frequently made suggestion (across respondent types and by both those who did and did not favour landlords needing to seek approval), was a notice that the rent increase has been approved by the relevant authority. Further comments included that a certificate could be issued to the landlord which approves the rent increase, and that this could set out the factors considered by the assessing body.

The other frequently made suggestion, again by a range of respondent types, was the reason(s) for the increase, with suggestions including that the following could be provided:

• the grounds for any increase, for example the relevant exemption or qualifying circumstance
• a brief summary of work carried out or the cost incurred
• information on how any improvements exceed the minimum standard the tenant should expect from the property
• information on the benefit to the tenant

Other suggested types of information to be provided included:

• a clear statement that the increase exceeds the rent cap
• any relevant comparison with local market rents, if this was part of the approval
• the new rent amount, including the percentage increase
• the date the increase will take effect

On this latter point, it was suggested that the landlord should outline a clear timeline for the implementation of the increase, specifying key dates, the tenant’s rights, and the steps they may take in response, including how to appeal against an increase. ‘Local authority’ respondents were amongst those referencing information on where and how tenants can seek independent advice and support, and it was suggested that this could build on the information private landlords were expected to provide to tenants as part of the Pre-action requirements that applied to notices given to tenants before 1 October 2022.

Views from the consultation sessions

Tenant participants suggested that information should be provided to tenants at least 8 weeks in advance of seeking approval. They thought it should include an independent assessment of the proposed works and justification for why it is required, as well as a breakdown of costs.

They also thought that information on how costs will be attributed to the rent level, over what period of time and how long the rent cap exemption will be in place, should be provided.

Timescales

Those who commented on when landlords should have to provide information to tenants sometimes simply noted it should be as soon as possible, or as soon as possible after the landlord has been given approval to raise the rent.

In terms of specific timescales for any rent increase, suggestions included that tenants should be given:

• a minimum three months’ notice
• at least one full rent payment period before the increase takes effect

‘Local authority’ and ‘Tenant, community group or union’ respondents were among those suggesting the longer timeframe, with ‘Developer or investor’ and ‘Private landlord, letting agent or their representative bodies’ respondents tending to favour the shorter period.

There were also comments relating to the stage in the process at which tenants should be informed that a landlord is looking to increase the rent. These are covered at the next question.

Question 28: If landlords were required to seek approval before raising the rent above the rent cap, what should be considered when designing a process for landlords to apply?

Around 350 respondents answered Question 28. ‘Campaign’ respondents also answered the question.

Comments on this question tended to reflect the same general themes already set out at Question 27. These included that any approach should be as simple, efficient and quick as possible, and should consider the potential for unintended consequences. The ‘Professional or representative body’ respondent making this latter point suggested that, if the process is overly complex, time-consuming or uncertain it may discourage landlords, particularly smaller or rural ones, from continuing to let properties.

Features of the process

In terms of the basics that should underpin any application process, comments included that there must be clear, well-defined eligibility criteria, set out in guidance and regulations. Some ‘Local authority’ respondents were amongst those suggesting that landlords should indicate which criteria, or combination of criteria, are met to justify any rent increase.

Other comments addressed the stage at which tenants should be notified or involved in the process, with one ‘Local authority’ respondent among those suggesting a requirement for engagement and consultation with tenants prior to any application, or as part of the application process, and another ‘Local authority’ respondent suggesting that the tenant should be given sufficient time and opportunity to make representations on a proposed increase.

Views from the consultation sessions

Tenant participants considered that all parties should be informed 3 months before the increase takes effect.

They also thought that tenants should have a right to challenge the above cap increase, through regulated, open and accountable methods.

Other comments, including from ‘Tenant, community group or union’ respondents, addressed tenants’ right to contest and appeal any decision to approve a rise above the rent cap, with suggestions including that there should be support for tenants to provide representations without fear of retaliation from their landlord. It was seen as particularly important that vulnerable tenants are supported to ensure that they are able to exercise their right of appeal. There were also a small number of references to landlords also being able to appeal a decision.

In terms of how tenants and landlords could be enabled and supported to appeal, comments included that tenants should have 42 days to contest a rent increase. The importance of giving tenants sufficient time was stressed by an ‘Advice organisation and third sector’ respondent, who reported that while services such as theirs can support people to understand and exercise their rights, demand for appointments is extremely high and it is therefore critical that people have enough time to access advice.

Other features that respondents suggested should be considered when designing a process for landlords to apply for an above rent cap rise included that there should be:

• an enforcement process for unauthorised increases
• a framework for monitoring and evaluation to ensure policy is delivering objectives and the process is continuously improved based on user experiences

It was also noted that the process must consider the disproportionate impacts that raising rent would have for those from Black and minority ethnic backgrounds or those from low-income backgrounds.

Elements of an approval process

A ‘Tenant, community group or union’ respondent commented that a standardised, well-supported application process will ensure consistent outcomes and safeguard both tenant affordability and landlord investment. A number of ‘Developer or investor’ and ‘Private landlord, letting agent or their representative bodies’ respondents were among those commenting on what that application process could look like, with suggestions including that there should be:

• no or low cost to apply, to avoid penalising responsible landlords
• a straightforward, online application form, with tick-box categories for the reason for applying for a rent increase
• minimal evidence requirements, along with the ability to upload any supporting evidence that is required
• a quick decision timeline, for example with a target of no more than 14–21 days, with automatic approval if no decision is made within that period
• an optional fast-track route where the tenant agrees to the increase
• a system to notify tenants once the application has been approved

Other proposals included that:

• a dedicated support line or helpline could assist landlords with technical queries or clarification on eligibility criteria
• the Scottish Government could commission a standardised digital portal for local authorities to use

This latter suggestion was linked to a view that any system should not be authority-by-authority, as landlords may have properties in multiple areas and a single point of entry for requests to raise rent above the cap would be extremely beneficial for both landlords and local authorities.

Question 29: If landlords were allowed to raise rents above the rent cap without seeking approval, should they still need to produce evidence to prove that they qualify?

A total of 423 respondents (9% of all respondents or 67% of all non-campaign respondents) answered the closed element of Question 29. Campaign respondents did not answer the question. Responses by respondent type are set out in Table 20 below.

Table 20: Question 29

Respondent type	Yes	No	Total
Advice organisation and third sector	7	0	7
Developer or investor	12	2	14
Local authority	12	1	13
Private landlord, letting agent or their representative bodies	20	14	34
Professional or representative body	2	0	2
Public body	1	0	1
Social landlord or their representative bodies	3	1	4
Tenant, community group or union	5	1	6
Total organisations	62	19	81
% of organisations	77%	23%	100%
Individuals	200	142	342
% of individuals	58%	42%	1005
All non-campaign respondents	262	161	423
% of all non-campaign respondents	62%	38%	100%
Campaign respondents	0	0	0
% of campaign respondents	0%	0%	0%
All respondents	262	161	423
% of all respondents	62%	38%	100%

A majority of those answering the question – 62% – thought that if landlords were allowed to raise rents above the rent cap without seeking approval, they should still need to produce evidence to prove that they qualify. Organisations were more likely to favour landlords needing to produce evidence than Individuals (at 77% and 58% of those answering respectively).

Among organisations, all groups agreed that landlords should need to produce evidence, although among ‘Private landlord, letting agent or their representative bodies’ respondents a significant minority (14 out of 34 respondents), did not think evidence should be needed.

Please explain your answer

Around 340 respondents explained their answer to Question 29. ‘Campaign’ respondents (who had not answered the closed question) also provided a comment.

Across Questions 29 to 31, some of those commenting, including ‘Individual’ and ‘Tenant, community group or union’ respondents, restated their opposition to landlords not being required to seek approval to raise rents above the rent cap. As at Question 26, concerns tended to focus on the need for safety measures that ensure decisions are fair, and that some landlords do not abuse the system. There were references to the current rent adjudication system not being accessible to tenants, and it was suggested that a placing the onus on tenants to contest proposed rent increases would have limited impact on affordability.

There were particular concerns, including from a ‘Public body’ respondent, that many vulnerable tenants might not have the capacity or capability to scrutinise any evidence that was provided or engage with the services that could support them to do so.

Those making the case for requiring evidence to be produced included some ‘Developer or investor’ and ‘Private landlord, letting agent or their representative bodies’ respondents, who referred to the importance of transparency. There were also references to the approach being reasonable or fair. For example, a ‘Professional or representative body’ respondent commented that, by requiring landlords to submit evidence, tenants can be assured that rent increases are not arbitrary and are based on genuine reasons making the exemption fair, justified and transparent. Other reasons given for requiring evidence to be produced included that the information would be required if a rent increase is challenged.

Both at this, and the next question, some respondents commented on when the information should be produced, with ‘Developer or investor’ and ‘Private landlord, letting agent or their representative bodies’ respondents among those suggesting that the information should be provided only in the event of a rent increase being challenged.

Those making this point included those who had said ‘yes’ and ‘no’ at the closed element of the question. For example, a ‘Private landlord, letting agent or their representative bodies’ respondent who had answered ‘no’, commented that landlords should explain why they qualify for an above-cap increase in a notice to the tenant and, should the tenant wish to challenge the increase, at that point the landlord could be required to supply evidence to show they qualified for the above-cap increase. Another commented that, while it would be good practice for landlords to collate any required evidence in advance of the decision to raise the rent, requiring them to provide it other than if challenged would create an unnecessary burden on landlords and the decision-making body in the event of a challenge.

Other reasons given for suggesting that landlords should not need to produce evidence included that:

• depending on the reason, it may not always be easy to supply evidence
• the evidence would not be of interest or use to tenants who did not wish challenge an increase

Question 30: If landlords were allowed to raise rents above the rent cap without seeking approval, who should they need to provide evidence/information to and when?

Around 370 respondents answered Question 30. ‘Campaign’ respondents also answered the question.

To whom should evidence be provided

There were two frequently made suggestions for who should be provided with any evidence; tenants and whichever body is responsible for overseeing any increases and ruling on any challenges, with respondents often suggesting both.

There were some suggestions relating to which body or bodies might be responsible (and by extension to whom landlords might provide evidence) with the most frequent references being to Rent Service Scotland or the FTT. There were also occasional refences to local authorities.

When evidence should be provided

There were also two frequently made suggestions regarding when any evidence should be provided or shared. These were at the notification of any rent increase or, as at the previous question, in the event that a rent increase is challenged.

‘Advice organisation and third sector’, ‘Tenant, community group or union’ and ‘Individual’ respondents were among those suggesting that information should be provided along with the notice of any rent increase. Further comments or suggestions included that:

• a standardised template should be used, with a clear and structured process
• the notice period should align with other notice periods set out in the consultation document i.e. tenants should be given at least three months’ notice so they can seek advice, or challenge the increase if necessary
• the regulating body should also receive a copy of any evidence

It was suggested that sending copies of the evidence to the regulating body would ensure oversight, support enforcement and maintain records. There was also reference to the proposed rent increase information being recorded online, including so that it can be checked by tenants.

An alternative suggestion, including from some ‘Developer or investor’ and ‘Private landlord, letting agent or their representative bodies’ respondents, was that the notice of rent increase sent to the tenant should provide a brief explanation and supporting evidence, but that the evidence should only be shared with the relevant authority if the increase is challenged.

Other ‘Private landlord, letting agent or their representative bodies’ respondents were among those suggesting that landlords should only need to provide evidence if asked for it or in the event that the rent increase is challenged.

Question 31: If landlords were allowed to raise rents above the rent cap without seeking approval, what should be considered when designing a process for tenants to verify or challenge the increase?

Around 360 respondents answered Question 31. ‘Campaign’ respondents also answered the question.

The broader themes raised at this question tended to reflect those at Question 28, with frequent references to keeping processes simple and straightforward, including from ‘Individuals’ and ‘Private landlord, letting agent or their representative bodies’ respondents. Other comments included that the process should be:

• proportionate
• accessible
• free or low cost
• quick or time-limited
• resourced adequately
• informed by a robust and comprehensive Equality Impact Assessment

There were also calls to avoid weaponising minor disputes, with ‘Developer or investor’ and ‘Private landlord, letting agent or their representative bodies’ respondents among those suggesting that there should be a presumption of good faith, and that the system should operate on the basis that most landlords will act reasonably and in line with the rules.

There were also some comparisons with current approaches, most frequently that the process should align with the existing process for PRT challenges by application to Rent Service Scotland.

In terms of particular considerations when designing a process for tenants to verify or challenge a rent increase, there were calls for:

• clear guidance, with the Scottish Government publishing practical, plain-language guidance that outlines the specific circumstances in which rent increases above the cap are permitted
• standardised notices and templates
• accessible information available in a wide range of languages and formats, with tenants signposted to this information when they receive a rent increase notice
• a publicly available register, which would allow tenants to see if their property’s rent had been raised above the cap, and the reasons for doing so
• consideration given to joint appeals where one or more tenant is affected, for example where a landlord owns a number of properties in one building

Overall, however, the most frequently made point, and an issue raised across respondent groups, was that any process must allow tenants the opportunity to verify and challenge an increase that is above the rent cap. Associated comments and suggestions included that tenants should:

• receive clear notification of their rights
• have easy access to an independent body if they want to challenge the increase
• have support available to them both during and after the process
• only be liable for the capped rent while a challenge is pending

There were also a number of comments, including from ‘Developer or investor’ and ‘Private landlord, letting agent or their representative bodies’ respondents, about when or how any verification or challenge process should begin. Points included that:

• tenants should be able to request further clarification or supporting documentation from the landlord if needed
• landlords should be expected to respond to a request for (further) information within a reasonable timeframe, for example either within 14 or 28 days
• if concerns remain, tenants should be able to refer the matter to the body responsible for adjudicating on any dispute

Another ‘Private landlord, letting agent or their representative bodies’ respondent suggested the process should be built around the following key stages:

• at the point of rent increase coming into force, the landlord would issue the tenant with a prescribed notice stating that the rent is increasing by more than the rent cap and setting out the reasons why
• the notice would give guidance to tenants on when above-cap increases are allowed, and would explain that if the tenant believes the reason for the above-cap increase does not apply, they can challenge the increase by reference to Rent Service Scotland within 30 days
• Rent Service Scotland would notify the landlord of the challenge and ask for evidence to support their reason for qualifying for an above-cap increase, giving guidance on what evidence is expected for each of the permitted reasons
• Rent Service Scotland would notify both parties of their decision on whether the increase is permitted or not
• if the increase is not permitted, the rent officer should state at what level the rent is set, and the landlord must refund any overpayment to the tenant
• there could be a penalty mechanism in place for those landlords who increase the rent by more than the cap without issuing a prescribed notice to the tenants explaining the reason for it

The proposed processes outlined above assume that formal oversight should only be triggered where there is a clear dispute or a failure to provide adequate justification. It was suggested that such an approach would encourage compliance, support constructive landlord-tenant relationships and ensure that regulatory effort is focused where it is genuinely needed.