Cost of Living (Tenant Protection) (Scotland) Act 2022 - proposed extension of section 10: statement of reasons

3. Proposal to extend

3.1 When the 2022 Act was introduced, the Scottish Government recognised the potential for some unintended consequences when the rent cap ends if no transitional measures were put in place to mitigate this.

3.2 Given that the emergency legislation is - by its nature - temporary, it was acknowledged that the termination of the rent cap may lead to a large number of landlords seeking to increase their rent, and setting rent again solely by reference to the open market rent immediately could result in very steep and unmanageable rent increases for tenants. In these circumstances, the existing rent adjudication process would not provide an appropriate mechanism for determining a reasonable rent increase in the event that a tenant refers their rent increase the adjudication process.

3.3 The 2022 Act contains a power to modify the law on adjudication of rent disputes on, or in anticipation of, the expiry or suspension of the temporary rent cap. Section 10 of the 2022 Act introduces schedule 3 of the 2022 Act, which inserts a regulation-making power into both the 2016 Act and the 1988 Act, to modify the rent adjudication process in connection with the determination of the rent payable under private residential tenancies, assured tenancies and short assured tenancies.

3.4 Section 11(1) of the 2022 Act expires section 10 and schedule 3 at the end of 31 March 2024. There is, however, a power for Scottish Ministers to lay regulations along with a statement of reasons seeking to extend the expiry of section 10 by a period of up to one year at a time. We are seeking such an extension.

Economic context

3.5 The Scottish Government's latest report to the Scottish Parliament on the operation of the Cost of Living (Tenant Protection) (Scotland) Act 2022 from October 2023 to December 2023, provides an update on the evolving economic context impacting on those who rent their home in the private rented sector (see Annex B for key points).

3.6 While there have been some signs of improvement in economic conditions for households in recent months, these improvements follow a period of significant pressure such that that, on average, households continue to face economic and financial conditions which are significantly more challenging than they were prior to the cost of living crisis.

3.7 The Scottish Government published its annual private rent statistics publication in November 2023. A breakdown of rent growth by bedroom size is set out below.

3.8 Average 2-bedroom rents (the most common size) increased in all 18 Broad Rental Market Areas of Scotland compared with the previous year. Increases in 11 of these areas were above the average 12 month UK CPI inflation rate for the corresponding period of 9.0%. The increases ranged from 1.5% in Dumfries and Galloway up to 22.3% in Greater Glasgow.

3.9 These figures show increases in market rents which suggest that if market rents alone are used as a comparator under an unmodified rent adjudication system, individual tenants could face very high rent increases in some cases.

3.10 The proposed use of the schedule 3 powers, which is distinct from this extension being sought, is contained in a separate set of regulations which are separately also subject to Parliamentary approval.