Swathes of new legislation is heading our way, with landlords left in limbo as to how the PRS of the future will work. Here, in an article first published in RLA magazine Residential Property Investor, we look north of the border to Scotland where drastic change has already taken place. John Blackwood, chief executive of the Scottish Association of Landlords, talks to Sally Walmsley about the consequences – intended and otherwise
From abolishing no fault evictions and fixed term tenancies to banning fees, introducing rent controls and bringing in a new housing tribunal, Scotland has been a trailblazer when it comes to transforming renting.
But have these changes been for the better?
End of Section 21 and fixed term tenancies
One of the biggest changes to take place in Scotland was the abolition of its version of Section 21 and the scrapping of fixed term tenancies.
The Scottish equivalent of Section 21 was a Section 33 no fault eviction.
This was axed on December 1, 2017 after which tenancies, by law, were open-ended.
This was a dramatic shift – and landlords were understandably apprehensive.
John Blackwood said that although the Scottish Association of Landlords (SAL) opposed the plans, the Scottish Government made it perfectly clear that their intention was to press ahead with giving tenants security of tenure.
He said: “The government was very clear in early discussions with SAL that their policy intention was to offer security of tenure to private tenants in Scotland – offering tenancies with no end date.
“There was also clear evidence that this policy would be supported by MSPs in the Scottish Parliament, across the political spectrum.
“From a very early stage SAL has to consider positioning a campaign that would appeal to the greatest numbers of MSPs in Parliament.
“We had to be pragmatic and focus our efforts on making the policy change work for our members.
“The government’s argument was that the existing short assured tenancy regime did not offer security to tenants and, in particular, young families who could be asked to leave their homes by giving just two months’ notice.
“We argued that as landlords we have no problem with long tenancies – but we also wanted reassurances we would be able to repossess our properties if it went wrong i.e. the tenant was engaging in anti-social behaviour or failing to pay their rent.”
He said the fear factor among landlords was huge – and the reaction to the changes very negative however, since the change in the law, landlords’ rights have, in fact, been strengthened.
He said: “What we at SAL lobbied for was greater safeguards for landlords wanting to end tenancies when tenants fail to meet their contractual obligations, for example paying rent.
“The rent arrears ground for repossession is now much better than it was under the previous system.
“Previously a tenant had to be three months in arrears before you could issue Notice to Quit.
“In reality, it was usually another five or six months before you could get to court.
“Under the new tenancy you can issue a Notice to Leave at a much earlier stage. “In all there are 18 mandatory and discretional grounds for repossession under the new tenancy.
“These range from the landlord planning to sell or move into the property themselves to a breach of the tenancy agreement or antisocial behaviour, with the notice period being dependent on the grounds you are using to evict.
Students: the downside
Despite the positive changes regarding arrears, there is an ongoing issue when it comes to student accommodation – which could have quite serious consequences going forward.
John said: “When it comes to student lets, fixed term contracts are very appropriate.
“This year was a transition period, but in summer I can see there being problems as new tenants will be able to stay as long as they like, giving just 28 days’ notice.
“Landlords will not be able to market their property to students until their existing tenants give notice.
“This means that at the times when students are looking for somewhere to live in the next academic year – usually at least a few months in advance – there will be very few student properties available and landlords and tenants will not have the certainty in knowing they have secured a tenancy for the next academic year.
“The unintended consequence of this change could be that rents will increase, as fewer properties are brought to the student market.
“Alternatively, these landlords, frustrated with the new system, could well decide to move away from the student sector and let to others – reducing the supply of housing to students.”
Tenants fees ban
The ban on charging tenants’ fees was technically introduced in 1984 but was further clarified under Section 32 of the Private Renting Scotland Act 2011 and was introduced in 2012.
This made agents’ fees to cover administration, setting up the lease or carrying out reference checks, illegal.
Similar changes are set to come into force in England this June, with major concerns from landlords as to whether they will now be expected to cover these fees.
John said: “The impact is difficult to measure, however we are not exactly comparing like with like, as the kind of fees we were taking about in Scotland were much lower than I hear is charged in some parts of England.
“What is a big concern and should be considered in light of the ban coming in in England, is that letting agents could cut corners, as they are no longer able to charge fees to tenants and there is a limit to what they can charge the landlord.
“For example, they might not do their checks as thoroughly as they once did by no longer using a referencing agency, in a bid to cut costs. “When you have scheme such as right to rent in place this can be very risky for landlords.
Despite this, John said that there is little evidence this change had any significant impact on rents north of the border.
He said: “There was no direct evidence that rents went up following the changes.
“At least in Scotland the law is much clearer on this issue and tenants can challenge any charges by taking their case to the First-tier Tribunal.”
Talk of the First-tier Tribunal takes us nicely to the next area in which Scotland is leading the pack – access to justice and court reform.
The British Government is now consulting on plans for a new housing court, as called for by the RLA.
This is something that was brought in in Scotland in 2017 with the introduction of the First-tier Tribunal’s Housing and Property Chamber.
Before its introduction all cases went through the Sheriff Court which would decide all matters relating to housing, including evictions and any civil claims.
The new system has the same powers as the Sheriff Court but is free and neither party needs representation.
SAL had been campaigning for better access to justice for private landlords and greater transparency and consistency in decision making so the change was welcomed by the association.
John said the main issue so far has been the sheer volume of cases the Tribunal has had to deal with. He said: “It was estimated the court would deal with around 700 cases in the first year – in fact it dealt with that many in the first three months.
“This resulted in a delay in processing applications – an issue that it has been addressing.
“In addition to making rulings, the Tribunal’s findings are also searchable, so landlords can check out potential tenants and agents, and likewise tenants can check out potential landlords before any contracts are signed.
“The sifting process has also helped identify anomalies and errors in applications and notices issued early – issues that before could have gone all the way through the court process before being picked up.”
Jeremy Corbyn and John Healey have said Labour would introduce rent controls across UK cities were the party to come into power and in London, Mayor Sadiq Khan is reported to be backing plans for rent stabilisation and control in the capital.
Some controls are already in place in Scotland, where landlords are only permitted to raise rents once every 12 months.
John has warned that rather than controlling what tenants pay, the move actually encourages landlords to increase rents regularly.
There is no cap on market rents, and although the legislation does include provision to introduce ‘rent pressure zones’.
These zones can be established in areas of Scotland where rents are extremely high and would allow them to be capped, however, to date, not a single council has applied to introduce one.
Despite a Parliamentary debate on the issue last year, the British Government has no current plans to introduce mandatory licensing across the board for landlords with homes in England.
However, with Rent Smart Wales requiring landlords renting out properties to be registered and licensed – and mandatory registration in Scotland – it shouldn’t be ruled out.
Landlords in Scotland have had to register with the local councils in the areas where they own property, a requirement which came in under the Anti-Social Behaviour etc Scotland Act (2004).
Anyone who rents out a home without registering could face a fine of up to £50,000.
In England selective licensing exists in some local authority areas, with mandatory licensing schemes also in place for properties deemed ‘high risk’.
So far Liverpool is the only city with a compulsory licensing scheme for all PRS landlords, something, again, which could be rolled out.
In Scotland landlords pay a fee of £11 per property and a ‘principle fee’ of £55 to the authority where they have either their only rental properties or the main bulk of them.
A reduced fee is paid for second and subsequent authorities.
These fees are payable every three years on re-registration.
While this may not sound too onerous, for landlords with a large number of properties across various council areas charges can soon mount up.
And, as is the case with the licensing schemes in place in England, things work differently depending on the local authority area you are in.
John said: “There are 32 different registers for the 32 local authority areas, with a potential for lots of multiple registrations and each council being responsible for its own register.
The lack of enforcement is the main issue.
“If you are going to operate a scheme like this, it must be worthwhile – and it is unacceptable that there are still unregistered landlords operating in the sector.
“Some councils are doing a good job, they have landlord forums, newsletters and support landlord accreditation and training.
“For others it seems like they are simply paying for nothing other than having their name on a list.
“There needs to be more and better published enforcement work – so that landlords see the benefit of registration.”
In conclusion Looking at the situation in Scotland it appears that – setting aside sticking points such as the student landlord issue – the sector has started to adapt well to the changes thrust upon it.
John said: “At the Scottish Association of Landlords our mission is to ensure that we have a well-managed private rented sector and that landlords are recognised for all the good work they do in providing much needed housing in Scotland.
“When devolution came in it gave us the opportunity to look at how housing in Scotland and in particular the PRS, was regulated.
“We have been trailblazers when it comes to making drastic shifts in the way the sector operates and broadly speaking the fear of change has been much worse than the actual impact.
“The message we want to get across is that regulation is not bad in itself, so long as it is properly enforced and proportionate.
“We worked closely with the politicians and they were keen, not just to talk to us, but to listen to how we believed we could make the changes they wanted work for everyone.
“The attitude to renting from private landlords has changed in Scotland and politicians are finally recognising the importance of the PRS.
“We support the right for tenants to have a home they can call their own, but we also need landlords to be recognised as valuable investors in much needed housing who’s rights need to be safeguarded.
“Only then will landlords have the confidence to continue to invest in the sector.”