United Kingdom

A spotlight on the Scottish government's “New deal for tenants” in the private rented sector

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The interior of the Scottish parliament building

The Scottish government's latest proposals to reform the private rented sector (PRS) have sparked considerable debate and discussion. One of the most contentious issues in these proposals is rent controls. While the government's intentions may be to spare tenants higher costs, the industry has raised concerns in the media and noted alternative solutions that may better serve the interests of both tenants and landlords.

Alternatives to rent controls

The objective with rent controls clear: to limit tenant rent increases during the ongoing cost of living crisis. However, in PayProp’s recent letter to the Scottish government, we outlined the unintended consequences with this strategy, particularly in harming landlord confidence, which has knock-on effects for the overall housing market.

Recent data from Hamptons reveals a significant increase in the number of landlords selling their properties, marking the highest percentage recorded since 2009. This figure has surged by one third, from 9% in 2022 to 12% in the present year. The fear of even stricter rent controls has the potential to discourage prospective landlords from adding new rental stock, thereby causing an inflationary impact on rental prices.

In addition, the consultation also suggests exempting build-to-rent properties from rent controls. At PayProp, we want to see all private rented properties excluded from rent controls, as we feel there are better solutions that do not discourage landlords from providing homes and putting upward pressure on rents.

Balancing the needs of tenants and landlords

Instead of implementing rent controls, PayProp suggests an alternative approach: allowing tenants to challenge unfair rent increases through Rent Service Scotland or the First-tier Tribunal. These bodies can objectively assess whether a rent increase is justifiable, considering factors such as market rates, property improvements and landlord costs. If the rent increase is deemed unfair, it can be adjusted accordingly.

This approach not only empowers tenants but also preserves landlord confidence and encourages investment in new rental properties. In a time of economic uncertainty and rising costs for all, it's vital to strike a balance that benefits all parties involved in the PRS.

Other concerns

While rent controls have dominated the conversation, there are other vital concerns that can be raised with the government's proposals to allow tenants the right to keep a pet that cannot be unreasonably refused. PayProp acknowledges the desire of some tenants to keep pets in rental properties. However, we think there is a need for a balanced approach that protects both tenants' rights and landlords' interests. Tenants requesting the right to keep a pet should be required to take out a pet damage insurance policy to cover common forms of damage. Landlords and letting agents should have the option to charge an additional fee for this policy if a tenant refuses to take out adequate cover.

To facilitate mutually agreeable outcomes in this regard, the government should collaborate with the insurance industry to come up with affordable pet damage insurance policies while clarifying the process for landlords to recover repair costs not covered by insurance or deposit money.

Changes to eviction enforcement are also outlined. The government proposes enforcement could be postponed if a tenant is facing stress or seasonal pressures, while taking into account the pressures on the landlord. While we appreciate the need for tenant protection, a mechanism must be in place to expedite the eviction process in cases where urgent maintenance or refurbishment is required for safety reasons. This is needed to avoid unsafe living conditions for tenants and ensure the landlord can undertake the necessary repairs.

Regarding tenant deposits, our view is that existing policies should remain unchanged. Tenancy deposits should continue to be held in dedicated schemes and returned directly to tenants at the end of their tenancies. However, if all reasonable attempts have been made to return deposits to tenants, some alternative uses that benefit tenants could be considered.

Engage with the industry

The Scottish government's proposals to reform the private rented sector are aimed at addressing the needs and concerns of both tenants and landlords. But while rent controls may appear to be a solution to rising costs, the unintended consequences for the PRS must be carefully considered. Alternatives, such as allowing tenants to challenge unfair rent increases through objective bodies, can provide a fair and balanced approach that serves the interests of all stakeholders.

PayProp is committed to helping professionalise the lettings industry and the broader property market. As part of our outreach to governments across the UK we have asked to meet with representatives of the Scottish government to discuss our concerns and share alternatives that we believe will work for agents, tenants and landlords.

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