Have you spoken to anyone in the profession about the new Lease?
Are you ready for the changes?
Are you concerned about the changes?
For all the Scottish Landlords out there, our clients included, you may have heard snippets of information about a new Tenancy coming into force to replace our existing Short Assured Tenancy in Scotland.
Hopefully, our blog can answer many of your questions, although it has to be said that there are still many questions unanswered by the Government, even though the new tenancy is due to take effect in around 6 months from now!
The boring stuff…
The new type of tenancy will be known as a Private Residential Tenancy (PRT) and is being brought into force under the Private Housing (Tenancies) (Scotland) Act 2016. The Scottish Government are looking to bring the new Tenancy into effect by January 2018. However, indications are that existing Short Assured Tenancies (SAT’s) will still continue until the tenants leave and they will not automatically transfer to the new PRT. The Scottish Government are recommending a Model PRT, but at the time of writing this article, this is still to be finalised and published.
The Private Residential Tenancy (PRT)
The idea behind the new Tenancy is to provide safeguards for tenants, landlords, lenders and investors and to put an end to the confusing tenancy notices and paperwork currently involved in Short Assured Tenancies (SAT).
The main change for Landlords will be that the PRT will not dictate an end date within the lease and in fact the tenants will only be required to remain in the tenancy for a minimum of 28 days. The agreement will be left open ended and will end when a tenant wishes to leave or the landlord uses one, or more, of the 18 grounds for eviction. As with the existing SAT there will be Mandatory Grounds and Discretionary Grounds for eviction, with the main Mandatory Grounds being similar in that the landlord can still repossess the property if they wish to live there as their own main residence, or to sell the property. However, should a tenant query the reason for repossession the Government, via the newly established First Tier Housing Tribunal will be able to carry out checks on the owner after the tenancy has ended to ensure that they have repossessed the property for the reasons they have provided. Should this not be the case, then there will be penalties to pay, which could amount to hefty compensation payments to the tenants. When a landlord wishes to bring a tenancy to an end there will be varying notice periods to consider, which will depend on the length of the tenancy, with a minimum of 28 days notice being provided to tenants who have lived in the property for 6 months or less. A detailed list of the Grounds and Notice Periods can be found by clicking on the link at the bottom of this page.
Landlords will also be limited to how often and by how much they can increase their rent by. Although annual increases are likely to be acceptable, the Government has the capacity to introduce rent controls in areas it designates as ‘hot spots’. It is therefore important that a property aims to achieve market value rent from day 1 of the new Tenancy to ensure that the best return is received throughout the course of the tenancy.
Tenants will have access to the First Tier Tribunal, (FTT) which will hear cases previously referred to the Sheriff Court, along with complaints from tenants, which would have up until now been referred to the Private Rented Housing Panel. Any matters relating to the Tenancy can be raised with the FTT and there is no charge to use this facility. Should a landlord be required to respond to a complaint via the FTT there is no requirement for them to be represented, with the aim being to make this a much simpler system than the current Court process for both tenants and landlords. More information on the FTT can be found at the link below.
Pros & Cons of the new PRT
The benefits of the PRT for landlords are very similar to that of the SAT in that if they need the property back for their own use, to carry out major refurbishments or to sell then they will still have the opportunity to end the tenancy.
The landlord will still be entitled to carry out suitable checks on any applicant for their property and make a decision based on these checks. They will also be able to inspect the property for repair and maintenance throughout the course of the tenancy by providing the tenant with notice of the access requirement.
The paperwork to create and end a PRT will be much simpler than it is at present and the wording of the tenancy terms aims to be in “plain language”.
The open endedness of the new PRT could cause concern for Edinburgh based landlords given the high demand for short term lets over the Festival and New Year period in the City. Tenants could apply for a property and give the indication that they are in the City to work and meet the criteria for the tenancy, but it could quite possibly be that they are only working for the 2-3 month summer period and have no intention to stay in the City afterwards. This will leave a landlord with more void periods and possibly more costs involved in remarketing and tenant finding during the quieter times of letting. At Watt Property we will work hard to ensure we carry out adequate checks on our applicants to ensure they have permanent long term work commitments before accepting them as tenants to try to limit this risk to our landlords.
Where previously a landlord could simply end the tenancy because they chose to at the end of a set period (i.e. 6months or on the termination “ish” date), this will no longer be acceptable. In most cases, landlords are aiming to find tenants who wish to stay on a long term basis and have no wish to bring a tenancy to an end until the tenant chooses to leave, but there is the odd occasion where a landlord and tenant simply clash and just can’t get along together. If this was to be the case with a PRT in place the landlord wouldn’t have a basis to bring the tenancy to an end and could be faced with a negative tenant-landlord relationship until the tenant decides that they wish to move on.
We understand that the Mandatory Ground allowing repossession to reside in the property does come with the further requirement that you must reside there for a minimum of 3 months before re-letting. This is something that could affect landlords using their property as a second home, or holiday let.
Rent controls are a concern to landlords as Local Authorities will be able to apply for an area to be turned into a rent pressure zone, whereby Scottish Ministers will set a cap on that area which can last up to 5 years, but will only apply to existing tenancies. A rent cap is a maximum limit set against how much rents are allowed to increase by each year for that area. Furthermore, tenants will have the ability to appeal any proposed rent increase and will have be able to contact a Rent Officer within 21 days of receiving the notice. The Rent Officer will have the power to decide on the rent for that property and whether it should be put up, or down.
Watt Property’s Conclusion
Yes, the new tenancy is very different to how things stand just now, but taking everything into account, assuming you have taken the time to source suitable tenants for your property it is unlikely that you will come across many issues. Landlords should consider their future intentions for the property before securing a tenancy and make their tenants, and agents, aware of their intentions if it involves ending the tenancy in a short space of time, i.e. 6-12 months , in the instance that they planned to return to the property, or sell.
All in all Landlords continue to offer a roof over a tenants head and provide a very valuable service in today’s world. Our aim is to assist you with this service and protect you against the risks that you are faced with on a daily basis.
We welcome your queries and invite you to contact Pauline Smith, or Angela Watt, of our office to discuss your position as a landlord in more detail. You may also be interested in meeting Pauline at our office for free property advice at our Property Clinic held on the last Friday of every month.
A great opportunity to talk through your particular situation and obtain free no obligation guidance from an expert.
More about the Private Residential Tenancy
More about the First Tier Tirbunal (Housing and Property Chamber)