Dealing with residential tenancies in Scotland

Dealing with residential tenancies has taken on a new meaning in Scotland. On 1 December 2017, the private residential tenancy (PRT) became the new residential tenancy for Scotland and, from 31 January 2018, letting agents of residential dwellings have to comply with a new code of practice and apply to be registered in the mandatory Register of Letting Agents.

The majority of tenants in the private rented sector in Scotland currently occupy properties under an assured or short assured tenancy agreement. Tenancies which existed before 1 December will continue but no new assured or short assured tenancies can be created; they will be replaced by a PRT when it comes to renewal time for existing tenants.

The short assured tenancy was criticised by tenant groups for not providing security of tenure for tenants. If the correct notice procedure is followed, landlords can recover possession of their property when a short assured tenancy ends on the basis of the ‘no fault’ ground for repossession.

The PRT aims to deliver improved security of tenure for tenants. The ‘no fault’ ground for recovery of possession of the property has been removed, with the result that there will be no specific date on which landlords will be entitled to recover possession of their property; the PRT will continue indefinitely unless the tenant serves notice to leave, or the landlord can satisfy one of the grounds for eviction. These include sale of the property by the landlord or a lender, significant refurbishment or change of use of the property as well as tenant breach.

Some residential tenancies cannot be PRTs, such as holiday lets and social housing tenancies and will not be subject to the PRT legislation. Purpose-built student accommodation (PBSA)comprising at least 30 bedrooms with planning permission for such use is also not subject to the PRT regime. Landlords of larger PBSA schemes will be able to serve notice on their student occupiers to leave at the end of term while landlords of smaller scale student accommodation will be subject to the new regime and will have to rely on the prescribed grounds for eviction or the student tenant serving notice to leave. The period of notice required to terminate a PRT will depend on how long the tenancy has lasted and whether you are serving the notice as the landlord or the tenant.

PRT landlords may review the rent once a year by serving a rent increase notice on the tenant at least three months in advance. In commercial terms, the PRT legislation aims to allow landlords to review rent to a market level, but also aims to protect tenants where a landlord seeks to use an unjustified rent increase to manoeuvre a tenant out of a property. Following receipt of a rent increase notice, tenants can make a referral seeking an order for determination of the open market rent from a rent officer; appeals can be made to the First Tier Tribunal.
With PRTs came the potential for local authorities to create rent pressure zones which may cover a smaller area (for example, postcode areas) within a wider local authority area. A local authority will have to show that rents payable in the area are rising too high, that such rent rises are causing issues for tenants and, as a result, the authority is under pressure to provide housing or subsidise the cost of housing. Scottish ministers will then decide whether a zone should be put in place.

Rent pressure zones will not affect the setting of initial rents. Landlords in the affected area can still review rent annually but will not be able to increase existing rents to greater than CPI + 1%. While the potential for zones was not fully welcomed, investors’ worst fears were avoided with the setting of the minimum cap.

Residential letting agents in Scotland will not only have to be aware of the new PRT, they will also have to comply with a new Code of Practice, which came into force on 31 January 2018. The Code applies to those who, in the course of their business in response to instructions either:

  • carry out work for a private landlord who has granted or is seeking to grant leases or occupancy agreements over their property to a tenant for use as their home or dwelling; or
  • manage residential property that is leased or is going to be leased to a tenant. Managing includes collecting rent, inspecting the property and arranging for repairs and maintenance and insurance for the property.

The Code regulates almost every aspect of letting agency work. In particular, it sets out the standards of practice to be met by those carrying out letting agency work, the handling of tenants’ and landlords’ money, and professional indemnity arrangements that should be kept in place. There is also a mandatory Register of Letting Agents for letting agencies, including those based outside Scotland, carrying out letting agency work in Scotland. Applications for registration must be submitted before 1 October 2018.

Deciding whether a business should be registered is not always straightforward. Scottish government guidance warns that each person’s circumstances will have to be considered in determining whether they should be registered. If a person is directly employed and their role is to let and manage property owned by their employer, that person will not have to join the register but the exact terms of their employment should be checked.

Before registering, letting agent organisations must have at least one senior manager or supervisor in each office involved in the day-to-day running of the business with the necessary letting agency qualification and, if applicable, further training. The applicant must also pass a ‘fit and proper person’ test.

It is worth noting there is a difference between the need to register with the local authority as a landlord and as a letting agent. Private landlord registration and holding HMO licences do not relieve a letting agent from the obligation to register in the Register of Letting Agents.

It will be a criminal offence to carry out any letting agency work for any person not on the register, punishable by a fine of up to £50,000 or up to six months’ imprisonment or both.

This is a mere glance at dealing with residential tenancies in Scotland. Those doing so for a transitional period will have to be up to speed with two different regimes for tenancies and, where they are involved in letting or managing residential properties, they should consider whether they need to list in the Register of Letting Agents. The Scottish government has published a model tenancy agreement highlighting the compulsory clauses alongside optional clauses for PRTs and a website with guidance on the new register.