Drastic changes ahead for Private Rented Sector Tenancies

Guest article by Jane Rattray, Solicitor – Housing and Private Letting at Lindsays Solicitors.

In October 2014 the Scottish Government launched a Consultation on “A New Tenancy for the Private Sector” which proposes major changes to the current private rented tenancy system and is intended to create a new private tenancy system in Scotland. The Government have stated that their intention is to develop a system “that strikes a fair balance between the interests of tenants and landlords, and supports a professionally run sector that is managed for the long-term benefit of landlords and lenders, as well as tenants”.

Proposed changes to the repossession grounds

One of the primary concerns for any landlord letting out property is how to regain possession of the property. At present the service of a Notice to Quit and “Section 33 Notice” provides a “no fault” mandatory route for recovery of possession of a property with the service of an AT6 Notice also being an option where one of the (mandatory or discretionary) grounds contained in Schedule 5 to the Housing (Scotland) Act 1988 apply.

One of the most controversial proposals by the Scottish Government is the removal of the ‘no-fault’ procedure for ending tenancies despite the majority of landlords and letting agents arguing this procedure should remain. If the proposals are introduced, landlords will no longer be able to serve notices which terminate the lease at the end of the initial period of let, or raise proceedings for repossession without there being any “fault” on the part of the tenant or change in circumstances of the landlord (for example a need to sell the property). If the proposals are implemented, there would be greater risks and less flexibility for landlords in entering and leaving the rental market, which could ultimately reduce growth and investment in the private rented sector.

The Government’s proposal is to change the existing grounds for repossession, reducing the number from 17 to 11 grounds. The proposed grounds are:

The landlord is selling the home.
The mortgage lender is selling the home because the landlord has broken the loan conditions.
The landlord or family member of the landlord wants to move into the property as their principal home.
Refurbishment.
Change of business use, e.g. from home to shop (from residential to non-residential).
The tenant has failed to pay rent over three consecutive months.
The tenant has demonstrated antisocial behaviour.
The tenant has otherwise breached the clauses of their tenancy agreement.
Abandonment of the property by the tenant.
The property was let to the tenant because they were employed by the landlord.
The property is normally needed to house a full-time religious worker.

Rent arrears

The most common reason for a landlord seeking repossession of a property is where the tenant has accrued rent arrears. Under the proposed new regime, Ground 6 introduces a “Notice to Leave” where there are rent arrears. The exact application of Ground 6 is unclear and rather unhelpfully the Consultation contradicts itself. Page 20 provides that if a tenant has failed to pay full rent over two consecutive months, then a landlord can serve a Notice to Leave and if after three consecutive months the tenant is still in arrears, the landlord will be able to refer the case to the First Tier Tribunal immediately. The tribunal must order possession if the arrears equate to at least one month’s rent arrears over a period of three consecutive months and the amount of those arrears, at any point in that period, equated to at least one month’s rent. However, page 26 suggests that the tenant must have failed to pay full rent over three consecutive months. Further clarification of the position is therefore required. The introduction of the requirement of ‘consecutive’ months’ rent arrears is at odds with the current legislation and would make it more difficult for landlords to secure an eviction.

Sale of the landlord’s property

Ground 1 proposes that a landlord can repossess the property if they are selling the property. However, a tenant may defend the action on the basis he or she “disbelieves” that the landlord intends to sell the property, and the landlord may be asked to refute such an allegation before the Tribunal. The Consultation does not yet detail how a landlord is to prove his intention to sell, but presumably this may be through production of sales particulars, etc. One of the difficulties with this proposed ground for repossession is that there is scope for tenants to challenge the landlord’s intention to sell as a delaying tactic which may in turn result in additional costs to landlords. Further specification is required from the Government as to how a landlord would prove their intention to sell.

The landlord’s principal home

Ground 3 proposes that a landlord will be able to evict the tenant if the landlord or a family member intends to move into the property as their principal home. The Consultation proposes that if a tenant removes from a property so that the landlord or a family member can move in and the property is vacated by the landlord or the family member within six months then the landlord will require to offer the tenant a further tenancy. This is an unusual remedy which would only be available to the tenant where they had already removed from the property and would therefore, most likely have moved into another property.

First Tier Tribunal

The Scottish Government have estimated that housing disputes such as repossession actions will be transferred from the Sheriff Court to the First Tier Tribunal by December 2016. The Consultation proposes that a tenant will be able to refer a case to the Tribunal if the tenant’s view is that the landlord has acted unjustly by failing to follow through on the cited repossession ground, for example, if the landlord fails to move into the property or refurbish the property after serving a Notice to Leave on the applicable ground. The consultation raises the possibility of the Tribunal imposing a penalty of up to a maximum of three months’ rent if it decides a landlord has acted “inappropriately” in respect of one of the grounds for repossession. The Consultation does not specify what will amount to ‘inappropriate’ behaviour and this would obviously require to be defined.

And…. the good news!

While there are aspects of the Consultation’s proposal which may have a detrimental impact on the Scottish Private Rented Sector and which require further clarification, there have also been several positive proposals which will be beneficial to landlords and agents, such as:

Removal of pre-tenancy notices;
Introduction of a Notice to Leave to replace the Notice to Quit and Notice of Proceedings;
A model tenancy;
A new ground to evict when a tenant has abandoned the property.

The timescale for reforms

An analysis of the responses to the first consultation was published in March 2015 and a second consultation published in April 2015. A Bill on the planned reforms is to be introduced thereafter to the Scottish Parliament in Autumn 2015.

Guest article by Jane Rattray, Solicitor – Housing and Private Letting at Lindsays Solicitors.