By e-mail
Alex Neil MSP
Cabinet Secretary for Social Justice
Communities and Pensioner’s Rights
Margaret Burgess MSP
Minister for Housing & Welfare
07March2016

Private Housing (Tenancies) Scotland Bill Stage 3: Reinstatement of Initial Tenancy Period

The Scottish Property Federation supports modernisation and simplification of the residential tenancy regime. While we still hold some general reservations, there is one particular amendment, which was raised at the second stage of the Bill’s passage through parliament that gives our members significant concern. The proposed removal of an initial tenancy term from a lease agreement.

This amendment arose very late in the legislative process and has not been subject to any form of consultation. Our members are therefore concerned that the significant unintended consequences have not been properly considered or costed and it is likely that it will be necessary to revisit this in the future. They are of the view that this amendment substantially alters the cost implications of the Bill on landlords and tenants. We suggest that a supplementary financial memorandum is produced to identify the cost implications.

The SPF is happy to work with the Scottish Government to achieve long-term, stable tenancies which is exactly what the industrywishes to encourage. We are also supportive of longer term lettings for tenants where this is desired and agreed with the landlord. However, combined with other changes to tax relief and the impending application of the 3% LBTT supplement, there could be significant negative pressure on existing and potential PRS investors in Scotland. Any such loss of investment will either continue or even exacerbate the crisis in housing supply and would represent a missed opportunity for Scotland if international and UK capital is located elsewhere.

This late amendment at the end of the stage 2 process seems to do the opposite of the government’s overall aim to improve security of tenure for tenants, balanced with appropriate safeguards for landlords, lenders and investors. It appears that this intervention is designed to give the tenant both stability and flexibility. We support this but it has to be accepted that there is a pricing differential between the two.

The removal of the initial tenancy term introduces further risk, costs and uncertainty into the proposed regime for landlords because there is no guarantee that a tenant will remain in a property for long enough to justify/cover the significant costs a landlord incurs between lets in preparing a property for re-let and re-marketing it.

The removal of the initial tenancy term may introduce further risk, costs and uncertainty into the proposed regime for tenantsbecause: -

  1. Market rents are likely to increase as landlords leave the sector and those remaining seek to ensure their rental return balances with the additional cost, risk and uncertainty.
  2. Landlords who consider the additional risk, costs and uncertainty outweigh the benefits of their investment will leave the sector, leading to tenants losing their home and a shortage of properties in the sector.
  3. Landlords operating in a market where there is a lack of supply of properties and greater risk to their investment (for the reasons outlined below) will naturally become more selective in the types of tenants they choose, to the detriment of some categories of tenant who will struggle to secure a tenancy in the PRS.
  4. The removal of the initial tenancy term is a fundamental exception to the existing law of landlord and tenant irrespective of the type of lease. It also has unintended consequences in that it could potentially create extremely long residential leases contrary to the 20 year rule.
  5. Security of tenure for tenants is not created through the term of the lease it is created through the provisions in the lease and the grounds for eviction. It is worth noting that the Scottish secure tenancy style lease used by the social housing sector contains a term, which following expiry, provide that the lease continues to operate until such time as it is terminated by the tenant or there are grounds for eviction by the landlord.

We support the views of the PRS Working Party sub-group on Regulation and Tenancy and wish to express our shared concern. We also support theproposed alternative solution, which could achieve the government’s stated aim of introducing protections for the victims of domestic abuse without making the proposed regime more detrimental for landlords and tenants: -

  1. Reinstate the ability for the landlord and tenant to agree an initial tenancy term of any duration (with a default term of 6 months in cases where a term is not agreed) – as per wording in original draft of theBill as introduced. 77% of standard respondents to the second new tenancy consultation, including Shelter Scotland, agreed that the new regime should include an initial tenancy period.
  2. Amend the original wording of the Bill to allow landlords to use the abandonment ground during the initial tenancy term.
  3. Introduce a fast track route for tenants to leave a tenancy during the initial tenancy term and thereafter in cases of domestic abuse, which can be exercised by just one of the joint tenants – with the tenancy continuing for any remaining tenant(s). The tenant can vacate without giving notice and can no longer be held liable for the lease terms as long as a written statement is provided to the landlord by the police or a victim support charity within 28 days of the tenant vacating, confirming that the tenant has left due to domestic violence OR as above but the tenancy ends and for any remaining tenants is automatically replaced with a statutory tenancy under the same terms and conditions as the original tenancy but with a one month initial term.

The unintended consequences of the removal of the initial tenancy term from the lease agreement not only make large-scale investment into the sector a much less attractive proposition, but also remove much of the tenant benefit derived from the Bill as introduced. Our members strongly encourage you to consider thereinstatement of the initial tenancy term that was removed from the Private Housing (Tenancies) Bill at Stage 2 at the third and final stage of the Bill.

The SPF would be pleased to discuss our comments at the Scottish Government’s convenience.

Hazel Sharp

Chair

SPF Residential Investment and Management Committee