Dealing with changes to tenancy law

Before 1 December 2017 virtually all PRS tenancies in Scotland were short assured which, like their counterpart the assured shorthold elsewhere in the UK, could effectively be terminated without cause on giving two months’ notice.

On the aforementioned date, however, the short assured tenancy, together with the assured tenancy, was replaced by the private residential tenancy (PRT), which can only be terminated by the landlord under certain heads, primarily:

• The property being required by the landlord for another specified purpose
• Tenant’s conduct – or, in certain cases, a change in a tenant’s status

In addition, rents cannot be increased more than once a year and disputes on all PRS tenancy issues – including evictions – are now resolved by a First-tier Tribunal rather than the courts.

While these protections may appear to signal a return to what some landlords and their funders will see as the “bad old days”, restricting both the supply of and investment in or funding of private rented accommodation, it should be noted that:

• the landlord can terminate if they wish to sell, or use the property for non-residential purposes;
• the ability of a mortgage holder to terminate on enforcement and of a landlord to terminate on refurbishment is wider than under the assured tenancy, as is termination to enable the landlord to live in the property;
• rentals can be increased annually in accordance with open market value save in special (and temporary) circumstances, where the rent can still be increased by a minimum of Consumer Price Index plus one per cent;
• most evictions based on either the let property being required for another purpose or status are mandatory.

Indeed, the provisions of the PRT appear to be very much in line with the recommendations in chapter two of the recent report from the Resolution Foundation’s Intergenerational Commission regarding derisking the PRS in light of the number of millennials set to rent privately during their key child-rearing years and beyond.

It is worth noting that at age 30 the number of millennials in the PRS is double the rate for generation X and four times that for baby boomers at the same age, and that in the past 15 years the ratio of families with children in the owner-occupied sector is now merely twice that in PRS, as against eight times as recently as 2003.

As the legislation was only introduced in December 2017 it is probably too soon to say to what extent it has met all of its objectives.

What seems clear, however, is that far from fleeing the sector in horror the market has not reacted adversely – possibly because there is an annual rent review based on market value and the landlord can obtain vacant possession both on breach and if they wish to sell, redevelop or (in the case of an individual) live in the property, as can a funder on enforcement of their mortgage, regardless of when that mortgage was created.

Lessons for other parts of the UK?
Interestingly, if the proposals of the Intergenerational Commission’s report – and others such as Civitas in 2015 – for an indeterminate PRS tenancy are adopted, the PRS sector in England will have greater security of tenure than local authorities and in some cases housing associations.

This begs the question of whether the modification – and in the case of councils the abolition – of the lifetime tenancy through the Localism and Housing and Regeneration acts was predicated on demographics that no longer apply and reflects the past rather than the future.

The PRT is clearer and provides the landlord (and their funders) with greater flexibility than the assured tenancy while still providing a level of security not available under a fixed-term tenancy, and social landlords in particular may consider it a better option than those available south of the border – particularly in light of current trends.

Housing is of course a devolved matter and if some form of indeterminate PRS tenancy were adopted in other parts of the UK the detailed terms would doubtless be different.

However, the fact that such a form of tenancy has been adopted in one part of the UK at a time when the PRS sector is, for better or worse, moving from marginal to mainstream is one that landlords whether private, social or intermediate may wish to consider and closely monitor.

John Blackwood is chief executive of the Scottish Association of Landlords. Jim Bauld is a partner at TC Young and a legal member of the First-tier Tribunal – Housing and Property Chamber