Rent Freeze Bill passed by the Scottish Government

The Cost of Living (Tenant Protection) (Scotland) Bill which will temporarily freeze rent increases in residential tenancies and place a widespread moratorium on the eviction of residential tenants was announced on 6 September. The emergency legislation was published four weeks later on 3 October and then fast tracked through the Scottish Parliament and passed on 6 October.

Here are the headlines:

• The Bill applies to residential tenancies across the private and public sectors in Scotland; private residential tenancies (the most modern form of tenancy used for private residential lets including BTR schemes), the older assured and short assured tenancies, Scottish secure and short Scottish secure tenancies used in the public sector and student residential tenancies.
   
• The Bill only applies to increases in rent. It does not affect starting rents and it does not affect rent increases if rent increase notices were served before 6 September 2022.

• The freeze on rent increases is backdated to the period beginning on 6 September 2022 (the date of the original announcement) and will end on 31 March 2023 but Scottish Ministers have the power to extend the rent freeze to 30 September 2023 and 31 March 2024 and they have the power to bring it to an end earlier.

• The Scottish Government must review the rent freeze provisions to assess whether they remain necessary and proportionate having regard to the cost of living and must report every 3 months on that review and the status of the provisions. Amendments included in the final version of the Bill require the Scottish Government to consult parties representing the interests of landlords and tenants and local authorities before they prepare their report. The report must also summarise how the views of those consulted were taken into account.

• The Bill applies the rent freeze by applying a "rent cap", allowing for increases at a "permitted rate". That permitted rate will be set at 0% from 6 September 2022 until the end of March 2023 so no increase is permitted in that period. Any rent increase notice served on a tenant from 6 September 2022 will have no effect and the passing rent before any such proposed increase will continue. The Government has retained the ability to change that permitted rate.

• Subtle differences apply to the rent cap on student residential tenancies provided by educational institutions and purpose-built student accommodation. The cap will only affect student residential tenancies once the legislation comes into force (so not back dated to 6 September 2022) and it will only affect student tenancies where the tenancy agreement allows for an increase in the rent (including sums paid in respect of repairs, insurance and services but not sums payable by the tenant in connection with excessive use of utilities). This means that excessive utility charges are carved out of the restrictions, but landlords may wish to review their standard form letting agreements to identify whether, for example, any supplementary right to charge increased utility costs are potentially restricted by this Bill.

Provided they can supply evidence of an increase in prescribed costs relating to the let property over a period of 6 months, landlords under private residential tenancies and assured and short assured tenancies are entitled to apply to a rent officer for a rent increase to recover half of the increase in those costs. The prescribed costs are mortgage interest, insurance premium payable in respect of insurance (other than general building and contents insurance), and service charge paid for by the landlord and for which the tenant is liable in terms of the lease. The maximum increase that can be claimed is 3% of the passing rent.

As to what happens when the rent freeze ends, rent reviews will be able to be dealt with as previously. The Bill makes special provision for regulations to be passed to allow the rent to be increased twice in a 12-month period. We will have to wait for the regulations to confirm whether this will allow landlords to return to their usual rental cycle.

The final set of changes relate to a moratorium on evictions. The legislation does not prevent a landlord from serving a notice of proceedings or a notice to leave, nor does it prevent raising eviction proceedings in the Sheriff Court or First Tier Tribunal. However, it does prevent the enforcement of eviction orders by Sheriff Officers for a maximum period of 6 months. Where court or tribunal proceedings were raised in relation to an eviction notice served on or after 6 September 2022 the moratorium will apply except in certain circumstances.

Exemptions to the moratorium include (in relation to private residential tenancies) where the property is to be sold by a lender, where the tenant has engaged in criminal or anti-social behaviour, where the property has been abandoned and where a private landlord needs to either sell or live in the property due to financial hardship. Eviction on the ground that the tenant is no longer an employee of the landlord is also exempted from the moratorium in the final version of the Bill. The exemptions are slightly different for assured, short assured and regulated tenancies and tenancies in the social rented sector.

There is also an exemption to the moratorium where there are substantial rent arrears. The definition of substantial rent arrears is approximately 6 months' rent under the tenancy; or £2,250 for the social rented sector.

It is intended that the moratorium adds to existing protections for tenants in the private and social rented sectors. Existing protections include pre action requirements and the discretion of the court or tribunal to determine whether eviction is reasonable in the circumstances.

Student tenancies are treated differently from others. The only exceptions to the 6-month moratorium on evictions are those on the grounds of the student committing a criminal offence or engaging in anti-social behaviour.

Finally, landlords who unlawfully evict tenants in contravention of the legislation will be liable to pay a maximum penalty of up to 36 months' rent. There will also be a requirement on the court or tribunal to inform the relevant authorities such as the local authority or the Scottish Housing Regulator of the unlawful eviction.

Emergency legislation passed at breakneck speed risks unintended consequences. It is to be hoped that the Scottish Government uses the power peppered throughout the Bill to introduce regulations which will address and rectify any such unintended consequences. Meantime, please get in touch with your usual Brodies contact if you would like to discuss in more detail.