New Private Residential Tenancy
As of 1st December a new form of tenancy will be introduced in Scotland, the Private Residential Tenancy (“PRT”), a result of the Private Housing (Tenancies) (Scotland) Act 2016. This marks another step in the Scottish Government’s drive to combat the difficulties affecting the Scottish housing market; including the current lack of supply and the drop off in home ownership among the younger generation.
From tomorrow, landlords and tenants will be unable to enter into short assured tenancies, which have been the form of tenancy since 1989. Existing short assured tenancies will continue to be effective until terminated. The Scottish Government has provided a recommended model tenancy agreement which includes standardised tenancy terms.
The implementation of the PRT will provide a number of benefits for landlords, including the removal of the requirement to issue separate notices to tenants (AT5 forms) and when regaining possession, a notice to leave, will replace the current notice to quit and notice of proceedings, simplifying the process.
A fundamental difference, however, will be the loss of the ‘no-fault’ ground of termination. A Landlord can only bring a PRT to an end on one of the eighteen grounds which include the landlord selling the property or the landlord intends to live in the property. Notice of either 4 or 12 weeks is required by the Landlord. A tenant, however can terminate on giving 4 weeks’ notice at any time. In addition, rents may not be increased more than once a year and local authorities have the power to designate rent pressure zones, which do not affect initial rents but set a cap on rent increases at CPI + 1%.
However, while PRT might be in the news this week, it is only one aspect of Scotland’s quickly developing residential housing market. To address the housing shortage, the Scottish Government is taking steps to encourage the Build to Rent Model (BTR) with its recently published planning delivery advice for the BTR sector. The document outlines the opportunities and challenges for developers and investors. The key advantage of BTR is its possibility of delivering quality, affordable housing quickly and its ability to foster and support economic growth.
With the number of mortgages for house buying still well below pre-crash 2007 levels, this new model of funding and delivery of housing is a potential welcome alternative to home ownership.
To encourage investment in BTR the Scottish Government has recently announced its Rental Income Guarantee Scheme (RIGS). RIGS offers a government guarantee of a slice of the core rental income forecast to be generated over a three or five year period. During any year of the guarantee period, if the actual annual core rental income falls below an agreed amount for that year, the investor will be entitled to a payment from the scheme. The value of the fund has not yet been published by the Scottish Government but once the fund is allocated the scheme will be closed.
The specific aim of RIGS is to provide the developer and their investors with greater confidence during the initial/ early stages of occupation, when the risk of suffering voids is likely to be at its highest.
Gillian Campbell comments “The Build to Rent Sector in Scotland has lagged behind London and other key regional cities but it is positive news for the housing sector in Scotland that a number of BTR schemes are now in planning in both Edinburgh and Glasgow and the introduction of RIGS by the Scottish Government is a welcome step to encourage investment in Scotland.”