KNOWLEDGE

Temporary rent freeze introduced for residential tenants in Scotland

Morton Fraser Professional Support Lawyer Sally Anthony
Author
Sally Anthony
Professional Support Lawyer
PUBLISHED:
09 December 2022
Audience:
Real Estate
category:
Blog

The Cost of Living (Tenant Protection) (Scotland) Act 2022 came into force on 28 October 2022. 

The Act, which was fast-tracked through the Scottish Parliament, was introduced as part of the Scottish Government's response to the current situation caused by the impact of the cost of living crisis. It aims to protect tenants by introducing a temporary rent freeze and a temporary moratorium on the enforcement of some eviction orders.

This bulletin focusses on the rent cap which is initially in force for the period from 6 September 2022 to 31 March 2023. The rent cap works by setting a maximum permitted rate at which rent may be increased in the majority of residential tenancies in the private and social rented sectors. The provisions apply to private residential tenancies, to assured tenancies and short assured tenancies, to Scottish secure tenancies and short Scottish secure tenancies and to student residential tenancies (including purpose-built student accommodation).

The permitted rate has initially been set at 0% meaning that rents are effectively frozen until March next year. Scottish Ministers can extend the measures beyond the initial six-month period for two further consecutive periods of six months which means that we could see a rent cap in place for up to 18 months. Scottish Ministers can also vary the cap whilst the measures are in force if they feel that this is necessary to respond to changes in wider economic circumstances.

For the period the measures are in force, landlords will not (subject to the limited exceptions noted below) be able to increase rents for existing tenancies, other than in line with the cap. It is however worth noting that the Act only applies to increases in rent and does not restrict starting rents or rent changes between tenancies. It also does not affect rent increases if rent increase notices were served before 6 September 2022.

In an attempt to provide safeguards for certain private sector landlords, the Act provides for limited circumstances in which rent may be increased above the cap in order to allow these landlords to partially recover an increase in certain costs incurred over the preceding six months. The relevant costs are mortgage interest payments, insurance premiums (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. Provided that a landlord has evidence of an increase in such costs over a period of 6 months, they can apply to a rent officer for a rent increase to cover 50% of the increase in those costs. The maximum increase that can be claimed is 3% of the existing rent payable under the tenancy. This means that the allowable rent increase will be the lower of 50% of the increase in the prescribed costs or 3% of the passing rent.  

The rent cap provisions apply slightly differently to student residential tenancies provided by universities and educational institutions and purpose-built student accommodation. For these tenancies, the rent cap is not back-dated to 6 September 2022 and instead came into force on 28 October 2022. In addition, "excessive utility charges" are in effect carved out of the rent cap provisions and so where a lease permits a landlord to charge the tenant for such costs, the landlord can continue to do so. 

Social landlords implement rent increases in April each year and so the current rent freeze will not have any immediate effect in this sector. In order to give social landlords greater certainty about what might happen after 31 March next year, the Scottish Government must, in its first report on the Act (due mid-January), clarify whether it intends to continue, vary or end the rent cap as it applies to social housing. 

There has been mixed reaction to the introduction of these emergency measures with concerns being expressed about the potential impact they may have on the supply of privately rented property and the potential for rent increases when the measures come to an end.  At the moment it is difficult to predict how long the measures are likely to be in place for and what impact they may have. The Act requires the Scottish Government to review the necessity and proportionality of the provisions every three months and we should therefore have more information and clarity when the first review is published in January.

For more information on the Act see the Scottish Government Guidance and Scottish Parliament SPICe Briefing.

Disclaimer

The content of this webpage is for information only and is not intended to be construed as legal advice and should not be treated as a substitute for specific advice. Morton Fraser LLP accepts no responsibility for the content of any third party website to which this webpage refers.  Morton Fraser LLP is authorised and regulated by the Financial Conduct Authority.