The Private Residential Tenancy has been with us now for over 8 months and as a result I thought it might be worthwhile taking some time to see what impacts, if any, there have been.
I have looked at the major changes in the PRT here.
In summary the main points are:
- There is no minimum term.
- There are no pre-tenancy notices.
- Tenancies can continue indefinitely unless either the tenant wants to leave or the landlord decides to utilise one of the 18 grounds for repossession detailed in the act some of which are mandatory and some of which are discretionary.
- The “no fault” ground for repossession has been removed.
- If a tenant refuses to leave the property after being given notice by the landlord, the landlord will have to seek repossession through the First Tier Tribunal (FTT).
- The period of notice that a landlord is required to give to a tenant to terminate a PRT is 28 days (where the tenant has been entitled to occupy the property for not more than six months), or 84 days (where the tenant has been entitled to occupy the property for more than six months).
- Rents can be reviewed only once in a twelve-month period with a landlord required to give the tenant at least three months’ notice of the increased rent.
- Local authorities can apply to the executive to designate areas as rent pressure zones (RPZ’s). These will regulate rent on existing tenancies but not new tenancies. If a council is successful a RPZ can last for up to five years and landlords in the areas affected will be able to raise rents by at least CPI+1% every twelve months.
One of the issues the industry had with the PRT was that without a fixed term there was a greater potential that tenants might terminate their tenancies within 6 months. Since its inception have we seen a significant rise in the number of tenancies being terminated by the tenant within a six-month period? In short, the answer is no. The level of demand for good quality rental accommodation is significant and growing with most tenants finding it hard work to secure a property and will hence choose to stay put once they are settled.
The shortage of stock is being further exacerbated by recent findings from the National Landlords Association (NLA) that show that almost a quarter (24%) of landlords with property in Scotland have sold over the last three months, with just 5% having bought in the same period. The data relates to property transactions between April-June this year, four months after the Scottish Private Residential Tenancy was introduced in December 2017. This added to the continued rise in the short term let market is reducing stock levels further and increasing competition among those looking to secure a place to live. The result is there is significant opportunity for those landlords remaining in the market and for investors looking to purchase and the impact on Landlords of the removal of the fixed term has been negligible.
It is worth noting that without a fixed term a landlord also has no restriction on when they can serve notice using one of the grounds noted within the act. The result is those landlords who are choosing to exit the market and sell can do so at any point as long as the correct notice is given and this certainly has been happening. Thus, the Scottish Executives stated aim of creating a greater level of security of tenure for tenants has been left wanting.
I would also point out that a landlord does have the ability to end a tenancy using one of the 18 grounds for repossession listed in the act and the process for seeking repossession has been streamlined to make it easier for all parties. We feel the grounds for repossession are robust enough, though it is still too earlier to really comment on how the system and the FTT are working.
The removal of the section 33 notice or no-fault ground has also been highlighted as an area of major concern especially for HMO student style properties but again, we feel that this has been overstated. As an agency we understand it is critical that student properties are marketed at the correct time to ensure re-letting. To ensure this we write to all our student lets early in the year and will know very quickly how many properties will require remarketing. Demand for HMO’s is, if anything, higher than standard properties in a recent survey for Spare Room it was found that there are 22 individuals chasing every room in Edinburgh. With proactive management and communication with our tenants we are comfortable that we will continue to be able to minimise void times and ensure HMOs come onto market at the correct time to link with the academic year
The area where the concerns specific to HMO’s maybe be valid is for those landlords who choose to rent out their HMO properties for the festival. It will be difficult for a landlord to be able to know with any certainty when they are able to gain vacant possession since they cannot any longer end a tenancy on a given day using the “no fault” ground. As a result, there is a risk that the availability of accommodation for the festival will be reduced. It is our view that again with a proactive and coordinated approach to management and good communication we will be able to overcome these difficulties by seeking agreement form tenants on leaving dates early on. This should enable landlords to rent the property during the festival, though we will have to wait and see in 2019 before making a final judgement.
So in summary we are of the opinion that the new PRT shouldn’t overly concern landlords. With professional, proactive and coordinated management any of the risks can be mitigated. And with the continued rise of the Private Residential Sector demand levels for good quality accommodation look set to continue. Property continues to offer a strong return for investors and exiting the market is short sighted.