MBM Office 260 x 216From 1 December 2017, the private rented sector in Scotland will undergo a significant change. The provisions of the Private Housing (Tenancies) (Scotland) Act 2016 (“the Act”) will replace the assured tenancy regime with a new residential tenancy known as a Private Residential Tenancy (“PRT”). It will no longer be possible to enter into an Assured Tenancy or, more commonly, a Short Assured Tenancy on or after 1 December 2017.

The Act will apply to new residential tenancy agreements, with existing tenancies continuing to operate under the old regime until brought to an end by the landlord or tenant serving notice to quit the let property. The Act lists certain types of lettings which are exempt and cannot be PRTs. The Scottish Government (“the SG”) hopes the introduction of PRTs will enhance security of tenure for tenants and provide safeguards to landlords, lenders, and investors. A Model Tenancy Agreement (“MTA”) for the new regime has now been published by the SG and can be read here.

Creating a PRT

Under the assured tenancy system a landlord was required to give the tenant notice of the type of tenancy before the agreement began. The pre-tenancy notices were a source of confusion in the sector and occasionally led to unwanted results when the rules were not complied with. From 1 December, the PRT will be the only form of private housing tenancy available and there will be no requirement to provide a pre-tenancy notice. However, landlords must give new tenants specified guidance notes about the tenancy terms at the outset of the tenancy and within 28 days where a different type of tenancy becomes a PRT or there is a change to the terms of a PRT.

The Model Tenancy Agreement

The MTA is a template intended to help landlords meet their obligations under the Act and introduce uniformity throughout the private rented sector. While landlords are not required by law to use this agreement, the MTA clearly specifies a number of mandatory clauses (shown in bold typeface) with the aim of ensuring the landlord and tenant’s rights and responsibilities are properly covered. Discretionary clauses are also included, allowing the tenancy to be tailored to suit the needs of each individual agreement. The model is free to use and accessible on the SG website, which provides the guidance notes explaining the operation of the MTA and the changes under the new regime and the mandatory grounds which must be included in a PRT where the MTA is not used.

Terminating a PRT

One of the fundamental changes under the new regime is that a PRT does not have a fixed term. Under the existing system, short assured tenancies can be terminated by a landlord at the end of the fixed term for no other reason than it being the end of said fixed term (the “no fault” ground for repossession). This ground has been abolished under the new Act. All PRTs will last indefinitely until the tenant serves notice on the landlord or the landlord can establish one of 18 grounds for repossession.

For a tenant to terminate, written notice must be served on the landlord specifying the tenant’s wish to end the agreement and the end-date. This must be served on the landlord 28 days prior to the end-date. Since PRTs are to be open-ended agreements, this notice can be served at any time during the tenancy. It had been proposed at Bill-stage that there would be a minimum 6-month initial term during which the parties would be bound under a PRT, however this suggestion has not been implemented.

Landlords can terminate a PRT by serving a single written notice on the tenant called a ‘Notice to Leave’. This notice replaces the current requirement to serve a ‘Notice to Quit’, a section 33 notice and a ‘Notice of Proceedings’ (AT6). Landlords must found this notice on one of the 18 grounds for repossession listed in the Act. These grounds include situations where the landlord is intending to live in the property or sell it, where the landlord intends to use the property for non-residential purposes, where the tenant is in rent arrears or conducting anti-social behaviour, or where there has been a breach of the tenancy agreement. If the tenancy is within its first 6 months then the landlord must give the tenant 4 weeks’ notice, increasing to 12 weeks thereafter.

Rent Increases

Another key change under the new regime is that rent can only be increased once a year. Landlords must provide tenants with a ‘rent increase notice’ at least 3 months’ before the planned increase. If the tenant deems the increase to be unreasonable, then the matter can be referred to a rent officer for determination. Where a Local Council considers that rents are rising too quickly in a certain area, it can apply to the SG to have that area designated a ‘rent pressure zone’. This sets a cap on rent increases for tenants in that area for the year, and can last up to a maximum of 5 years.

Final Thoughts

The introduction of PRTs has rebalanced the rights and responsibilities of landlords and tenants in the tenants favour. There is now concern that property owners can no longer rely on the certainty that properties can be let on a short-term basis. This may reduce the number of investors buying property for let. It may also result in a reduction in the supply of available rental accommodation in rural areas. Landlords should familiarise themselves with the new regime and make sure they are properly prepared for the changes.