UPDATE 20 Jan: Landlords will press on with legal action against the Scottish government despite tenants minister Patrick Harvie scrapping the controversial rent freeze.
Property owners were outraged when the zero rate was announced as part of a new law aimed at helping tenants cope with the soaring cost of living.
Mr Harvie has announced that the emergency measures to protect tenants will be extended, but with private rents capped and enforcement of evictions prevented in most cases.
Subject to the approval of Parliament, changes to the Cost of Living (Tenant Protection) Act will mean that from 1 April landlords will be allowed to raise rents by up to 3% and can now apply for increases of up to 6% to help cover certain increases in costs in defined and limited circumstances.
Enforcement of evictions will continue to be banned for all tenants except in a number of specified circumstances.
Despite the revision, landlords will continue with legal action against the measures, arguing that there is no justification for removing the cap from the social sector while retaining it in the private sector.
A coalition of landlords and letting bodies has submitted a petition to the Court of Session in Edinburgh seeking a Judicial Review of the legislation. The coalition is represented by TC Young and Bannatyne, Kirkwood, France & Co.
In the petition, the three groups; the Scottish Association of Landlords (SAL); Scottish Land and Estates (SLE) and Propertymark, say they believe the law is disproportionate and unfair.
They say it is further exacerbated by the decision to retain rent control for the private rented sector and remove it for the social rented sector from 1 March 2023.
The petition further argues that by discriminating in the way it does, the law breaches the European Convention of Human Rights. The Scottish Government will be asked if it wishes to respond before the petition is considered by the court.
John Blackwood, chief executive of the Scottish Association of Landlords (SAL), said: “So far, the result of the Scottish Government eviction ban and rent freeze has been just as concerning as we predicted.
“Landlords selling up loss making property is further reducing housing supply, despite ever increasing demand. The result is the cost of finding a new home is actually increasing for renters.
“While the Scottish Government sees fit to raise council and housing association tenants’ rents, so social landlords can do repairs and improvements, they fail to realise that private landlords are faced with similar financial pressures
“The Ministerial statement in parliament last week and yesterday’s (Thursday) announcement make it perfectly clear the Scottish Government plans to continue with eviction ban and rent increase restrictions in the private rented sector beyond 31 March. Landlords have had enough.”
“We must stand united to protect our property rights by challenging this unfair legislation in court.”
Under the changes announced by Mr Harvie Increased damages for unlawful evictions of up to 36 months’ worth of rent will continue to apply.
The rent cap for student accommodation will be suspended, recognising its limited impact on annual rents set on the basis of an academic year
The government wants these temporary measures to be extended to 30 September, provided they remain necessary, with the option to extend for another six-month period if required.
As announced in December, the social sector rent freeze is being replaced with agreements from landlords to keep any rent increase for 2023-24 well below inflation.
Mr Harvie said: “Our emergency legislation has helped protect tenants facing the cost of living crisis. With many households still struggling with bills, it is clear that these protections are still needed to give tenants greater confidence about their housing costs and the security of a stable home.
“While the primary purpose of the legislation is to support tenants, I recognise that costs have been rising for landlords too. That’s why we intend to allow those in the private sector to increase rents by up to 3%, with a continued safeguard allowing them to apply for larger increases to cover specified rising costs they might be seeing as landlords.
“By allowing increases in rent – capped well below inflation and limited to once per 12 months – we can continue protecting tenants from the minority of landlords who would impose unaffordable rent hikes.
“We will continue to carefully monitor the impacts of this legislation, working with tenants and landlords to protect them from this costs crisis.”
The Scottish Property Federation cautiously welcomed the announcement, but said £700m of planned investment has been lost, leaving the country without badly-needed affordable homes. It previously warned that up to £3.5 billion of projects were at risk.
SPF director David Melhuish said: “‘This will give some confidence to key investors looking to build new homes for rent in Scotland, but it will not wholly undo the negative impacts of the emergency legislation implemented in October.
“In some cases, capital that was earmarked for building new rental homes in Scotland has already been diverted to projects in other parts of the UK.
‘We must address the crisis of availability for those seeking to rent homes in Scotland, and this will require significant investment from the private sector. We encourage the Scottish Government to work with the investment community when developing future legislation, so that we can avoid uncertainty and the unintended consequences that have occurred with the Cost of Living legislation.”
David Alexander, of lettings agency DJ Alexander, said the changes were “a sign that they have seen sense”.
He said that to allow increases in the social housing sector whilst denying rises in the private rented sector would have been both wrong and illogical.
“This shift in policy to allow rent increases in the private rented sector from 1 April onwards is a sensible approach following serious concerns from all parties.
“This will hopefully provide some breathing space for the private rented sector which has seen investment slow or stop, a reduction in the number of homes available, and increased pressure on tenants who have been unable to find appropriate homes.
“Given the level of feeling from landlords, property investors, the build to rent sector, universities, the farming community, and others that the rent freeze was damaging the sector and reducing the availability of homes for tenants it is appropriate that the Scottish Government has seen sense and adopted a more conciliatory approach.
“To do anything else would have simply exacerbated the current housing shortages.”
He concluded: “I hope that the six months from April will allow greater dialogue with all parts of the housing sector including homebuilders, property investors, and social housing landlords to ensure that we can develop a coherent and workable plan to provide homes for more people in the coming years.”
The evictions moratorium prevents enforcement of eviction actions resulting from the cost of living crisis except in a number of specified circumstances.
Landlords can apply to Rent Service Scotland (RSS) to increase rent to partially cover specific costs including increased mortgage interest payments on the property they are letting, an increase in landlords’ insurance or increases in service charges paid as part of a tenancy, subject to an overall limit.
This limit is currently set at 3% of total rent. From 1 April it will be increased to 6%. In effect this retains the status quo of allowable rent rises of 3% above the cap. As set out in the first report on the Act to the Scottish Parliament, as at 31 December 2022 RSS had received only 12 applications of this nature, of which 10 were valid.
Under the agreement on social rents for 2023-24, COSLA has committed to keeping local authority rent increases to an average of no more than £5 a week. Members of the Scottish Federation of Housing Associations and Glasgow West of Scotland Forum of Housing Associations have reported planned increases averaging 6.1%.