From 1st December 2017 the new Private Residential Tenancy (PRT) regime will be introduced across Scotland. The regime will implement a range of changes to the current Private Rented Sector (PRS) that will affect letting agents, landlords, tenants and the way that properties are let.
The Scottish Government’s vision behind the move to the new PRT was to create:
‘A private rented sector that provides good quality homes and high management standards, inspires consumer confidence, and encourages growth through attracting increased investment.’
One key change is that the Scottish Government will be publishing a model tenancy agreement, which will be used for all new residential tenancies beginning after 1st December. Unlike the current Short Assured Tenancies, PRTs will have a start date but no end date, meaning that there is no minimum term and tenants can serve 28 days’ notice at any point from the start date of the lease. The loss of the ‘no fault’ ground, which allowed landlords to recover possession of the property without providing a reason, or because the initial term had ended, aims to improve security of tenure for tenants.
Landlords will still be able to end a tenancy, but as they can no longer serve notice when the tenancy has reached its end date, they must instead state one of eighteen grounds for eviction. The grounds for eviction have been expanded to include selling the property or the landlord moving back in.
Having no minimum term is a significant change from the current system, and is perhaps the one revision that raises the most concern for landlords. For landlords, concern surrounding no minimum terms for tenancies include the possibility of increased void periods and the costs involved in frequent tenancy changeovers such as inventories and additional cleaning. There is also concern that it may be more difficult to evict problem tenants.
We take a look at some of the key considerations surrounding the omission of an end date in tenancy agreements.
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1. Finding the right tenant
Applicant screening has always been important - at Clan Gordon we screen applicants from the very first phone call to check that they are suitable for the property, followed by an individual accompanied viewing, and stringent reference checks - but under the new regime it will be even more crucial to find the right tenant for your property.
Letting agents and landlords who operate on a first-come-first-served basis for finding tenants should now change their strategy. Meeting potential tenants in advance, and asking the right questions, will help landlords and agents to gather important information - such as how long the tenant is looking to rent for, where they are working and on what type of contract, and where they were living previously and how long for - and decide if the applicant is a good fit for the property and for the landlord. Obviously plans may change and tenants may not end up staying in a property for as long as they had planned, but it is essential to minimise this risk where possible by having sensible processes in place.
At Clan Gordon, our aim is always to secure quality tenants in long term tenancies, which is what we will continue to do under the new regime.
2. Fair rents
As with Short Assured Tenancies, landlords will be free to set the initial rent for their property based on the market rate. Landlords will also still be able to review the rent level during the tenancy, but will be restricted to one increase per year and must give the tenant 3 months’ written notice.
Rent levels in Edinburgh have increased considerably in recent years, for example, the average rent for a two bedroom property is currently £967pcm, up from £527pcm in the first quarter of 2008 [Source: CityLets]. This increase is in part due to some letting agents pushing up rents, regardless of the quality of the property, meaning that tenants, particularly families, are finding renting increasingly expansive and unattainable.
Removing the minimum term for a tenancy means that tenants can serve notice and move to a cheaper property if they believe that they are paying more for their current home than it is worth. This could have the effect of stabilising rents and stopping tenants paying over the odds for substandard properties.
Under the new regime tenants will also be able to apply to the newly established Housing and Property Chamber (HPC) to set the rent if they feel that a landlord has requested an unfair increase. However, tenants already have the ability to do this through the Private Rented Housing Panel (PRHP) but rarely do as landlords do not tend to increase rents significantly during tenancies.
3. Quality properties
In Edinburgh there is a lack of residential properties available for rent, meaning that some landlords and agents have been getting away with charging premium rents for properties that are unclean, do not meet the Repairing Standard, and in some cases do not even have the required safety certificates. Allowing tenants to move from a property without living there for a minimum of 6 months will perhaps persuade these landlords to improve their property to a standard that encourages tenants to stay for a longer term.
At Clan Gordon, we understand that a lettings property is a tenant’s home, and so it is important that we provide quality properties where a tenant can feel settled. Our latest Tenant Satisfaction Survey (2017) found that 96% of our tenants were satisfied with the quality of the furnishings and decoration in their Clan Gordon property, and 94% of tenants confirmed that the quality of the property was either ‘important’ or ‘very important’ to their decision to extend their tenancy, demonstrating that tenants are more likely to stay in a good quality property.
4. Student rentals
Edinburgh is well known for its large student population, making it a popular choice for property investors looking for 3-6 bedroom HMO properties that can be let to students. With bedrooms in these properties renting for up to £600pcm at the top end of the market, the student market can be very lucrative for landlords.
Many landlords with HMO flats let them from September to September under the short assured tenancy regime. With the new private residential tenancies not having a set end date there is a risk some tenants will decide not to stay for the summer after all and leave when their term ends at the end of May by giving 28 days’ notice before then. This creates a big problem if the landlord finds a new group of tenants to move in the following September as the flat could potentially stay vacant through the summer. To solve this potential problem, Clan Gordon are considering changing this practice to start tenancies on 1st June, meaning it is then easy to line up replacements for 1st June if they don’t decide to stay for another year.
For landlords, it is important to keep in mind that these changes have been made to support tenants in securing quality homes that are well managed. If you provide a quality property that a tenant can call their home, and is managed by a quality letting agent, it is unlikely that you will be faced with a high turnover of tenancies.
With tenants getting more stability under the private residential tenancy is will be even more important to have a good agent who will communicate effectively with these tenants throughout the year and look after them so that they are more likely to communicate well too. In our latest Tenant Satisfaction Survey (2017) 98% of tenants confirmed that they are satisfied with our level of communication, and 90% of tenants rated our customer service as ‘excellent’ or ‘very good’.