Rent cap for private residential tenancies
22.Paragraph 1(1) of schedule 1 provides that the 2016 Act applies, subject to sub-paragraph (2), with the modifications set out in paragraph 1 of the schedule.
23.Sub-paragraph (2) provides that the modifications in paragraph 1 have no effect in relation to any rent-increase notice given under section 22(1) of the 2016 Act by a landlord under a private residential tenancy to a tenant before 6 September 2022. Existing rights of tenants to challenge any rent increase will be maintained for rent-increase notices given before 6 September 2022. This means that, where a rent-increase notice was issued prior to 6 September 2022, the 0% cap will not apply and the proposed rent will be applied 3 months after the tenant received the rent-increase notice (or such longer period as may be agreed between the landlord and the tenant) unless the tenant has made an application to a rent officer (part of Rent Service Scotland) under section 24 of the 2016 Act to challenge the rent-increase notice.
24.Sub-paragraph (4) modifies the effect of section 19 of the 2016 Act. Section 19(1) of the 2016 Act provides that the rent payable under a private residential tenancy may not be increased more than once in a 12 month period. Sub-paragraph (4)(a) modifies section 19(2) in consequence of sub-paragraph (9) and (13). Separately, sub-paragraph (4)(b)—
firstly, inserts a new subsection (3) into section 19 of the 2016 Act in consequence of the new Chapter 2A of Part 4 of the 2016 Act (to be inserted by paragraph 1(17) of schedule 1 of the Act) to allow a landlord to apply to a rent officer seeking a rent increase above the level of the permitted rate in certain circumstances,
secondly, inserts a new subsection (4) of section 19 conferring a regulation-making power (subject to the affirmative procedure) on the Scottish Ministers to amend that section to permit a second rent increase in a 12 month period in certain circumstances (as may be specified in the regulations).
25.Sub-paragraph (5) inserts a new section 21A into the 2016 Act (with temporary effect) providing that from 6 September 2022 a landlord under a private residential tenancy may not increase rent by more than the permitted rate (which is initially set at 0%). The permitted rate may be changed by the Scottish Ministers by regulations (subject to the affirmative procedure). Any rent-increase notice given on or after 6 September 2022 when the permitted rate is 0% has no effect.
26.In consequence of the new section 21A of the 2016 Act imposing a rent cap, sub-paragraph (6) modifies section 22 of the 2016 Act providing that any rent increase agreed between a landlord and tenant has no effect to the extent that the increase is more than the permitted rate.
27.Sub-paragraphs (8) and (9) modify sections 24 and 25 of the 2016 Act with the effect that, except where the permitted rate is 0% (meaning that no rent-increase notice can be given), a tenant who has received a rent-increase notice from a landlord may refer the proposed rent increase to a rent officer for a decision on whether the proposed rent increase does or does not exceed the permitted rate of increase. If it does not, the rent officer will approve the proposed rent increase by order. If the proposed rent would be an increase of more than the permitted rate, the rent officer will order that the rent may be increased by the permitted rate (see new sections 25(1A) to (1C) of the 2016 Act inserted by paragraph 1(9) of schedule 1).
28.In the circumstances where the modifications of section 25 of the 2016 Act made by the Act mean that the application to a rent officer under section 25 is to be limited to the rent officer deciding whether the proposed rent increase is at or below the level of the permitted rate (and is more limited than the process of rent determination by a rent officer otherwise set out in section 25 of the 2016 Act which is to be determined at the level of open market rent), the following provisions of the 2016 Act are not necessary and are temporarily to be treated as having been repealed—
section 26 (rent officer’s duty to issue provisional order) – see sub-paragraph (10),
section 32 (determination of open market rent) – see sub-paragraph (15),
section 24 (duty of rent officers and the First-tier Tribunal to make information about open market rents determined) – see sub-paragraph (18).
29.Sub-paragraphs (12) and (13) modify the effect of sections 28 and 29 of the 2016 Act to provide that the landlord or the tenant may appeal against an order by a rent officer under section 25(1A) or (1B) (deciding that the proposed rent increase is at or below the permitted rate and ordering that the rent payable is the rent proposed in the rent-increase notice, or otherwise ordering that the rent payable is the current rent payable as increased by the permitted rate) to the First-tier Tribunal. On determining the rent payable on appeal, the First-tier Tribunal must decide that the rent payable is the current rent as increased by the permitted rate.
30.Sub-paragraph (14) consequentially modifies section 31 of the 2016 Act dealing with what is effectively an underpayment of rent which arises where the effective date on which the rent officer’s or the First-tier Tribunal’s decision regarding rent increase takes effect is later than the date that the rent increase had originally been due to take effect in accordance with the rent-increase notice.
31.Sub-paragraph (16) makes consequential provision to section 33 of the 2016 Act (which applies where a referral made to a rent officer under section 24, or an appeal to the First-tier Tribunal under section 28, is withdrawn). In those circumstances, the rent officer or the First-tier Tribunal must decide that the rent payable is the lower of the rent proposed in the rent-increase notice or the current rent increased by the permitted rate.
32.Sub-paragraph (17) inserts a new Chapter 2A of Part 4 of the 2016 Act containing exceptions where a landlord may apply for a rent increase above the permitted rate. New section 33A of the 2016 Act enables a landlord to make an application to a rent officer to apply a proposed rent increase above the permitted rate in order to recover up to 50% of the increase in any prescribed property costs (defined by new section 33A(4) of the 2016 Act) incurred by the landlord at any time during the period of 6 months before making the application. The definition of “prescribed property costs” may be modified by regulations made by the Scottish Ministers under section 33A(5) which require the approval of the Scottish Parliament.
33.Prescribed property costs are any of the following costs—
interest payable in respect of a mortgage or standard security relating to the let property,
a premium payable in respect of insurance (other than building and contents insurance) relating to the let property and the offering of the property for let,
service charges relating to the let property that are paid for by the landlord but the payment of which the tenant is responsible for under the tenancy.
34.Where a landlord applies to a rent officer under new section 33A(1) of the 2016 Act for a rent increase above the permitted rate, new section 33A(3) of the 2016 Act requires the landlord to give written notice of the application to the tenant which must—
state the rent that would be payable if the proposed rent increase took effect,
state that the proposed rent would be an increase of more than the permitted rate,
state that the rent payable under the tenancy is not increased until the rent officer or (if appealed) the First-tier Tribunal makes an order determining the rent,
describe what prescribed property costs of the landlord have increased in the previous 6 months prompting the proposed rent increase,
where the proposed rent increase includes an amount in relation to the landlord’s increased service costs (which is a reference to increased service charges which fall within the definition of “prescribed property costs”) that are paid for by the landlord but recoverable from the tenant, a statement detailing the nature and amount of the increase in the service charges.
35.Under new section 33B of the 2016 Act, any rent increase ordered by the rent officer must be no more than 50% of the increase in the landlord’s prescribed property costs incurred at any time during the 6 month period before making the application (as specified in the application to the rent officer) subject to an overall limit of this increase being no more than 3% of the level of the existing rent. This 3% limit may be changed by regulations by the Scottish Ministers if approved by the Scottish Parliament – see new section 33F(2) but may not be lower than the level of the permitted rate.
36.Sub-paragraph (11) modifies section 27 of the 2016 Act in consequence of the application to a rent officer under section 33A(1) and an order by the rent officer under section 33B(2) or (3). Within 14 days of making the order, the rent officer may correct an error in the original order determining the rent by making a new order.
37.Chapter 2A also provides for appeals and reviews. An order of a rent officer under section 33B(2) or (3) may be appealed to the First-tier Tribunal under section 33C within 14 days of the order being made. As with the decision of the rent officer, any rent increase ordered by the First-tier Tribunal on appeal must be no more than 50% of the increase in the landlord’s prescribed property costs incurred in during the 6 month period before making the application (as specified in the original application to the rent officer) subject to a limit of this increase being no more than 3% of the level of the existing rent. The 3% limit may be modified by regulations made by the Scottish Ministers subject to the approval of the Scottish Parliament – see section 33F(2).
38.Again, the decision of the First-tier Tribunal may only be reviewed by the First-tier Tribunal under limited circumstances set out in section 33E. This is comparable to section 30 of the 2016 Act which applies in relation to an appeal to the First-tier Tribunal following a referral by a tenant to a rent officer under section 24.
39.New section 33F(1) confers power on the Scottish Ministers by regulations (subject to the affirmative procedure) to modify the 50% limit on the increase in prescribed property costs in respect of which a landlord may apply to a rent officer (under section 33A(1)) to seek recovery by way of rent increase.
40.Section 33G makes equivalent provision to section 31 of the 2016 Act, dealing with what is effectively an underpayment of rent which arises where the effective date on which the rent officer’s or the First-tier Tribunal’s decision (under section 33B(2) or (3) or 33C(3)) regarding the rent increase takes effect is more than 3 months after the day on which the tenant was notified of the landlord’s proposed increase under section 33A(3). This is based on the assumption in the provisions in new Chapter 2A of Part 4 of the 2016 Act inserted by the Act that if an application by a landlord to increase rent to a level above the permitted rate is approved by a rent officer or the First-tier Tribunal under this Chapter, it is to take effect 3 months after the tenant has been notified under section 33A(3) of the application.
41.Sub-paragraph (19) temporarily disapplies Chapter 3 (rent pressure zones) of Part 4 of the 2016 Act meaning that a local authority will be unable to make an application to the Scottish Ministers requesting that all or part of the local authority’s area be designated as a rent pressure zone during the period of application of the rent cap while Part 1 of this Act is in force.
