End of short tenancies could be have its benefits

The Private Housing (Tenancies) (Scotland) Act, passed by Holyrood in March, has effectively ended the legislation introduced by Chancellor of the Exchequer Nigel Lawson 28 years ago which breathed new life into a moribund industry on both sides of the Border.

The beauty, for landlords, of the short-assured tenancy was that it made possible the recovery of property at the end of a lease without costly legal wrangling if a tenant proved unwilling to leave – which was why investment in the rental sector soared, long before the term “buy-to-let” became popular among the wider population.

The new act will make this impossible in Scotland, although the regulations are unlikely to come into force until the end of 2017 at the earliest.

Tenants will then have the option of vacating a property at any time by giving just one month’s notice, which could reduce the shortest lease from six months to one.

Those properties offering a desirable location, competitive rent and good standard of accommodation will re-let quickly and experienced agents will use their vetting skills to differentiate between potential tenants seeking long-term accommodation and the more transient types likely to move on after a month or two.

However the new minimum lease period could present difficulties for investment funds with large portfolios or those considering investing in the urgently-needed “build to let” sector because large managed blocks of apartments will be more exposed to tenants leaving after less than six months.

This uncertainty over future rental income could have a negative, knock-on effect on the book value of an investment, in which case some funds which might have been intent on investing in Scotland may now focus their attention elsewhere.

Another big change will be fairly draconian restrictions on the circumstances in which a landlord can secure the right to his or her property such as a desire to sell up or to move back in as an owner-occupier; the need for major repairs or upgrade; or a significant default on the part of the tenant.

The act is certainly more tenant friendly and there are positives for landlords operating in a more secure and regulated industry.

Landlords are greatly relieved that strict rent controls are off the agenda. True, a landlord must be able to justify (to a tribunal) any rent increase, and will be unable to do this more than once within any 12-month period, but once a property becomes vacant they will again be free to charge what is considered the “market rate”.

There is a clause permitting restrictions on open-market rents in what are called rent pressure zones but these are likely to be in certain parts of Edinburgh, Glasgow and Aberdeen – if ever implemented.

The common assumption that landlords wish to squeeze their tenants for every last penny is simply not justified.

Our advice, “go for the best tenant, not the best-paying tenant”, is already taken up by most landlords who would rather retain a good, long-standing tenant, at a fair market rent, than give notice to quit in the hope of achieving higher income from a new tenancy.

So in that sense, restrictions on rental increases to sitting tenants have been in place for some time through self-regulation.

Also, the increased “security of tenure” should, in the medium- to-long-term, actually boost the industry. Without the possibility of their lease ending every six months, more people (particularly families) will look at long-term renting as a choice rather than just an expedient.

We are also likely to see a boost in demand for unfurnished rental accommodation – a great benefit to landlords, as providing furniture and furnishings adds administration issues as well as adding to their cost base.

No doubt there are parts of the act which many professionals in the rental sector – this author included – would rather were not there. But on the whole it provides a basis for optimism for the future of the rental market in Scotland.

Rob Trotter is associate director at DJ Alexander Lettings.