The cap on rent increases for private rented tenants ends on 31 March 2024. This blog considers what the Scottish Government plans to do at the end of the rent cap.
[Update 10 June – the regulations referred to in this blog have now been passed so the temporary new system as described below is now in place].
Background to the rent cap
Emergency legislation, the Cost of Living (Tenant Protection) (Scotland) Act 2022 was passed by the Scottish Parliament as a temporary response to the impact of the cost crisis on those living in the rented sector.
The Act introduced a cap on rent increases for existing tenants and a delay on the enforcement of some evictions.
Currently, private landlords can only increase rents for existing tenancies by 3%, or up to 6%, if approved by a Rent Officer. Full details of the emergency legislation are in this SPICe briefing.
The rent cap for private tenants will end on 31 March 2024.
To support a transition away from the rent cap, the Scottish Government plans to introduce a temporary change to the existing rent adjudication process from 1 April 2024. Draft regulations to implement the new system have been laid in the Scottish Parliament.
Under the proposed system, if a tenant pursues adjudication with Rent Service Scotland / First-tier Tribunal, this may result in a proposed rent increase for existing tenants being limited.
The Scottish Government says that the aim of this is to:
support the transition away from the rent cap, and protect tenants from excessively large rent increases which could be experienced if there is a sudden move to open market rent levels that have been supressed.
Scottish Government, Rent Adjudication (Temporary Modifications) (Scotland) Regulations 2024 – Business and Regulatory Impact Assessment
How can a landlord increase the rent?
Before explaining the detail of the proposed temporary adjudication system, it’s worth remembering what the law says about how a landlord can increase the rent.
Most landlords will probably be using a private residential tenancy (PRT), created under the Private Housing (Tenancies)(Scotland) Act 2016. With a PRT:
- a landlord needs to give their tenant notice that they are proposing a rent increase
- a landlord needs to give the tenant at least 3 months’ notice that they want to increase the rent
- a landlord can only increase the rent for an existing tenant once in every 12-month period.
The rent adjudication system
The law provides for a system of rent adjudication.
While the rent cap is in place, this adjudication system has been temporarily suspended. Currently, and until 31 March 2024, a tenant can apply to Rent Officer at Rent Service Scotland to determine whether a rent increase notice is valid in terms of the rent cap. Details of the current system can be found online.
Prior to the emergency legislation, if a tenant with a PRT thought a rent increase notice was unreasonable they could apply to a rent officer at Rent Service Scotland for a rent adjudication. The rent officer would set the rent level based on a range of information about the property and similar market rents in the area (known as the open market rent).
A tenant or landlord could ask Rent Service Scotland to reconsider the decision or could appeal the decision with the First-tier Tribunal (Housing and Property Chamber).
When the rent cap ends, the Scottish Government plans to temporarily amend the adjudication system as explained below.
Will the new system limit the rent increase that landlords can put in a rent increase notice?
No. The proposed regulations would not place any restriction of the level of rent a rent increase notice could specify, as the current rent cap does.
If a tenant receives a rent increase notice they could, for example:
- agree to pay the new rent
- try and negotiate a new rent with the landlord
- apply to Rent Service Scotland for a rent adjudication.
The Scottish Government expects that once the rent cap ends many rent increases proposed by landlords will proceed as normal, with tenants agreeing to pay the proposed rent increase.
How will the amended rent adjudication process work?
If a tenant decides to take a rent increase notice to adjudication, Rent Service Scotland may restrict how much rent can be charged.
Rent Service Scotland will determine the rent based on the lowest of three figures:
- the open market rent
- the rent requested by the landlord
- a new taper that supports the transition away from the rent cap.
The level of rent that will be set at adjudication can be summarised as follows:
- if the gap between the market rent and the current rent is 6% or less, then the rent will be set in line with the rent proposed by the landlord
- if the gap between the market rent and the current rent is more than 6%, then the rent will be increased by 6% plus one third of a percent for each percent that the gap exceeds 6%
- if the gap between the market rent and the current rent is 24% or higher, the rent increase will be capped at 12% of existing rent.
All three examples are also subject to the requirement that the Rent Service Scotland and the First-Tier Tribunal cannot set a higher rent than that requested by the landlord.
If the open market rate is the lowest of the three then the rent officer would set the rent at that rate (which in theory could be lower than existing rent).
This might sound confusing, but the Scottish Government has provided further information on how the taper works and examples of how this might work in practice.
To support the implementation of the proposed changes, the Scottish Government has also published information on the Renter’s Rights website.
The figure below shows how the adjudication system would work with different examples.
At the end of the blog, we’ve also provided a tool which can be used to judge what kind of rent increase might be allowed following adjudication (noting that the final decision is for Rent Service Scotland to make).
What is an open market rent?
As explained above, the rent set by Rent Service Scotland will depend on the open market rent for the property.
Rent Service Scotland uses a range of information to determine the open market rent with the primary evidence coming from its ‘Market Evidence Database.’
This market evidence is sourced through a variety of means, including advertised rental information, private landlord and letting agent returns, and mailshot initiatives – most evidence is obtained from advertised rents.
Rent Service Scotland publishes its previous adjudication decisions and the comparative rents it has used to make its decisions.
There’s not one source of data that a tenant or landlord would be able to consult to work out what an open market rent might be.
If a landlord or tenant wanted an idea of what an open market rent might be, they could look at, for example, existing adverts for similar properties in their local area.
It’s important to remember though that the tenant does not need to know what an open market rent is to make an application to Rent Service Scotland. The tenant just needs to supply details about the property and the rent and Rent Service Scotland will undertake the assessment.
When do these transitional changes take effect and how long will they last?
Firstly, the Scottish Parliament must approve the draft regulations. The Local Government, Housing and Planning Committee will be discussing these regulations in their future meetings.
Assuming the Parliament approves the regulations, the new system will take effect from 1 April 2024 and last until 31 March 2025.
These transitional arrangements may be extended for a further period of a year with parliamentary approval and based on assessment of circumstances at that time.
What if the landlord has served their tenant with a rent increase notice before 1 April 2024?
Until 1 April 2024, private landlords must comply with the existing temporary legislation i.e., any rent increase notice served before 1 April 2024 must not increase the rent by 3%, or more than 6%, if approved by Rent Service Scotland. The Scottish Government has published guidance on the current situation.
Estimated rent calculator (monthly rent)
This tool can be used to estimate what rent increase might be allowed on adjudication.
Anyone using this tool would need to estimate the open market rent. But, as noted above, Rent Officers are responsible for the assessment of the open market rent. Therefore, any result from this tool is for illustrative purposes only and should not be assumed to be what a Rent Officer may decide on adjudication.
Rent payable |
Rent change (£) |
Rent change (%) |
|---|---|---|
What are the Scottish Government’s longer-term plans for rent control?
The Scottish Government intends to introduce a housing bill to the Scottish Parliament this year setting out plans for longer term rent control.
In a consultation paper, the Scottish Government proposed a system whereby councils would assess the need for rent controls in any part, or all of, their area. The Scottish Government would decide whether to introduce rent controls in a particular council area and the Parliament would need to approve that decision.
In any area where rent controls were introduced rent increases would be limited by a rent cap. It is proposed that rent controls would apply to increases in rent that take place both during a tenancy and when the rent is increased for the start of a new tenancy (with some exceptions).
However, we won’t know the full details until a housing bill is published later in the year.
Kate Berry and Maike Waldmann
SPICe Research