Landlords to challenge Scottish rent control extension

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A coalition of landlords and letting agencies are to seek a legal challenge to the Scottish Government’s rent control and eviction ban legislation and its proposed extension from April. The Scottish Association of Landlords, Scottish Land and Estates, and Propertymark have together submitted a petition to the Scottish Court of Session requesting a judicial review.

Emergency legislation coming out of Covid was meant to last until the end of March this year, but the Green Party MSP and tenants’ rights minister Patrick Harvie has confirmed that he is planning to extend this for another six months. Landlords will have rent increases restricted to a three per cent maximum.

The Nicola Sturgeon’s Scottish Government has recently revealed these plans to extend the six-month eviction ban with rent controls. Landlords are furious about what was intended as a temporary measure, may, as some predicted, be a backdoor means of imposing permanent rent controls on Scottish landlords.

A six-month ban on rent increases and evictions came into force under the Sturgeon Government last October but landlords are determined to use the legal system to challenge any such continuation of this, in court.

Severe shortage of rental homes

Landlords and their representative have issued the Government with a severe warning that these sorts of interventions in the rental market are exacerbating an already severe shortage of homes for tenants in the country.

Propertymark, the professional body representing letting agents throughout the UK, the Scottish Association of Landlords and Scottish Lands and Estates, have now submitted a petition to the Scottish courts requesting a judicial review of the “temporary” legislation.

The landlord and agent representatives have dubbed the legislation “disproportionate and unfair” and warn that it is leading to an acceleration of a trend where landlords are selling up, exiting the industry, leaving tenants not only paying higher rents, but also unable to find suitable accommodation.

They argue, with some basic economic justification, it would seem, that if supply is reduced and demand is rising, rents can only go one way. And that’s leading to the squeezing out and pricing out of many desperate potential tenants.

The Scottish Government’s plans to extend the eviction ban and continue rent controls until September will relax slightly the currently imposed total rent freeze, placing a cap on the system of a maximum of a 3 per cent increases in rents.

Greens MSP Patrick Harvie, also the minister for zero carbon buildings, as well as promoting tenants’ rights, argues that these protections will benefit tenants although he admits that costs are increasing rapidly for landlords.

A safety net is to be provided such that in certain circumstances, for example when mortgage payments and/or service charges have risen dramatically, landlords will be in a position to apply to the Government for higher rent rises, up to a maximum of 6 per cent.

No restriction for social landlords

No restrictions are to be placed on the social rented sector in Scotland, apart from a voluntary agreement from councils and housing association landlords to restrict increases to below the level of inflation, currently running above 10 per cent. The Convention of Scottish Local Authorities is to commit to average rent rises of no more than £5 a week.

Propertymark has warned that a 3 per cent rent rise cap in the private rented sector would materially discourage landlord investors from staying in the industry given the level of inflation and with mortgage interest rates rising at the fastest rates in decades.

Propertymark director Nathan Emerson has said of these new extending measures:

“The legislation is being made without any clear evidence as to its need.

“Private landlords provide homes on a huge scale for people, and they must be able to cover the costs of outgoings on the property. Repairs and maintenance costs are not solely applicable for social landlords and it’s essential for landlords to be able to keep properties to a high standard in the interest of their tenants.”

The petition presented to the courts in Scotland warns that the legislation will mean that those well-off individuals, tenants renting in the private rented sector, will be given a degree of protection that is not available to social tenants who may be in strained financial circumstances.

Landlords leaving in droves

A recent survey put forward by Propertymark of its Scottish agent members shows that around 90 per cent of their landlord clients who are looking to leave the buy-to-let sector have decided on this mainly due to the current rent freeze and eviction ban. Propertymark also found a big increase in the number of landlords serving notice on their tenants to enable them to sell their properties with vacant possession.

According to property agents Hamptons International, rents in Scotland have risen at the fastest rate of any UK region. Let property rents in Scotland rose by 11 per cent in the year to December whereas nationally this figure averaged 7.7 per cent over the same period, the agent says.

John Blackwood, chief executive of the Scottish Association of Landlords, has commented on this issue:

“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.

“Landlords have had enough. We must stand united to protect our property rights by challenging this unfair legislation in court,” he added.

A spokesman for the Scottish Government told The Daily Telegraph:

“We recognise the role of the private rented sector in providing homes for let and acknowledge that some costs have been rising for landlords as well as tenants. The emergency legislation passed by Parliament requires us to keep measures under regular review.

“We are not aware of a legal action being served on the Scottish ministers challenging the Cost of Living (Tenant Protection) (Scotland) Act 2022.”

Rent control controversies

Rising rents across the UK have reignited the a political discussion as whether it is effective policy to enact rent control provisions. Some politicians, such as Sadiq Khan the Mayor of London, have argued strongly that these controls are the answer to tenants’ problems, particularly in the big cities.

When introduced the rules and regulations surrounding of rent control measures vary considerably from place to place, most consisting of caps on price increases within the duration of a tenancy, and sometimes beyond the duration of a tenancy, coupled with restrictions on eviction.

Research

Much research has been conducted over many years into how rent control affects tenants and housing markets. The results invariably conclude that while rent controls of varying degrees may help tenants in the immediate term, in the short run, in the long run these measures distort market pricing and equilibrium, leading to adverse effects.

These effects include long run decreases in renting affordability, landlords leaving the sector, a fuelling of the decline of whole neighbourhoods, and a decline in the quality of housing – landlords no longer able or unwilling to afford proper up-keep and repairs.

Rent controls can also lead to a serious “miss-match” over time between tenants and rental properties. That’s because once a tenant has secured a rent-controlled home it may choose to stay put, never moving on in the future for fear of losing the low rent. This leads to a drag on an economy due to low labour mobility and leads to longer commutes for productive labour.

A study by the London School of Economics (LSE) and a report by the House of Commons Library set out a convincing case against rent controls, see here

View Full Article: Landlords to challenge Scottish rent control extension

City council launches major crackdown on revenge evictions

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Brighton & Hove Council has launched a crackdown on revenge evictions as it works towards a zero-tolerance approach to rogue landlords.

In a review of its PRS enforcement policy, the authority will look at measures to reduce the risk of revenge evictions by serving improvement notices and emergency remedial action notices as soon as possible. Councillors have agreed that where there’s a history of landlords carrying out revenge evictions following a repairs report, it will serve a pre-emptive improvement notice to protect tenants.

It is urging tenants to report the need for any necessary improvements so it can discuss steps that can be taken before it contacts the landlord. If these aren’t made, it would explore taking enforcement action.

Its private sector housing team requested improvements to 462 privately rented homes between April and December last year; following council intervention, most of these were improved by landlords without the need for enforcement action. Only 13 statutory notices or civil notices were served to bring about the necessary work.

First instance

Councillor David Gibson, co-chair of the housing committee (pictured), says it always wants to work with landlords to bring about improvements in the first instance.

“In most cases, once our private sector housing team intervenes, landlords undertake to carry out the necessary work and we ensure they do so,” he adds.

“If they fail to comply with what’s needed, we will then take enforcement action. We have already issued 550% more fines this year so far compared to the previous year.”

Brighton & Hove will also investigate setting up a rogue landlord database in the city and is considering plans to limit rent rises.

View Full Article: City council launches major crackdown on revenge evictions

NEW: Asking rents continue to rise hitting £1,172 average says Rightmove

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Average asking rents for new tenancies outside London jumped to another record high of £1,172 a month in December – although there are now signs that the pace of growth is starting to ease.

Rightmove reports that average rents for newly listed properties rose by 9.7% in 2022 compared with the previous year, although the last quarter’s 0.9% rise compared with the previous three months was the smallest quarterly increase for two years. In contrast, average asking rents in London accelerated, rising by 5.8% and setting a new monthly high of £2,480.

The lack of available properties is also showing signs of easing, as the number available to rent in December was 13% higher than the same period in 2021. New properties coming up for rent were also up 5%.

Renters rise

The number of tenants looking for a property was up by 7% last month compared with the previous year, however, competition between tenants dropped by 6% and by a third (33%) compared with the peak in September. Wales (+15%) and the South West (+13%) have seen the biggest jumps in new properties to rent regionally, which led to a slight drop in respective average asking rents of 1%. It’s the first quarterly drop for any region since the start of 2021.

Rightmove’s director of property science, Tim Bannister (pictured) says: “There appears to be some more property choice for renters compared to the record low levels of last year which would slightly ease the fierce competition to secure a home.

“This is why we’re forecasting that the pace of annual growth will ease to around 5% by the end of the year nationally, although this would still significantly exceed the average of 2% that we saw during the five years before the pandemic.”

Read more about rising rents.

View Full Article: NEW: Asking rents continue to rise hitting £1,172 average says Rightmove

Positive thinking! Six reasons for landlords to feel optimistic about 2023

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Belvoir, which is one of the largest High Street property management groups manages over 73,000 properties nationwide, and franchisees across the country are very aware of just how tough the previous years have been for landlords. No sooner did we start to come out of the pandemic than other factors began to kick in to make life even more stressful, including a cost-of-living crisis, rising mortgage rates, increased legislation, and many other unforeseen challenges to make life more difficult, particularly for DIY landlords. Nevertheless, there are glimmers of hope, and we thought it would be a good idea to focus on a few reasons why landlords might start to feel a little more positive about 2023. Here are six reasons that we hope will help to balance out those seemingly endless headline-grabbing bad news stories that are constantly in the press.

1. Rental demand is massive. With interest rates rising, and the cost-of-living crisis biting, many people are delaying buying properties. In fact, according to Aviva, up a million people may be ruling themselves out of the first-time buyer market, which means the demand for good quality rental accommodation has never been higher. Furthermore, this demand shows no sign of slowing down. In some areas there are literally hundreds of tenants going after the same property, and agents are in desperate need of more properties to offer. Where there is this kind of demand, there is also opportunity to generate higher rental yield increases, but advice should be taken to ensure affordability for tenants.
2. Is it time to increase your portfolio? Whilst it is true that interest rates have risen, and indeed, may continue to increase, they are still relatively low – especially when compared to the record rate of 17% in November 1979! As we enter 2023 property still represents an excellent long-term investment, so why not visit a professional estate agent and find out for yourself if there are any golden investment opportunities in your area. Many Belvoir agents have in-house expert MAB mortgage advisors who can help investors to prepare so that they are ready to act quickly if and when a bargain investment arises. Research by Landlord Leaders in 2022, revealed that 68% of all landlords had or were proactively planning to buy more property.
3. HM Treasury has acknowledged that self-employed individuals and landlords are currently facing a challenging economic environment. Since the transition to Making Tax Digital for Income Tax Self-Assessment (ITSA) represents a significant change for how tax is reported, the government has changed the phase in date from April 2024 to April 2026. That’s one less thing to worry about this year, although getting prepared for when the changes come in is advisable.
4. There is currently no real evidence of a downturn in the property market, but if that does happen later in 2023 there may well be opportunities for investors to buy lower priced stock. However, if you are currently a landlord who is worried about the possibility of a downturn and the subsequent consequences of job losses and rent arrears, we advise you to speak to your local Belvoir agent NOW to find out more about the best rent guarantee products on the market so that you can cover yourself for all eventualities.
5. There are ways to reduce your property overheads. For example, you could speak with your local Belvoir agent to discuss a non-obligation Building Insurance & Contents cover renewal quote. In addition, have a chat about rent reviews to ensure that your property is keeping up with market conditions. If you have a fixed mortgage that is due for renewal, talk to an MAB financial advisor to ensure that you are getting the best possible deal.
6. You are not alone! No matter what happens in the property market in 2023, you will not have to deal with everything on your own. By working with a Belvoir agent, you can take advantage of over 25 years of industry experience and will receive all the help and advice you need to ensure you remain legally compliant, reduce the risk of empty properties, and are able to take advantage of opportunities and maximise the potential of your investments.

View Full Article: Positive thinking! Six reasons for landlords to feel optimistic about 2023

Rogue landlord’s violent harassment of tenants revealed by Tribunal

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A rogue landlord who repeatedly abused and intimidated tenants in his unlicenced HMO has been handed a £2,817 rent repayment order.

Nasir Ahmed threatened tenants Ebenezer Hagan and Farhan Bashir, even turning up in the middle of the night to demand that one of them leave while making racist comments, a First Tier Property Tribunal heard.

The pair rented a room in the property at 52 Thurgarton Street, Nottingham (pictured), believing there were two other tenants, but found five people when they moved in, in January 2022, creating congestion and overcrowding of the only bathroom.

Ahmed then persistently turned up at the property without good cause, sometimes late at night or early in the morning, unconnected with maintenance or repairs.

On one occasion, two men let themselves in and demanded the pair leave within 24 hours, and only left when the police were called. They returned with Ahmed the next day and sat in the living room until midnight, creating an intimidating atmosphere.

Assault

One night, a man who described himself as the landlord’s son assaulted Mr Bashir in the living room. He was arrested and charged with assault and possession of a knife – only to return to the property once again.

Nottingham City Council environmental health officers served a Suspended Prohibition Order limiting occupancy to four people in May, after they found 10 people living there. They also served a Prohibition Order citing excess cold as a category one hazard and category 2 hazards of fire and entry by intruders. The property also had no HMO licence.

Ahmed told the court it was not an HMO and denied allegations of harassment and attendance at unsocial hours. However, it ruled: “The tribunal is satisfied the respondent was guilty of behaviour calculated to cause the applicants to leave the property.”

Ahmed was given 28 days to appeal the ruling. Read the Tribunal report in full.

Read more about RROs.

View Full Article: Rogue landlord’s violent harassment of tenants revealed by Tribunal

What’s stopping you in 2023?

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This might seem like a weird question, but what’s stopping you from owning 3, 4, or even 10 properties, to give you enough monthly cash flow to replace your income?

If you’re like most people, the answer might be

View Full Article: What’s stopping you in 2023?

75% of PBSA beds snapped up for the autumn term

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The struggles for students to find somewhere to live while at university look set to continue with news that 75% of purpose-built student accommodation (PBSA) has already been snapped up for the next academic year.

The findings from Stripe Property Group highlight how tight the supply of PBSA beds is in the top 50 university towns and cities in the UK.

View Full Article: 75% of PBSA beds snapped up for the autumn term

Malicious damage – not insured?

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Hello, I recently had a tenant who stopped paying rent and we did eventually manage to get her to leave on her own accord. She did however decide to smash the house (and contents) up prior to her and her young children’s departure and in the process cause over £10,000 worth of damage.

View Full Article: Malicious damage – not insured?

Legal: UK Supreme Court ruling favours landlord in service charge dispute

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The case involved Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd and revolved around a service charge certificate (SCC) issued by the landlord (SHAH), and the question of whether this was considered to be “conclusive” (meaning final) for the amount due.

Service charge disputes in both residential flats and commercial leases are not uncommon. They usually occur when tenants dispute the amount of the bill when the landlord is charging for works carried out, such as repairs to the building structure, services provided, such as grounds maintenance, and common parts cleaning, or charges for buildings insurance.

Tenants sometimes resent paying for repairs to items that don’t directly affect them, for example repairs other units in the block, while landlords often have no real incentive to keep costs down. But in any multi-occupied block, repairs must be dealt with centrally otherwise they simply would not get done, and in some instances and the property as a whole would soon start to deteriorate.

What are service charges?

These are amounts charged (usually annually) by a landlord to a tenant under their lease. The charges are in addition to the rent. Following the principles of a full repairing and insuring lease (FRI) they pass on the landlord’s costs to a tenant in order to recoup, usually all of the landlord’s costs in respect of managing a property. The landlord therefore gets a clear return on its investment.

A small single occupied property occupying one site may have very limited need for services to be provided by the landlord, apart from occasional repairs and insurance costs. But a major retail, office or mixed-use complex with grounds may have multiple shared facilities and significant associated costs of maintenance.

RICS standards and guidance to Service Charges in Commercial Property

Sinking fund

As part of the service charge arrangement within a commercial lease, the tenant usually agrees to pay either into a sinking fund (to build up reserves for major works) or simply pay the actual costs annually.

Disputes often arise over what’s being charge for, the amount of the charges and questions over insurance costs. To minimise a tenants’ ability to dispute the amounts claimed, and drag out the arrears each year, leases will often include a clause stating that a “service charge certificate” provided by the landlord is “conclusive and binding” on the tenant, unless there’s an obvious error or fraud is involved.

The effectiveness of the these service charge certificate clauses was tested recently in this case, the Court of Appeal decision in Sara and Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd [2020], and subsequently at the Supreme Court appears to bring something of a resolution.

Background to this case

Blacks is a retail outlet selling outdoor clothing and equipment. It held two leases of a shop in Liverpool granted by its landlord Sara and Hossein Holdings Ltd. Both these leases contained the same service charge clauses which said the landlord would provide a certificate as to the amount of the total cost and the sum payable by the tenant. In the absence of “manifest or mathematical error or fraud” such certificate shall be “conclusive”. It also stated that the tenant had no right “to withhold rent or any right or claim legal or equitable set-off or counterclaim (save as required by law)”.

Set-off and counter claim

In 2019 the landlord brought a claim against the tenant for substantial arrears of service charges, to which the tenant responded with a detailed set-off and counterclaim.

When it came to the High Court it held that the service charge certificate was “conclusive” with regard to the costs incurred by the landlord, but that it was not conclusive as to whether the particular works fell within the scope of the service charge. Therefore there was a question as to whether the tenant was obliged to pay the charge.

The landlord then appealed to the Court of Appeal arguing there that the High Court was wrong in its findings, and that in fact the service charge certificate was conclusive to the works which it claimed, and was fully within the scope of the service charge.

The landlord claimed that the tenant could only dispute if works fell within scope by way of a counterclaim. However, the no set-off provision within the leases meant that a counterclaim could not be used by the tenant in defence of the landlord’s claim.

The Court of Appeal

The Court of Appeal then overturned the High Court’s decision and held that the landlord’s service charge certificate was conclusive in respect of both the total cost incurred, and the itemised sums listed by the landlord and payable in full by the tenant.

The conclusion the Court of Appeal came to was that it was not possible to separate these two elements: the total cost and the itemised sums, and the certificate could not be a conclusive one. If these two elements were to be separated, the Court thought, then the lease should have made it clear that this was to be the case.

So, without the tenant being able to prove “manifest or mathematical error or fraud” the certificate was binding on the tenant who was liable to pay the full amount claimed.

The Supreme Court

The next stage was the appeal to the Supreme Court. The court considered the case of Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd as to whether the tenant Sara & Hossein had the right to challenge the service charge sum where, as in this case, the landlord’s service charge certificate (SCC) was deemed to be “conclusive”.

On 18 January 2023 the Supreme Court released its judgment with a majority ruling in favour of the landlord. It dismissing the tenant’s appeal against the Court of Appeal’s grant of summary judgment.

The Supreme Court held that neither party’s interpretation of the service charge certificate had been correct and came up with an alternative interpretation. It said that the service charge certificate was conclusive as to what was required to be paid by the tenant following certification. The landlord, it said, was assured of payment of the service charge “without protracted delay or dispute” in order to protect its cash flow.

However, the Supreme Court judgement went further: to clarify the issue for landlord. The judgment was made to strike a balance between landlord and the tenant by confirming that by paying the full service charge certificate sum, the tenant was not precluded from at a later date disputing liability for that payment. This interpretation the Court referred to as a “pay now, argue later” regime.

Commercial landlords are likely to welcome the judgement, relieved that when they issue a service charge certificate claim, subject to the provisions of the lease, the amount is conclusive and due on demand.

Tenants can also take comfort from the ruling that though landlords can self-certify the sums payable, landlords may still need to justify this and “argue later” about whether or not their tenants are liable for all of those costs.

The lessons

This case highlights the importance of careful lease drafting ensuring that rather than relying on standard lease clauses, these should be tailored to the specific circumstances. For any substantial letting, landlords should always use the services of an experienced property lease drafting solicitor. Prospective tenants would also be well advised to scrutinise these clauses before taking on a lease.

View Full Article: Legal: UK Supreme Court ruling favours landlord in service charge dispute