Diet COLA Break – what now for Scotland’s residential tenancies?

By Malcolm Combe - Posted on 4 April 2023

The first day of April, also known as April Fool’s Day, is associated with japes, pranks and general merry-making. For those who rent their home in Scotland, and indeed those that they rent from, 1 April 2023 had a practical significance that is no laughing matter. This is because the effect of a temporary law called the Cost of Living (Tenant Protection) (Scotland) Act 2022, which is modified as from that date.

This law – cheerfully given the fizzy abbreviation COLA by some – was initially designed to look after those who rent a home in the private, social and student sectors. COLA did this by narrowing the range of valid reasons to evict (eviction grounds) available to a landlord, and by (initially) preventing rent increases except where an increase was necessitated by an increase in the landlord’s costs. The provisions relating to rent have now been restricted to the private sector, with registered social landlords, local authority landlords and dedicated providers of student accommodation now escaping rent regulation.

I digested the initial reforms in an earlier post for the Strathclyde Law Blog. As such, only a brief overview of the overall situation and then the updated regime will be provided here. No consideration is made here of the current eviction regime, which is unaffected by these most recent changes.

COLA initially provided that “Any rent-increase notice given on or after 6 September 2022 during a period when the permitted rate is 0% is of no effect.” As noted, 1 April 2023 was the day when the permitted rate changed, to 3%. Unless there is a change of circumstances somehow (more on that below), this will apply until 30 September 2023. These amendments are found in a recent Scottish Statutory Instrument.

Another ingredient of COLA is a private landlord’s ability to apply to the rent-setting body to increase the rent by more than the permitted rate to recover certain “prescribed property costs” (relating, for example, to mortgage interest). This entitlement continues after 1 April 2023, over and above the possible baseline increase of up to 3%, meaning landlords will be able to increase rents by between 3% and 6% to reflect their own increased costs. Exactly how much of an uplift between 3% and 6% is possible will depend on the value of the costs and the current rent payable for the tenancy, owing to COLA’s terms limiting this additional increment to the lower of a) 50% of the agreed increase in prescribed costs or b) 3% of the current rent.

All of this means that a landlord of a private residential tenancy – the predominant private sector letting vehicle in Scotland – can validly serve a rent-increase notice on their tenant. We are now in a new era of diet COLA. Of course, there are procedural requirements to adhere to, and the usual period of three months’ notice applies, but provided these are adhered to a tenant cannot object to any increase of up to and including 3%. A new prescribed rent-increase notice has been provided for this.

*The Scottish Government has even supplied an online rent-increase notice production facility, whereby a landlord can plug in whatever details are thought to be appropriate to magic up a notice. After an initial user error, explained further below [*and after the initial draft of this blog post was published], I was able to confirm that when used correctly this facility did work out the maths for you, and anyone having a go at producing a notice relating to a notional new rent more than 3% above the initial rent (e.g. someone asking for £800 when the original rent was £750). A user doing this is met with a red warning notice and is unable to proceed. Further, the usual restriction of not being able to increase rent more than once a year is operationalised by not allowing the landlord to select a date within twelve months of any previous increase. The form produced then includes a statement that the landlord has not increased the rent by more than the permitted rate, although perhaps unavoidably the document that is ultimately produced can then be edited by the landlord. The statement confirming that all is well and good at least forces a landlord to think about what they are doing, but this nevertheless does require that a tenant checks the landlord’s homework. [See further explanation below: this wording was changed on 5 April 2022.]

Moving away from such individual situations, what about the overall effect of all of this for Scotland’s housing mix? That is difficult to predict. With rent only being actively regulated when there is a tenancy in place, landlords are free to set a new rent as and when they get vacant possession. I have heard tell of landlords asking for more rent than they might otherwise have requested when a new letting opportunity presents itself. It will be recalled, of course, that that there are criminal and civil laws in place to prevent landlords from pursuing vacant possession from an existing tenant too enthusiastically, but tenants can move on organically, or indeed eviction grounds relating to six months’ rent arrears or particularly egregious tenant behaviour could now come into play, and at such a juncture a brand-new rent can be set. In short, this temporary measure could have an impact on landlord behaviour.

Another difficult to quantify issue is a different type of landlord behaviour, namely landlord flight from the market. Again, I have heard anecdotal evidence about this, including from practising solicitors telling me about some landlord clients simply withdrawing from the rental market. What happens next very much depends on that property owner and their circumstances, and perhaps also the wherewithal and plans of any prospective buyer – if an outgoing landlord decides to sell, perhaps the former let property will provide a home to a new owner-occupier. It might not be such a happy situation though if the landlord has broad shoulders or can make different plans, such that they can remove the property from the private rented sector without any substitution of an owner-occupier therein, whether on a short- or a long-term basis. This would be particularly problematic in any locality that already suffers acute housing pressure; as but one example, the Highland village of Ullapool recently featured on a BBC News report. The various considerations that might feed into such matters are very much beyond the scope of this blog post, but a flavour of some of the issues can be found in another recent BBC News report about the defrosting of the rent freeze.

One other consideration lingers, which was alluded to at the end of my earlier blog post. The judicial review of COLA by a coalition of bodies the represent landlords trundles on. A procedural hearing at the Court of Session has been scheduled for 20 April 2023, with a substantive hearing due to follow on 4 May. In the meantime, landlords and tenants will have to proceed on the basis that COLA’s recipe will remain unchanged. Hopefully this blog post offers some assistance in that regard, or at the very least it might provide some light reading during a Diet Coke break. Other cola brands are available.

*EDIT 5 April 2022: As noted above, an earlier version of this post incorrectly stated that it was possible to create rent-increase notices using the Scottish Government tool that went beyond the permitted rate. This appears to have been my user error. Whilst I am not 100% sure what I did, I think I punched in what I wanted to increase my rent BY rather than what I would increase my rent TO. If I had actually read my notice more carefully, I would have witnessed that my old rent was £750 and my new rent was £50. [No doubt any tenant would be delighted to receive such a notice, although a nice legal question would ensue following what was clearly a unilateral, uninduced error by one party if the other party sought to rely on it.] My thanks to @rentrebel on Twitter for pointing out that the rent-increase notice producer was working just fine and prompting me to revisit this, and my sincere apologies to the team at mygov.scot for casting any undue aspersions.