Scottish Government

Chapter Three: Better Quality

3.1 To better meet housing need and respond to consumer demand for higher levels of service, improving quality within the sector is crucial.

3.2 This chapter examines how we can continue to improve standards of service provision and the physical quality of properties, and what might need to change to meet our strategic aims.

SMARTER REGULATION

3.3 The Scottish Government wants to create a more targeted regulatory system for the private rented sector, focusing enforcement action on those areas and landlords who give tenants a poor deal, cause safety and management concerns and tarnish the image of the sector. Enabling this approach will require development of a modernised regulatory framework balancing the need to take firm action to tackle bad practice, while at the same time facilitating growth overall.

3.4 The current private rented sector regulatory framework is the product of successive policy responses to a complex range of issues that have arisen within the tenure over time, including antisocial behaviour, environmental health concerns, tenants rights and landlord responsibilities. This has led to the regulatory framework being viewed by many as being difficult for both landlords and tenants to understand and difficult for local authorities and other agencies, such as the courts, to enforce.

3.5 Listed below are the main provisions governing regulation of the private rented sector in Scotland:

• Landlord Registration: to assess whether someone is a 'fit and proper person' to be a private landlord and to create a database of private landlord contact details;
• Houses of Multiple Occupancy (HMOs): to ensure basic minimum property and management standards and the suitability of a property for renting to three or more unrelated tenants;
• The Assured and Short Assured Tenancy: to provide a framework for appropriate tenancy agreements for those that entering into a private tenancy after 1988. (the Short Assured tenancy being by far the most common tenancy in the PRS);
• The Private Rented Housing Panel: to provide a mechanism for tenants to seek redress if their landlord fails to meet the Repairing Standard and certain rent assessment obligations;
• Tenancy Deposit Scheme (planned from 2012): to safeguard deposits and offer free access to an independent adjudication service to provide quick resolution to disagreements over the return of a deposit;
• Tenant Information Pack (planned from 2012): for landlords to provide to all tenants, at the start of the tenancy, with key information about the property, their rights and responsibilities;
• The Property Factors (Scotland) Act 2011: to provide protection for homeowners in Scotland who receive services from a Property Factor by the introduction of a compulsory register of all property factors, a statutory Code of Conduct which all registered factors must comply with and a new dispute resolution mechanism to be known as the Homeowner Housing Panel; and
• Other legislative powers: there is a broad range of legislative powers available to enforce standards in the sector, including powers contained within the recently enacted Private Rented Housing (Scotland) Act 2011, and the Housing (Scotland) Act 2006.

3.6 As part of its work to develop this consultative strategy, the Scottish Private Rented Sector Strategy Group identified a number of key issues for landlords, tenants and local authorities in relation to the current regulatory framework. Progress on these issues will help make achievement of our strategic aims more likely.

3.7 Key issues identified by the Group include:

Tenants	access to more effective redress and/or dispute resolution when disagreements arise between landlord and tenant; current tenancy regime not providing adequate security; and poor quality of service and illegal charging by some letting agencies.
Landlords	swift access to legal redress when issues arise (i.e. evictions, antisocial behaviour etc); improved arrangements for recovery of possession; and tackling the small minority of landlords who operate illegally and are linked to wider criminal activities.
Local Authorities	lack of financial resources to effectively enforce the law to tackle poor landlords (i.e. evidence gathering, monitoring, time required to be spent on processing and administrative tasks disproportionate to enforcement etc); effect of length of time for cases to be dealt with by the court (difficulties in retaining witnesses to provide evidence); and lack of priority given within the criminal justice system to housing related cases (number of cases not proceeded or dropped, no deterrent due to low fine levels, often contradictory decisions being made by Fiscals and Sheriffs etc).

Question 5: Is better regulation of the private rented sector in Scotland required to improve standards of management and access to redress for consumers? If so, in what areas do existing regulations fall short and how could this be improved?

Question 6: Are there non-legislative alternatives to improving quality of service within the private rented sector that may be as effective?

Regulation in Focus: Review of Landlord Registration

3.8 In 2011, an independent review of the Landlord Registration system was published by the Scottish Government. The review noted that overall, the creation of the landlord register has brought about a systematic approach to the supervision of the private rented sector and has provided useful data on the scale of the sector.

The research also suggested that:

• the legislative framework is broadly accepted. However, some confusion remains as to the overall purpose of landlord registration, given its genesis in anti social behaviour legislation;
• landlords are now more aware of their obligations, but the worst landlords have not yet been removed from the sector;
• the most commonly used sanctions were Rent Penalty Notices and fees associated with late applications for registration. Reports to the Procurator Fiscal were used but only in a small number of cases;
• in the main local authorities reported that the fees associated with landlord registration do not cover actual local authority costs; and
• the current legislative framework for landlord registration should be tested further before any legislative change is undertaken.

3.9 The Review also suggested that the focus of Landlord Registration tended to be on the administrative side, with less of a focus on enforcement by Local Authorities. The main reason suggested for this was resource constraints in local authorities to provide further effective enforcement, given the time and cost required to take such cases through the Courts.

3.10 Work is now underway with local authorities and other key stakeholders to develop an action plan to address the reviews recommendations.

Question 7:

a. What more can landlord registration do to improve the quality of management in the sector?

b. What further action can be taken to ensure that landlord registration can be effectively enforced?

c. Are there ways of simplifying the burden for good landlords?

IMPROVING RIGHTS AND ENCOURAGING RESPONSIBILITY

Landlords

3.11 A small group of exploitative and unprofessional landlords bring the reputation of the private rented sector into disrepute and undermine the work done by the many good landlords who provide good quality homes with high management standards. The Scottish Government is committed to enabling effective action to help remove the small minority of rogue landlords from the private rented sector and to ensure that local authorities have the powers that they need to tackle this problem.

3.12 The Private Rented Housing (Scotland) Act 2011 will help to address the problems caused by rogue landlords by enhancing powers in relation to Landlord Registration and Houses in Multiple Occupation (HMOs) and introducing Overcrowding Statutory Notices to address the worst effects of overcrowding within the private rented sector.

3.13 However, a deeper rooted problem exists in relation to those landlords who engage in criminal activity. Such landlords are likely to be unregistered, provide housing that is below acceptable living standards and prey on some of the most vulnerable members of our society. In order to begin to tackle the problems caused by these landlords, clearly the use of housing legislation alone is not enough.

3.14 Effective partnership working between a range of public services such as housing, social work, education and police has to be established in a co-ordinated effort to identify and prosecute such landlords and also to identify and assist vulnerable adults and children living within their properties.

Case Study: Govanhill Hub

Govanhill is a traditional tenemental area in the south side of Glasgow which faces a complex set of challenges including: a significant problem with 'bad' landlords, major overcrowding, a large proportion of private rented housing in a poor state of repair, problems with factoring, persistent problems of crime, antisocial behaviour, fly tipping and other environmental hazards. The area has historically long been home to migrants, and is currently home to a new wave of migrants, mostly from eastern Europe. Many of the private rented tenants living within this area suffer from a range of financial, health and social issues - an already complex range of issues further compounded by language barriers.

In 2011, the Govanhill 'Hub' was established, bringing together a multi-disciplinary team comprising of police, council, housing association officials and other services in order to remove unregistered landlords and strictly enforce environmental health laws. The Hub is starting to have a positive impact and to date has resulted in an increased number of landlords complying with landlord registration regulations, increased engagement with vulnerable tenants (including those who do not have English as a first language) and improving environmental health issues.

Question 8: What further action can be taken by local authorities and their community planning partners to help remove the worst landlords from the private rented sector in Scotland?

Tenants and Prospective Tenants

3.15 Non-payment of rent, refusal to vacate a property after eviction is granted and anti-social behaviour by tenants in the private rented sector are examples of other important issues that need to be addressed.

3.16 Anti-social behaviour can have a serious negative impact on neighbours, neighbourhoods and communities. Landlords must take responsibility for any anti-social behaviour that occurs in or around their properties, whilst tenants must also recognise their own responsibilities and those of any visitors they may have to their homes.

3.17 Landlords have concerns about the time and costs associated in evicting a tenant on grounds of anti-social behaviour. Since anti-social behaviour is a breach of the tenancy agreement, landlords are required to go through the usual eviction process, however time delays in securing Court action often prolongs the problems for neighbours and others affected, whilst also resulting in high legal costs for the landlords, often compounded by prolonged rent arrears.

3.18 The apparent difficulties in securing an eviction for anti-social behaviour is a contributory reason why landlords offer tenants a Short Assured Tenancy.

3.19 Anti-social behaviour is not a mandatory ground for eviction. Landlords have stated that having the ability to evict someone involved in serious anti-social behaviour more quickly could encourage landlords to offer longer tenancy periods to prospective tenants.

3.20 Potential action to help address anti-social behaviour within the sector could include improved access to mediation services and other legislative reforms to improve access to effective redress in the Courts or via a Housing Panel model. These ideas are explored further, and your views sought, later in this chapter.

Question 9: How can problem tenants living within privately rented properties be more effectively dealt with to help both neighbours and landlords?

ROLE OF LETTING AGENTS

3.21 Professional letting agents have a crucial role to play in facilitating a thriving and professionally run sector. Professional organisations such as the Association of Residential Letting Agents (ARLA) and the Property Ombudsman provide members with a Code of Practice and Rules of Conduct to adhere by, encouraging responsible business practice and providing a route of recourse for landlords and tenants should any disputes or grievances arise.

3.22 The majority of letting agents in Scotland operate in a professional manner, complying with voluntary Codes of Practice and ensuring high quality levels of service for the tenants and landlords they assist. Such good practice from the majority is not shared by all however, and further consideration on the role of letting agents may be required, with many stakeholders, tenants and landlords calling for legislation to be introduced to regulate letting agents in Scotland. In light of this, the Property Ombudsman has just called for the regulation of all Letting Agents in light of the marked growth in private renting across the UK.

3.23 The main risks arising from bad letting agent practice are:

1. agents going out off business, and losing all monies held on behalf of landlords and/or tenants;

2. poor and in some cases illegal management practices, including not following the legal requirements in respect of the service they provide e.g. in drafting legally accurate tenancy agreements, charging illegal premiums or not following correctly the regulations set for the sector in the service they provide.

3.24 The Scottish Government already has work underway to address some of these issues, including the introduction of the mandatory Tenancy Deposit Scheme (from 2012) and consultation on the provision contained within the Private Rented Housing (Scotland) Act 2011 regarding clarifying the charging of Premiums. The introduction of Tenancy Deposit Schemes will mean that agents will no longer hold deposits during the term of any tenancy. In addition, there will be a legal obligation on every individual landlord to ensure that a deposit is sent to an approved safeguarding scheme.

Illegal Premiums

3.25 The charging of premiums by letting agents is a matter about which many tenants and prospective tenants have expressed serious concerns. The Rent (Scotland) Act 1984 states that it is an offence for any person to charge or receive any premium or make any loan in addition to rent, a condition of the grant, renewal or continuance of a protected tenancy.

3.26 However, recent research reports by Shelter Scotland¹³ and the Resolution Foundation¹⁴ involved 'mystery shopper' exercises conducted in order to identify the wide ranging fees being charged up front to tenants. The majority of the fees were described as 'administration fees' or in relation to:

• reference checks;
• credit checks;
• tenancy renewal fees; and/or
• continuous affordability checks.

3.27 This highlights a perceived ambiguity, on the part of letting agents, over the definition of premium with interpreting a premium only as a charge to grant the tenancy, and they continue to charge tenants administration and other fees. In response to this, Section 32 of the Private Rented Housing (Scotland) Act 2011 allows for clarification of what are legal, reasonable charges. The Scottish Government have launched a separate consultation on this provision, with the consultation period running from Monday 2 April until Monday 28 May 2012.

Question 10:

a. In addition to action on tenancy deposits and illegal premiums - what more can be done to address the problems identified from poor letting agent practice?

b. Is further regulation of letting agents in Scotland required? If you think that it is, please provide reasons for your answer, explaining what the best format might be for regulation. For example:

• expansion of landlord registration to include all agents;

• a separate system for agents similar to that proposed for property factors due for implementation in October 2012; and/or
• a legal obligation that all agents must be a member of a recognised professional body.

BETTER ACCESS TO JUSTICE

3.28 To provide effective legal redress, the current private rented sector regulatory framework relies largely on cases being brought before the Courts by local authorities, tenants or landlords.

3.29 The Private Rented Housing Panel (PRHP) has jurisdiction over a limited number of matters, including enforcement of a landlord's duty in relation to the 'Repairing Standard' and also in relation to the determination of 'fair rents'.

3.30 A number of issues have been raised by members of the Private Rented Sector Strategy Group, regarding difficulties experienced with accessing redress through the justice system, these include:

• a general view that there is often a lack of awareness of housing issues and legislation by those involved in the judicial system: this includes Sheriffs; the Procurator Fiscal, and the Police;
• difficulty for local authorities in pursuing landlords through the Courts, with particular issues in relation to time and financial costs; and
• difficulty for landlords in gaining possession of their property through the Courts, in particular time and cost associated with this.

3.31 Such issues have led to frustration within local authority enforcement staff and an increasing reliance from both landlords and tenants on the ending the 6 month short assured tenancy as a means to addressing difficulties that arise through the term of a tenancy. This could be viewed as the consequence of a system not functioning as it was intended. Furthermore, this may pose a barrier to tenants, landlords and local authorities in accessing legal redress in cases where this is required, as this can often take longer than the length of the tenancy.

3.32 Some of the above issues were addressed by the Lord Justice Clerk, the Rt Hon Lord Gill, as part of his wide ranging review of the Civil Courts system in Scotland. In September 2009, Lord Gill published a recommendations report as a result of the Review, suggesting the introduction of simplified Court procedures, more advice on legal rights and increased use of mediation. The Scottish Government is currently taking forward Lord Gill's recommendations.

3.33 During 2012, Ministers also intend to consult on the feasibility of creating of a new housing panel model to adjudicate on disputes arising between landlord and tenant. Any new model would work with a reformed Court system by providing an alternative means of solving the most common disputes in a more efficient way.

3.34 Many housing disputes may be resolved prior to Court or other judicial proceedings. These may be a result of misunderstandings or lack of awareness of respective rights and responsibilities. The Scottish Government's mandatory Tenant Information Pack (to be introduced later in 2012) and other information raising activities across the sector will go some way to addressing this.

3.35 In addition, access to independent mediation services when problems arise between landlord and tenant may also help resolve disputes and prevent lengthy and costly court proceedings.

Question 11: What more can be done to provide better access to justice for tenants, landlords and local authorities pursuing housing related cases?

IMPROVING PROPERTY CONDITION AND ENERGY EFFICIENCY THROUGH SMARTER REGULATION

Property condition

3.36 We have already considered property condition and energy efficiency in the previous chapter with regard to investment. This section looks at the challenge to improve property condition and energy efficiency in the sector over the next decade, through smarter regulation. These issues, including potential policy options, are currently being considered by the Sustainable Housing Strategy Group.

3.37 Private landlords are responsible for ensuring that their property complies with the Repairing Standard both at the start of the tenancy, and at all times during the tenancy. The Repairing Standard is a basic standard of repair that all privately rented houses must meet. Private tenants who think that their landlord has failed to comply with the Standard will be able to make an application to the Private Rented Housing Panel for a determination.

3.38 'Homes Fit for the 21^st Century', which sets out the Scottish Government's housing vision and strategy for the decade to 2020 intends to achieve major housing condition related targets set by the Scottish Government and Scottish Parliament, including:

• by April 2015, all social landlords must ensure that all their dwellings pass all elements of the Scottish Housing Quality Standard; and
• by December 2020, improved design and greater energy efficiency in housing will have made a contribution to Scotland's commitments to reduce our energy consumption by 12% and our greenhouse gas emissions by 42%.

3.39 The Scottish Housing Quality Standard (SHQS) was introduced in February 2004 to provide a common minimum standard for which to aim for when improving social housing stock. It should be noted that the SHQS is applicable to property within the private rented sector only as a measure and not a standard. Key component parts of the Standard are:

• being above the tolerable standard;
• being free from serious disrepair;
• being energy efficient (effective insulation and fuel efficient central heating);
• having a modern kitchen and bathroom in good condition;
• having basic measures to ensure the health, safety and security of tenants is not compromised (such as appropriate security measures).

3.40 Currently 67% of private rented dwellings fail SHQS. A majority of these fail to meet the energy efficiency criteria, although the number of fails because of elements of the tolerable standard or serious disrepair being relatively low.

Energy Efficiency

3.41 Energy efficiency ratings are thus less favourable than either socially rented or owner-occupied properties, with around one in six privately rented sector properties rated poor. Private-rented dwellings are over twice as likely to have a 'poor' National Home Energy Rating than owner-occupied dwellings, with 8% of the total dwellings in the private rented sector rated as 'poor', compared to 1% in the social sector and 3% in the owner-occupier sector¹⁵.

3.42 Scottish Ministers have powers under the Climate Change (Scotland) Act 2009 to set minimum standards for energy efficiency of properties. The Energy Act 2011 also provides powers to set minimum standards (within the private rented sector only). This power will apply for Scotland not before 1 April 2015.

3.43 In England and Wales, the intention is that the minimum standard for PRS properties from 1 April 2018 will be an EPC rating of E or above (or F&G properties where all Green Deal finance has been taken out). The report "Regulation of Energy Efficiency in Housing", published in March 2011¹⁶ stated that Scottish Ministers do not intend to regulate for minimum energy efficiency standards, for the PRS and owner occupiers, before 2015.

3.44 It is clear that the energy efficiency of properties in the private rented sector requires to improve substantially if the Scottish Government's 2020 Climate Change Targets are to be met.

3.45 The Scottish Government is currently considering the issues regarding property condition and energy efficiency of private sector housing (including the private rented sector) in support of the work of the Sustainable Housing Strategy Group. These are likely to be included in the Sustainable Housing Strategy which will be consulted on over the summer of 2012.