Scottish Government

STEWARDSHIP AND RESPONSIBILITY: A Policy Framework for Private Housing in Scotland

CHAPTER SIX: IMPROVING STANDARDS IN THE PRIVATE RENTED SECTOR

INTRODUCTION

434. Our work on private rented sector issues focuses on the development of policies for improving housing conditions and remedying disrepair in the sector. Our emphasis on housing conditions is important for several reasons. Property conditions in the private rented sector are worse relative to those in other tenures. This is not a new problem but it is one that needs to be addressed with new determination and thinking. Solutions based on purely market mechanisms have their limitations because of their differential impact on different parts of sector. There is also the issue that poor property conditions can jeopardise the safety as well as the comfort of tenants. Safety is an underlying policy theme throughout our work and action to improve repair standards will foster improved safety for tenants.

435. Our general approach to developing policies for the private rented sector is based on several broad considerations. Consistent with our key themes in Chapter One, we believe that private landlords should bear the primary responsibility for ensuring adequate repair and maintenance of their properties. Where necessary, they should be supported to do so and when failing, they should be required to do so.

436. While our report must address social disadvantage and failed management within the private rented sector, we have a positive view about the role that the private rented sector does play, and can play in the future in meeting housing needs and demand. We want to see a thriving private rented sector providing well managed accommodation of acceptable quality for the diversity of types of tenants who, through choice or necessity, take up residence in the sector.

437. However, private landlords need to increase their investment in repairs and maintenance and ways need to be found to encourage them, and if necessary, oblige them, to make the much-needed investment and, thereafter, maintain their properties in good condition. In the past, the private rented sector has been subject to various forms of rent control that undoubtedly contributed to the long-term decline in size of the sector. Currently, a limited part of the private rented sector is still subject to rent regulation but the introduction of market rents for all new tenancies since 1989 has halted the decline of the sector overall and encouraged an expansion in the number of lettings in certain areas such as Glasgow and Edinburgh. We are not in favour of a return to wholesale rent control or regulation. We are concerned about the impact such an approach could have on supply and how bureaucratic the system would have to be to operate over the whole private rental market. Our approach is to seek to influence conditions and standards more directly and thereby increase the quality of accommodation that tenants are paying for rather than seeking to intervene specifically to control rents.

438. We believe that a more positive relationship should be fostered between private landlords and local authorities and that joint working arrangements should be developed in order to raise standards and management across the private rented sector. While voluntary partnerships are desirable and, over time, should lead to improved professionalism by private landlords, there also needs to be powers available for local authorities to ensure effective improvements in the conditions and management of the sector where voluntary measures or partnerships fail or are not taken up.

439. Arising from these broad considerations we have focused our policy proposals on three main themes:

Strengthening the rights of private tenants

440. In Chapter Two we have set out our views on modernising the minimum statutory Repairing Standard that private landlords should meet when renting property. In this chapter, we consider the need to give private tenants a more accessible forum to which they can take complaints about their landlords' failure to carry out their repair obligations.

Regulation and accreditation

441. We recognise that the private rented sector is subject to market pressures but, as we have noted above, these are not uniformly effective across the sector in improving its overall quality. We consider arguments for and against different types of regulatory interventions, including improvements to the existing HMO licensing scheme, to raise the quality of privately rented property and its management.

Wider issues

442. These two preceding themes raise wider issues for us to consider: the importance of achieving an attitude change by all of those with a stake in the private rented sector; the contribution of information and advice services to ensuring the maximum effectiveness of our proposals; our views on the value of optional model tenancy agreements and the need to recognise that property condition and property management are inter-related with wider tenancy management.

BACKGROUND

443. Underlining all our work is the conclusion of the first stage report that there is a greater percentage of properties in poor repair in the private rented sector than in other tenures (although this seems largely due to the comparatively greater age of private rented stock as the worst conditions are in older pre-1919 properties). Problems of low energy efficiency levels are also worse in private rented housing than in other tenures. Very poor conditions also prevail in some of the HMOs in the sector.

444. The first stage report also found that market pressures operate more effectively in the good quality, deregulated part of the private rented sector where competition forces landlords to maintain good standards. In the rest of the sector, competitive market pressures are less effective and do not provide a strong enough incentive to raise standards.

445. Despite its condition problems, the private rented sector plays an important role in providing accommodation for a wide range of groups (Houston et al., 2002). We note that private renting is attractive - and critical - to meeting the needs of the country's large student population. It is also increasingly the first choice of newly formed households - young single persons in particular. Across the country, the sector supports labour flexibility as well as housing flexibility. It suits the needs of professionals who for employment mobility or financial reasons, prefer not to take on the burden of owner-occupation. On the other hand, the regulated tenancies sub-sector has provided long-term accommodation for many older tenants. The Buy-To-Let sub-sector is very active and has played a significant part in the development of the private rented sector in the last 10 years as investors have looked for alternative forms of investment to equities and conventional forms of pension provision. Although no specific research had been carried out into this particular sub-sector, our perception is that it has had a positive impact on the market as a whole, given that it utilises better quality properties and is subject to higher levels of investment. Our proposed recommendations should not be to the detriment of this market area. However, we suggest that some research be commissioned in the future to establish whether or not our perceptions of the current state of the Buy-To-Let sub-sector, and its likely impact upon the wider private rented market, are valid.

446. Privately-rented housing is of relatively greater importance in rural Scotland (13% of stock) than in urban Scotland (6% of stock) (Scottish Homes, 1997). Half of all tied housing in Scotland is in rural areas. Landowners play an important role in rural communities and are key contributors of private renting in rural areas, and service or tied accommodation constitutes about a quarter of the private rented sector stock (Satsangi et al., 2000). We have noted these particular features of rural private renting and have developed proposals that are as relevant to rural landlords, landowners and tenants as to landlords and tenants in urban areas.

447. A third of landlords in Scotland let only one property and nearly 70% have less than ten lettings (Young & MacPherson, 1999). Landlords do not all share the same motivation for renting. There are "investor landlords" operating for commercial reasons and primarily interested in rental returns or capital appreciation but there are many landlords operating on a small-scale basis for whom renting is not driven by pure commercial reasons and for whom it is a sideline activity (Kemp, 2000). This points to the need to address the issue of enhancing the professionalism of many landlords in relation to the business of renting and the relationship they have with their tenants.

448. Knowledge by private tenants of their rights and legal responsibilities is poor. Few are aware of what statutory protection they have. This unsatisfactory position is not made easier by the fact that local authority provision of housing information about the private rented sector and advice to private tenants and landlords is not well developed. Local authorities have few specialist housing advice staff and few have dedicated housing advice services (Goodlad and Rosengard, 1998). The Housing (Scotland) Act 2001, section 2,

'requires local authorities to secure that information and advice relating to homelessness, the prevention of homelessness and relevant services is available free of charge in their area.'

This is a good start but we need to see a wider range of matters encompassed if a really effective private rented sector information and advice service is to emerge across Scotland.

449. The current powers available to local authorities in relation to disrepair in the private rented sector are general powers for the whole private sector; they are not specifically geared to address the particular features of the private rented sector. The only exceptions are the largely obsolete HMO powers in Part 8 of the Housing (Scotland) Act 1987 and the licensing power for HMOs granted by the provisions of the Civic Government (Scotland) Act 1982. A provisional review of the first year of the mandatory licensing scheme for HMOs found that local authority licensing schemes had encountered a number of problems in maximising their impact (Currie, 2002). Some problems were a product of the introductory period of the scheme and could be expected to decline over time. Others were more structural in nature due to the framework imposed by the Civic Government (Scotland) Act 1982. When fully operationally, in theory, only private rented accommodation for one and two families ("family" could mean single person, couple, and family with children, etc.) will not be covered by licensing but this will account for the great majority of the households living in the sector. We discuss the future of the mandatory scheme later in the chapter.

450. There is other statute and common law that places a duty on private landlords to ensure tenants occupy accommodation that meets minimum standards of repair and habitability. The statutory framework defining a landlord's duty is Schedule 10 (as amended) of the Housing (Scotland) Act 1987. Schedule 10 requires landlords to provide and maintain their property in habitable condition and to keep in repair, the dwelling structure and exterior along with sanitary installations and installations for the supply of water, gas and electricity (see Chapter Two). If a landlord fails to fulfil this obligation, tenants must make recourse to the civil law and take action through the Sheriff Court.

451. The private rented sector is dominated by tenants on short assured tenancies, the provisions of which, the first-stage report concludes, may make it difficult for many tenants to feel confident about pressing their landlord to undertake repairs and improvements. At the same time the tenancy regime provides few acceptable quality standards. The legal remedies open to private tenants to require landlords to undertake repairs have a number of significant limitations (e.g. cost and timescale needed to take legal action). All these limitations can be exacerbated for tenants in tied housing because their landlord is their employer.

REPAIR PROBLEMS: STRENGTHENING THE RIGHTS OF PRIVATE TENANTS

452. Many private landlords let and maintain their properties in good condition but others do not, and for the tenants of those landlords, the options for redress at present are to take civil action through the Sheriff Court or risk withholding their rent until repairs are carried out. Where private landlords have not adhered to their statutory repair obligations, we want to see an easily accessible agency made available for tenants to turn to for help and where tenants with genuine complaints about repair problems can obtain redress. We considered two options:

• developing the consumer rights approach through expansion of the role of Trading Standards Officers (TSOs)
• developing the role of Rent Assessment Committees (RACs).

453. Interpreting landlord-tenant disputes from a consumer's rights perspective is of recent origin. The Office of Fair Trading (OFT) has ruled that the 'Unfair Terms in Consumer Contract Regulations 1999' applies to tenancy agreements and offers tenants some redress where clauses in a tenancy agreement are unbalanced or biased in favour of the landlord. The OFT plays a major consumer protection role at national level but "policing" consumer rights legislation at local level rests with TSOs who are employed by local authorities. Their activities largely relate to European and United Kingdom legislation and regulations and they operate over a range of fields. However, there is very little experience in Scotland of providing housing advice or applying their enforcement powers in the housing sector.

454. The RAC's main role is in determining the rent in relation to Regulated Tenancies and in dealing with applications from landlords or tenants for adjudication of the rent or tenancy terms for Assured and Short Assured Tenancies. Each committee is composed of a lawyer, a surveyor and a lay person, who are drawn from the Rent Assessment Panel. The Scottish Executive appoints the members on the Panel but each RAC operates as an independent body. The Committees are very familiar with the workings of the private rented sector and have developed a good understanding of how landlords operate and appreciate the issues that tenants can face in dealing with difficult landlords.

455. Our conclusion is that enhancing the remit of the RAC offers a more suitable primary route by which tenants can seek help in resolving disputes with their landlords about repair and maintenance issues. However, the development of the RAC role in this direction suggests the need for a more relevant name. We propose: the 'Private Rented Housing Tribunal for Scotland' (hereafter termed "the Tribunal") but would welcome further discussion on alternative options that ensure an easily recognisable name to which tenants can relate.

456. While recommending the expansion of the RAC role, we believe there is future potential for the consumer rights perspective in the housing field and that early action should be taken on two fronts:

• the OFT has produced guidance that sets out a wide range of terms within tenancy agreements that can be challenged in terms of unfairness. Because of the different framework of housing legislation, this guidance applies only to England and Wales. The OFT has no plans to produce a Scottish version of its guidance on unfair terms in tenancy agreements. We do not consider this a satisfactory position. The regulations apply throughout the U.K. Trading Standards Officers in Scotland are at a disadvantage in terms of interpretation of the unfair terms in tenancy contracts and the application of the regulations. As a result, if tenants were to access the service, they would be disadvantaged. The Executive should seek early agreement with the OFT on a means of producing a Scottish version of the guidance on unfair terms in tenancy agreements
• there is only a general understanding of the consumer perspective in relation to tenancy agreements and landlord-tenant relationships. The Executive should undertake or commission more detailed work to identify more specifically, the contribution and benefits of consumer protection legislation, its overlaps with existing housing legislation and the viability of developing the role of TSOs in relation to residential leases.

Developing the Tribunal's organisation, powers and procedures

457. The development from Rent Assessment Committee to Tribunal will require a review of the administration, procedures and resources needed to carry out the new duties. While current RAC members are skilled in specific housing matters, significant training for Tribunal members will be needed on repair matters and the revised Repairing Standard. The pool of members will also have to be expanded. This should be possible by building on the existing framework for selection of RAC members. The service will have to be geographically easily accessible to tenants in different parts of Scotland. It will have to process tenants' complaints quickly, as slow procedures are inappropriate when most tenancies are short term. It will have to work hard to establish the confidence of tenants and landlords, including ensuring transparency by providing detailed advice on the procedures and approaches it will adopt.

458. The Executive should ensure that sufficient resources are made available for widespread publicity, promotion, production of leaflets, information packs, seminars and other means of communication with private tenants, private landlords, letting agents, landlord organisations, advice agencies and local authorities.

459. The specific rules and procedures for the Tribunal's operation require detailed consideration that is beyond our remit but we have considered a number of key policies and operational features that should be adopted.

Tribunal procedures

460. Tenants should first have sought to resolve their dispute with their landlord before turning for help from the Tribunal. No fee should be payable for requesting help. Some form of evidence (e.g. copy of letter to the landlord) should normally be submitted to the Tribunal with some indication that no satisfactory response had been forthcoming. This requirement could be waived in special circumstances for example, where the only contact a tenant has with his or her landlord is by phone.

461. To safeguard the tenant against action by the landlord to discourage contact with the Tribunal, the tenant should be allowed (but not required) to lodge a letter about the repair problem with the Tribunal at the same time as he or she raises the issue with the landlord. The Tribunal would only act on the complaint if the landlord took no action, or took ineffective action.

462. To prevent pressure being put on a tenant to withdraw a submitted complaint, the Tribunal should not allow a registered complaint to be withdrawn unless it believes there is a good reason.

463. When the Tribunal inspects a property as a result of a tenant's complaint, it should be able to address issues of disrepair that fall within its remit but which had not been recognised by the tenant.

464. The Tribunal should have a statutory right of entry for the purposes of inspection in relation to a repair dispute and refusal of entry by the landlord should constitute a criminal offence.

465. The Tribunal should seek to resolve disputes by a combination of mediation and enforcement. Its overall aim should be to provide both landlord and tenant with a setting to resolve matters through mediation and to secure agreement with the Tribunal's determinations.

466. Where mediation fails or where a landlord refuses to participate in the process, the Tribunal should have the power to make a binding determination on the landlord by serving a Repair Determination Notice. This would require the landlord to remedy the disrepair within a specific timescale. Where the disrepair is a communal responsibility, a realistic time period would be needed for all the owners to agree to the necessary works.

467. A landlord should have a right of appeal to the Sheriff Court against the Repair Determination Notice. (A tenant aggrieved with a Tribunal's decision to reject his or her complaint should have an equivalent right of appeal to the court.)

468. While most landlords involved with the Tribunal process would not react by threatening to terminate the tenancy, this cannot be guaranteed for all landlords. Therefore, the Tribunal should accompany the Repair Determination Notice with an order - the Reletting Restriction Order - that prohibits the landlord (or anyone the property was sold to) from reletting the property until the repairs are carried out. Reletting Restriction Orders should be recorded in a public Register, which would also record the decision to rescind the Order when the repair works are satisfactorily completed. Failure to comply with either a Repair Determination Notice or a Reletting Restriction Order should be a criminal offence.

469. When a landlord ignores a Repair Determination Notice and the time allowed to carry out the repair has lapsed without good cause, the Tribunal should be empowered to restrict the rent charged to the tenant until the disrepair is remedied. The Order would not be subject to appeal in the Sheriff Court but there could be recourse to Judicial Review.

470. When a landlord ignores the Repair Determination Notice even after a rent restriction had been applied, the Tribunal should be under a duty to submit the case to the local authority with a request for it to use the powers at its disposal to require the landlord to remedy the disrepair. The Tribunal could not instruct a local authority to take action.

471. Local authorities should have a specific power to serve an order requiring a private landlord to bring his property up to the statutory Repairing Standard set out in the modernised Schedule 10 (with an accompanying power of entry to the property, power to carry out the repair work in default and a power to recover costs). Local authorities should only serve the compulsory repair order in two circumstances. First, where a request for intervention has been made by the Tribunal. Secondly, where the disrepair is such that there is a need to act to protect the safety, welfare or health of persons living in the property.

Disabled adaptations in the private rented sector

472. We also considered the rights of tenants with particular needs to make changes to their homes to meet those needs. We took the view that there was no overriding reason why such individuals should have any less right to a home that meets their needs simply because of the tenure of the home they occupy. However, we are also aware that many private landlords let out their property on a short-term basis with the specific intention of occupying it in the future.

473. Whilst most adaptations to improve accessibility or make a home suitable to a person with a disability will have no substantial implications for the occupation of that house by any other households, there may be circumstances where this is the case. In such circumstances there is a need to balance the needs of the tenant with the interests of the landlord.

474. To achieve this, we believe that an amendment should be made to the relevant sections of the Housing (Scotland) Act 1988 to provide that a private tenant shall have a right to carry out adaptations to their home to meet their particular needs, subject to the consent of the landlord, and that consent should not be unreasonably withheld.

475. This formulation is common to a number of rights in the public sector and we do not believe that there are necessarily any insurmountable difficulties in definition. In order to ensure that the issue does not become a significant obstacle to tenants exercising this right, we recommend that the proposed Tribunal should take on the role of determining when consent has been withheld unreasonably.

REGULATION AND ACCREDITATION

476. The preceding section focuses on the landlord-tenant relationship and the role that an agency could play in resolving disputes over property disrepair. In this section we consider the local authority-landlord relationship and broader regulatory approaches to raising the quality of accommodation and its management so that tenants can be confident that they are living in, and have access to, comfortable, safe and properly managed accommodation.

Key objective

477. Our key objective is to identify what type, or types of regulation, mandatory or discretionary, will be most effective in raising standards in the private rented sector without having a detrimental impact on its scale of provision.

478. Our deliberations have been guided by a number of considerations:

• as we have noted previously, physical conditions are poorer than in any other tenure, but not universally poor and while management standards can also be poor, this is by no means in all cases
• improving the quality of the sector cannot be left to "the market" as market pressures do not operate equitably across the sector
• any intervention that causes a marked contraction in the size of the sector will be counter-productive
• intervention must be justifiable in value for money terms. Compliance costs for regulatory bodies and the providers of accommodation should not be unacceptably high
• the focus should be on the "landlord function" i.e. the responsibility for carrying out property and tenancy management tasks, not on who owns the property
• regulatory constraints should be commensurate with, not disproportionate to, the risks they aim to address.

Different regulatory approaches

479. We do not see our key objective being met by a "one size fits all" approach but by putting together a framework that aims to meet it while taking account of our six considerations. We have considered the pros and cons of three broad regulatory options. Within each, different permutations are identified and evaluated.

Voluntary accreditation

480. Accreditation implies a voluntary system of regulation. Our concept of accreditation is based on the establishment of a scheme by a local authority and landlord organisation (or a landlord forum) which landlords and agents choose to join. The scheme requires specific property and management standards to be met in order for the property or landlord to be accredited and if the application is successful, a certificate of confirmation of the standards having been attained is awarded. A voluntary accreditation scheme can target the whole private rented sector or a specific part, by geography or sub-sector but it would be expected there would only be one accreditation scheme operating in each local authority's area.

Compulsory regulation

481. We have identified three main types of compulsory regulation: compulsory licensing, compulsory registration and compulsory certification. While they differ from each other in terms of how onerous their regulatory requirements are, they all share one common feature - they are universal schemes - all privately-rented property (or all private landlords and letting agents) must be regulated in order to lawfully operate and trade (excluding those already covered by the mandatory HMO licensing scheme). Additionally, compulsory regulation (whatever type of scheme is legislated for nationally) would require all local authorities to implement it.

Discretionary regulation

482. A discretionary regulatory approach offers a flexible alternative to compulsory regulation by every local authority. By "discretionary" we mean that each local authority would have a power (subject to Executive approval) to introduce some form of local regulation (registration, certification or licensing) but only if it was proven to be necessary. It is important to emphasise that the discretion is on the local authority as to whether to have a scheme, not on the landlord on whether or not to join it. Once established, joining the scheme would be compulsory for the landlords and, or properties for which the scheme was designed.

A national accreditation framework and local, voluntary accreditation schemes

483. We support the promotion of local accreditation schemes while recognising that other approaches such as registration, certification or selective licensing may be more of a priority for some authorities. Voluntary accreditation schemes are not a panacea for all the problems in the private rented sector but we believe that in combination with targeted regulatory action, they can play a very useful role.

484. Accreditation should not be developed as a "soft touch". It must raise and maintain standards. Accreditation should focus on both property standards and the landlord's or agent's management practices including those in respect of equalities groups. In our view, accreditation schemes should combine property standards with management practices.

485. Credibility is crucial to the success of voluntary self-regulation and schemes must have the confidence of tenants. Good practice requires schemes to have clear objectives and rules, sound governance with independent representation, monitoring and review procedures, complaint procedures, enforcement and sanctions, some form of public accountability, good publicity and adequate resources.

486. Voluntary accreditation schemes also need to offer tangible benefits to landlords and agents. We would emphasise the critical importance of this matter. Benefits must have real value. A sense of enhanced status and "gaining market advantage", while less tangible than other incentives, are important and those who develop schemes need to identify how such benefits can be achieved. More "visible" benefits could include:

• local authorities and RSLs providing rapidly updated lists of vacant accredited properties to let
• priority access by landlords to lists of people looking to rent compiled by local authorities and RSLs (choice-based lettings schemes could include accredited private landlords or properties)
• direct access to a Housing Benefit officer responsible for tenants in accredited properties
• small grant assistance with gaining accreditation status
• access by tenants entering accredited property to a rent deposit or guarantee scheme
• free advice and training courses.

487. Good practice guidance on accreditation schemes in England (DETR, 2001) strongly supports the partnership approach between local authorities and landlords as the best way to gain credibility and the confidence of landlords. We agree with the partnership approach at local level and that local authorities should not go ahead with an accreditation scheme without "industry" backing. However, we recognise that local authorities are most likely to be the lead player as there are few local landlord/agent organisations in Scotland.

488. As suggested by the CIH in Scotland and Scottish Association of Landlords (SAL) (2003), at national level there needs to be a National Lead Agency that works with other agencies to establish a national framework of standards and guidance. We would underline the need for core standards to be set nationally based on full consultation by the Lead Agency with all stakeholders. We see a possible role for Communities Scotland as a provider of national guidance - developed in consultation with national key players such as SAL, the Association of Residential Letting Agents, CoSLA and the CIH - and as a provider of support to local authorities and landlord/agent groups.

489. A targeted training programme for the key partners is essential and should include tenant participation and diversity awareness issues. Training could be provided by a variety of agencies. Another important issue is fees. For voluntary accreditation to work, membership fees need to be kept low. Financial support from the Executive for the promotion, training and establishment of local schemes would be desirable in order to secure a successful launch. Any start-up finance and support should be restricted to schemes that at least meet the core national standards. We also support the provision of assistance to help establish landlord forums as a stepping stone to an accreditation scheme.

490. Local authorities should not be placed under a duty to establish a local accreditation scheme. On the other hand, if landlords want to establish an accreditation scheme but a local authority, for whatever reason, does not, that should not prevent landlords from being supported, including financially, to set up a scheme. It would be essential that the National Lead Agency had a role in overseeing the governance and verification methods of any landlord-only local schemes.