Rent Adjudication Reforms – MMR Session with Scottish Government—Recap

Earlier this month, SFHA hosted an info session for members on the rent adjudication reforms that are currently in Parliament. The reforms are replacing the cost-of-living act which expires on March 31 2024 and expected to be implemented 1 April, if passed. Some key info from the event is included in this summary.  

SFHA were joined by Yvette Sheppard, Head of Rented Sector Unit, Better Homes Division at Scottish Government and Alice Hall, Interim Deputy Director, Better Homes, Scottish Government. 

Scottish Government outlined the proposed changes, which would temporarily modify the existing rent adjudication process for 12 months (but which may be extended for a further one year period with parliamentary approval). The changes mean that if a tenant decides to take a rent increase notice to adjudication, Rent Service Scotland can use a new rent taper formula to restrict rent increases. 

• On the rent increase taper formula: 

If current rent is below the open market rent (as the case of Mid-Market rents), then the following applies to rent increases:  

• If the gap between the market rent and the current rent is 6% or less, then the rent will be set in line with the rent proposed by the landlord. 

We understand this option is not relevant to SFHA’s membership, as most of our member’s MMR rents are more than 6% below market rent.  

• If the gap between the market rent and the current rent is more than 6%, then the rent will be increased by 6% plus one third of a percent for each percent that the gap exceeds 6%.  

• If the gap between the market rent and the current rent is 24% or higher, the rent increase will be capped at 12% of existing rent. 

The second two options mean that most of our members can increase MMR rent between 6-12% without breaching the rent increase formula applied by Rent Service Scotland that the reforms introduce to the adjudication process.  Rent increases are capped at a maximum of 12% under the reforms. However, tenants may refer a rent increase to RSS for adjudication regardless of a breach of the formula or not.  

For more details and worked examples, the Scottish Government’s info page is located here: https://www.gov.scot/news/continuing-rent-protection-for-private-tenants/ 

• On rent increase notices: 

Scottish Government has confirmed that updated rent increase notification templates will become available on April 1st 2024. Scottish Government representatives explained that changes need to reflect the legal requirements in force at the time, so cannot happen any sooner than April 1st, unfortunately. It was also advised that Scottish Government will be returning everything back to as it was before Cost of Living Act and removing the flag on the increase notice tool if a value above the 3% cap is entered in respect of the current and new rent values. 

• On ‘open-market’ rent: 

The reforms do not define ‘open-market’ rent, but Scottish Parliament Information Centre advises that Rent Service Scotland uses a ‘Market Evidence Database’ on private rents to determine open market rent. It is the same data used to determine annual Local Housing Allowance levels. The database uses advertised rental information, private landlord and letting agent returns, and mailshot initiatives (Scottish Government details that 85% of the evidence based on advertised rents).  

In a recent publication on the PRS rent reforms, Scottish Parliament Information Centre advises, “There’s not one source of data that a tenant or landlord would be able to consult to work out what an open market rent might be. If a landlord or tenant wanted an idea of what an open market rent might be, they could look at, for example, existing adverts for similar properties in their local area.” 

So although there is not a clear definition provided in the proposals, Rent Service Scotland uses the same market evidence database for setting Local Housing Allowance (LHA) at the mid-point range of private rents for each Broad Rental Market Area (BRMA) that it may use as primary evidence in  adjudications.   

Scottish Parliament has an illustrative rent increase calculator tool. It can be used to estimate what rent increase might be allowed on adjudication (but still requires you to input a market rent value). 

The agenda and speaker presentations from this session are available in the downloads section of this page: 

1. Mid-Market Rent: Market trends and overview  
   Dr. John Boyle, Research and Strategy Director, Rettie 

2. SFHA’s response to the rent adjudication measures consultation  
   Gillian Campbell, Gillian Campbell consulting who led SFHA’s response.  

Many thanks to all who attended the session and have fed into the consultations and government engagements over recent months. For any questions or comments, please contact Annabel Pidgeon at apidgeon@sfha.co.uk.