Too much red tape?
The Scottish government has been indulging in a bit of landlord-bashing of late.
Scotland, which has devolved powers in housing, claims to be leading the way in reforming the private rented sector. Well, they have certainly made some big changes, which have left landlords and letting agents north of the border squealing in protest. But whether they are leading the way or have taken a serious wrong turning somewhere remains to be seen.
So what are these reforms?
Compulsory landlord registration for a start. This was already in place in Scotland but the regime has been strengthened further. All private landlords must register with their local authority before letting out a property. The maximum fine for operating as an “unregistered landlord” is a whopping £50,000.
The purpose of registration is so that the local authority can decide whether the landlord is a “fit and proper person” to let property. Councils are required to check an applicant’s criminal record as well as take into account any complaints they have received or any information they have that the would-be landlord has breached property regulations in the past. Registration lasts for three years. Landlords then have to apply again. The current charge to register as a landlord is £55, with an additional fee payable for each property. There are reports that about 6,000 landlords in Glasgow alone have so far failed to register.
Not only that. It is now an offence in Scotland (that’s right – an actual criminal offence) for a landlord to use a letting agent without notifying the local authority. Failure to do so is punishable by a fine of up to £1000. Yes, you have read that right: you can get fined for using a letting agent without permission.
And if that wasn’t enough to make any landlord run for the glens, wait until you hear about the “Tenant Information Pack“, or TIP. TIPs are supposed to become mandatory from early 2013. The TIP is a bit like the disastrous “Home Information Pack” (or HIP) – remember those? – but for rentals, not sales. Landlords will be required to provide all new tenants with a TIP – a sizeable booklet which has to be in a standard format – and which will contain information on things such as property condition, tenancy agreements, EPCs, gas safety, levels of occupancy and rights and responsibilities of landlords and tenants. Failure to provide tenants with a TIP will also be a criminal offence.
Oh, and it is also now illegal in Scotland to charge tenants fees. This is aimed at those so-called “admin fees” charged to tenants by letting agents, supposedly to check tenant references etc (and we thought that’s what the landlord was paying the agents for).
Further proposals that may be in the pipeline include compulsory licensing for letting agents and possible reforms to tenancy agreements, to give tenants more security of tenure.
We welcome the outlawing of fees charged to tenants. Letting agents charge landlords up to 10% of the annual rent to find tenants, reference them and draw up a tenancy agreement. It is clearly wrong for them to charge the tenants for the same tasks. It is only because good rental property is in high demand that agents have been able to get away with this practice and it is time it stopped in the rest of the UK too.
But that aside, these proposals are a backward step and will not achieve their stated aims. The vast majority of landlords and letting agents (well, landlords anyway) are decent honest people, perhaps with one or two buy-to-let properties that they are hoping will suffice for a pension. Others may be so-called “accidental landlords” who are driven into letting out their home because they have been unable to sell it and need to move, perhaps for work reasons. Demonising these people and threatening them with criminal sanctions or massive fines if they fail to register or if they – heaven forbid – dare to use a letting agent without Big Brother’s permission is not the way forward.
As for Tenant Information Packs. How many tenants care about occupancy levels or their EPC rating? They will be more concerned as to whether the production of the mound of paper sheepishly handed to them by their landlord is likely to have resulted in a rent increase. The TIP will go straight in the recycling box, unread. Most of the information is readily available anyway if tenants are interested.
And anyway, how are all these new laws going to be policed? The reports that 6,000 landlords in Glasgow alone have failed to obtain licences is hardly surprising. Is Glasgow council really going to start fining these law breakers up to £50,000 each? And how will it trace unregistered landlords anyway? If they can’t get round to registering they are not going to advertise that fact.
And what happens if a landlord is declared unfit to be a landlord? Does he have to evict his tenants or face prosecution?
The result of all this Scottish regulation is likely to be this: badly-behaved landlords will continue to flout the law, as they do now, good landlords will think twice about taking on any more properties, and many would-be landlords will be put off the whole idea. Some letting agents will go out of business. Fewer landlords may be welcomed by some, but fewer landlords means fewer rental properties,which inevitably means higher rents. Unless the Scottish government plans to regulate rents too, of course. Our advice to investors: don’t buy in Scotland.