Land and Property - June Newsletter 2024

RESIDENTIAL TENANCIES: MORE REGULATION ON THE WAY

Letting properties within the Scottish private rented sector is a heavily regulated activity and it is easy to fall foul of the ever-increasing amount of regulation.

The latest in a series of developments is the Housing (Scotland) Bill (the “Bill”), which was introduced by the Scottish Government in March 2024. The Bill contains a package of proposed reforms increasing the rights of tenants and which, according to the explanatory notes accompanying the Bill, will “help ensure people have a safe, secure and affordable place to live”.

The Bill is a large and complex piece of legislation and in many respects is a framework, with much of the detail being left to secondary legislation. Some of the key points insofar as they relate to the private residential tenancy (“PRT”) regime are summarised below. In some cases, similar provisions affect other types of residential tenancies.

The Bill also proposes to phase out existing assured tenancies (including short assured tenancies) by giving the Scottish Ministers powers to appoint a date upon which these types of tenancies would convert to PRTs. If this is brought into force, one effect will be that “no-fault” termination of short assured tenancies will no longer be possible.

Rent control

A large part of the Bill is dedicated to rent control including the introduction of rent control areas. The Scottish Ministers would have powers to designate the whole or part of a local authority area as a rent control area and to determine the level of cap which applies, but only where “necessary and proportionate for the purpose of protecting social and economic interests of tenants in the area” and where this is a “necessary and proportionate control of the landlords’ use of their property in the area”.

To inform the Scottish Ministers’ decision making process, local authorities would carry out five yearly assessments of the levels of rent and rent increases in the private sector. Landlords would be under a duty to provide local authorities with certain information about their let properties (including the level of rent and rent increases), with penalties for failure to comply.

For properties outwith a rent control area, rent cannot be increased more than once in any 12 month period and no rent increase in the first year of the PRT would be permitted. Rent increases would not be capped, however the Bill proposes to amend the rent determination process so that if a tenant were to formally challenge a rent increase, the rent will be the lower of that specified in the landlord’s rent increase notice and the open market rent.

Evictions

The First-tier Tribunal would be under a duty to consider delaying evictions. A number of factors would be taken into consideration, including whether the tenant, any member of tenant’s household or the landlord has any disability and whether not delaying the end of a tenancy would cause the tenant, any member of the tenant’s household or the landlord financial hardship.

The Bill also seeks to increase the potential damages payable by a landlord for a wrongful eviction to a minimum of three months’ rent and a maximum of 36 months’ rent.

Terminating joint tenancies

Changes to the PRT regime are proposed so that where the tenancy is a joint tenancy, one tenant can terminate the tenancy for all tenants.

Tenant alterations and pets

Regulations would follow setting out permitted alterations which a tenant could make to the let property. There would be two categories of permitted alterations: those which do not need landlord’s consent and those which do need landlord’s consent. The Bill also proposes that a tenant may keep a pet or pets at the let property with the landlord’s consent.

In both cases, where landlord’s consent is required, a landlord may not unreasonably refuse consent but may impose reasonable conditions when giving consent. The Scottish Ministers have powers to make regulations setting out when it would be “reasonable” for a landlord to refuse consent and what constitutes a “reasonable” consent condition.

Timing

A target date for passing the Bill has not been publicised and the Bill awaits the parliamentary process where it will be considered and amendments to it are certain to be made. Once enacted, secondary legislation would be required for certain elements and it is likely that there will be transitionary provisions.

In the meantime, the Scottish Parliament’s lead committees for the Bill published a consultation seeking views on the proposals which closed on 24 May 2024. An analysis of the responses was published this month and is available here.


NEW BUILDS: RE-THINKING THE BAN ON WOOD BURNING STOVES

From April 2024, changes to building regulations mean that new buildings will not be allowed to use direct heating emission heating systems (i.e. those that burn fossil fuels) and will instead need to use alternatives such as heat pumps and heat networks. These changes also apply to some conversions to existing buildings where there is a change in occupation or use, but only where use of an alternative heating system is reasonably practicable.

These changes to building regulations do not apply to alterations to or extensions of buildings constructed before 1 April 2024 or in accordance with a building warrant applied for before that date. There are also exceptions for emergency heating and heating provided solely for the purpose of frost protection.

In May 2024, the Scottish Government confirmed that it is reviewing these changes to building regulations to address concerns about the use of wood burning stoves and the wider use of bioenergy systems in new builds, particularly in rural and island communities.

See our briefing note – For more information about energy performance certificates for properties in Scotland which includes a summary of the Scottish Government’s proposals to make new laws around heating systems and energy efficiency improvements.


WILDLIFE AND MUIRBURN (SCOTLAND) ACT 2024

The Wildlife and Muirburn (Scotland) Act 2024 (the “Act”) received Royal Assent on 30 April 2024. The Act changes the rules around how people can capture and kill certain wild birds and animals and the rules around the making of muirburn. The Act implements many of the recommendations of the independent review of grouse moor management known as the “Werrity Report”.

Wildlife management

The key points of the Act in respect of wildlife management are:

  • A ban on glue traps. There is a limited exception allowing glue traps to be used by authorised persons if necessary to protect public health where no other method of rodent control is available.
  • A ban on snares other than hand-operated snares for the purpose of taking any animal other than a wild bird.
  • A new wildlife trap licensing regime covering the use of certain traps for the taking or killing of wild birds or animals. This would be in addition to the existing statutory licensing regime for certain types of traps. Traps used for rats, mice and moles would not require a wildlife trap licence.
    • Licences would be for up to ten years and an application must include evidence that the person using the wildlife trap has completed an approved training course.
    • The person’s wildlife trap licence number will need to be shown on the trap and the trap must be monitored. It will be an offence to use or possess a trap on any land without authorisation from the owner or occupier of the land.
    • Disarming, destroying or tampering with an authorised trap so that it no longer complies with the requirements of the Act will be an offence. The Act also increases penalties for using unauthorised spring traps in line with other serious animal welfare offences.
  • It will be an offence to kill, injure or take red grouse (there is provision for other birds to be added) outside the close season unless the owner or occupier of the land holds a “Section 16AA Licence”. There is a limited exception where the bird was killed, injured or taken through the use of a bird of prey by an authorised person provided that, if the bird had to be killed as the result of injury, all reasonable steps are taken to cause minimum suffering.
    • Section 16AA Licences would be for up to five years. They will be issued by the Scottish Ministers or Scottish Natural Heritage if they are satisfied that it is appropriate to do so having regard to the applicant’s compliance with a code of practice to be produced by the Scottish Ministers. This code of practice may provide guidance on matters such as land management, predator control and how the taking or killing of wild birds should be carried out.

Muirburn licensing

Muirburn is the controlled burning of moorland vegetation and, for the purposes of the Act, includes the setting of fire to, or the burning of, any heath or muir. The Act introduces a muirburn licensing regime, making it an offence to carry out muirburn other than in accordance with a muirburn licence.

  • An application for a muirburn licence must include evidence that the person who will make the muirburn has completed an approved training course. The purpose of the intended muirburn based on a statutory list must also be provided.
  • A muirburn licence only allows muirburn during the muirburn season, which is from 15 September in any year to 31 March in the following year.
  • Muirburn licence holders are required to have regard to the “muirburn code” which will set out how to make muirburn safely and appropriately.
    • The muirburn code will be prepared by the Scottish Ministers in consultation with Scottish Natural Heritage and other parties who the Scottish Ministers consider likely to be interested in or affected by the making of muirburn (including those involved in the management of land on which muirburn may be made).
  • At least seven days before muirburn is made, notice must be given to the owner of the muirburn site (if different from the person making the muirburn) and any occupier of land within one kilometre of the proposed muirburn site.

Timing

While the Act has received Royal Assent, the provisions of the Act are not yet in force. The provisions of the Act will come into force on a date to be appointed by the Scottish Ministers, who also have powers to bring different provisions into force on different dates.


LAND REFORM (SCOTLAND) BILL: TO BE CONTINUED…

In March 2024, the Scottish Government introduced the much awaited and controversial Land Reform (Scotland) Bill (the “Bill”) which aims to reform the law relating to large landholdings and leases of rural land. The key points in the Bill are:

  • Landholdings exceeding 3,000 hectares (with special rules for islands): The Scottish Ministers would have powers to make regulations about land management plans which owners must produce and make publicly available.
  • Landholdings exceeding 1,000 hectares: (1) A prohibition on the sale of part or whole without first notifying the Scottish Ministers and allowing communities the opportunity to use the community right to buy late application process and (2) a prohibition on sale without a lotting decision from the Scottish Ministers.
  • Various changes to agricultural and small holdings legislation.

A target date for passing the Bill has not been publicised and the Bill awaits the parliamentary process where it will be considered and amendments to it are certain to be made. In particular, the hectarage thresholds referred to above are likely to come under scrutiny. The Scottish Parliament’s Net Zero, Energy and Transport Committee (the lead parliamentary committee responsible for reviewing on the Bill) published a consultation seeking views on the Bill which closed on 21 May 2024. A link to the published responses to the consultation is available here.

In the meantime, the Scottish Government has proposed a review of all current rights to buy in summer 2024 (with a report due at the end of 2025) to determine whether new legislation is required. It is therefore possible that any changes made to the community right to buy as a part of this wider process could have a further impact on the transfers of the whole or part(s) of large landholdings (and indeed any other land which does not meet the hectarage thresholds referred to above).

It awaits to be seen what impact (if any) there will be on Bill as a result of the ending of the co-operation agreement between the SNP and the Scottish Green Party (also known as the “Bute House Agreement”) or any change in the Scottish Government at the next Scottish Parliament election. However, it is thought that it will be very unlikely that the Bill will be withdrawn altogether.

See our briefing note – For more information about the Bill.


LEASEHOLD AND FREEHOLD REFORM ACT 2024: IT’S PROGRESS BUT NOT PERFECTION

With the general election set to take place on 4 July 2024, property practitioners and industry professionals feared that the long-awaited Leasehold and Freehold Reform Bill would fall by the wayside, leaving the position relating to leasehold and freehold property law in England and Wales without the much-needed reform promised by the Conservative government. However, the Bill was rushed through in the last few days of parliamentary time and received Royal Assent on 24 May 2024. Bringing the provisions of the Act into force by way of secondary legislation will be the task of a new government.

Why is reform needed?

The concept of leasehold property has existed in English and Welsh property law since at least the 11th Century. It arises out of the feudal system of land ownership and has since been enshrined in legislation. To put it in simple terms, a leasehold estate is ownership of a right to hold land or property for a limited period of time. In most cases, the leaseholder pays rent and service charges to the freeholder (the landlord) and observes and performs the conditions set out in the lease which governs the relationship between the leaseholder and the landlord.

Issues with leasehold ownership have long been recognised and the need for reform has gained greater traction over the last few years. The Law Commission published a series of reports in July 2020 relating to enfranchisement (a term given to a leaseholder’s right to extend their lease or purchase the freehold of their building) and right to manage laws (which allow leaseholders in certain circumstances to take over management of the building, even without the landlord’s consent or agreement). The guidance notes for the Bill claim that it will make long-term changes to home ownership for millions of leaseholders in England and Wales. As enacted, the legislation runs to 124 sections and 13 sections, all with the stated aim of “empowering” leaseholders and “improving their consumer rights”. The question is, has it delivered?

What the Act does

The Act addresses a number of issues raised by the Law Commission. Some of the key provisions included are as follows:

  • A ban on the sale of new leasehold houses (except in exceptional circumstances);
  • Provisions to make it easier and cheaper (so the government say) for leaseholders to acquire the freeholds of their houses, to extend leases of their houses and flats and to collectively enfranchise or manage the buildings containing their flats;
  • Increase of the standard lease extension term from 90 years to 990 years for both houses and flats, with ground rent reduced to a peppercorn;
  • Removal of the requirement for a new leaseholder to have owned their house or flat for two years before they can extend their lease or buy the freehold; and
  • Allowing leaseholders of mixed-use buildings where up to 50% of the floorspace is ‘non-residential’ to buy their freehold or take over its management (increased from 25%).

There are also a number of changes relating to leaseholders’ rights in relation to service charges and management of the building, including (amongst other things) the introduction of a standardised service charge demand form and a requirement for freeholders who manage their property to belong to a redress scheme, so leaseholders can challenge them if needed.

What is absent from the Act is the proposed plan to phase out or cap existing ground rents to £250 per annum, which had been suggested by Michael Gove. This will no doubt be disappointing for many leaseholders, but welcomed by landlords and investors with ground rent portfolios.

When does it come into force

The Act states that certain provisions relating to rentcharges, the recovery of litigation costs in service charge disputes and certain amendments relating to the Building Safety Act 2022 will come into force two months after the Act is passed into law. Based on that analysis we can expect those provisions to become operative by 24 July 2024.

However, the remaining provisions will need to be brought into force by regulations or secondary legislation. This will require detailed drafting and careful consideration, which is likely to take some time.

And now, we wait…

The government is in a state of “purdah”, during which it will normally observe discretion about making new announcements or decisions that could affect their election campaign. Like the government, property owners, practitioners and industry professionals are in a state of uncertainty, whilst we wait to learn which party will be in No.10 following 4 July 2024 and thereafter wait to find out what they propose for the future of the Act.

Whilst the Act can be seen as a step in the right direction for delivering the much-needed changes, until we see the detail around how the changes will be implemented, we cannot say definitively whether the Act delivers on its aims.

But should leaseholders wait…

Leaseholders will be concerned as to whether they should instigate lease extension or enfranchisement claims now, or whether they should wait and see if, and in exactly what terms, the Act comes into force.

The answer to that will never be black and white. It will depend on a number of factors and leaseholders should take specialist advice. It is likely that the answer will be a balancing act between risk and potential benefit, which will be specific to the facts in each case.