News

Understanding the CoL Rent Cap

The Scottish Government's emergency Cost of Living (CoL) legislation, introduced 18 months ago, will conclude on March 31, 2024.

Initially, the CoL legislation limited rent increases on existing tenancies to 0% annually. In April 2023, this cap was raised to 3%, with exceptions allowing up to 6% in certain cases, provided landlords could present evidence meeting strict criteria.

New Regulations on Rent Increases Become Effective from April

Subject to Parliamentary approval, starting April 1st, a more lenient restriction on rent increases will apply to existing tenancies. Landlords can serve rent increases of any level, given they adhere to the rules: providing three months' notice and implementing only one increase within a 12-month period. Tenants can appeal if they find a rent increase excessive, prompting landlords (or agents) to justify the increase with evidence of the open market rent.

Using Open-Market Rents for Increases

In case of a disputed increase, a tapering system will determine the new rent:

- If the open market rent is 6% or higher above the current rent, an increase matching the open rent level up to 6% can be directly applied.

- If the open market rent exceeds the current rent by more than 6% and the landlord seeks an increase beyond 6%, a tapering system comes into play. Here, the rent can only increase by a third of a percentage point for every additional 1% above the allowable 6% that the open market rent exceeds the current rent. An upper limit of 12% annual rent increases will be imposed.

Navigating the Changes

Landlords need not worry about the complexity of these regulations, as property managers will handle the process of reviewing rents for existing tenancies. The tapering system, though intricate, is favorable for landlords. It ensures that rent levels on existing tenancies align more closely with open market rents, thus averting significant disparities amid rising rents over the past two years.

Given the impending changes to rent caps, annual rent reviews are postponed until April, when recommendations for potential rent increases will resume upon reaching the 12-month anniversary of the last rent review.

Unregulated Open-Market Rents

It's important to note that open-market rents will remain unregulated. Consequently, properties will continue to be advertised at levels deemed appropriate and achievable for each property in its specific location.

For further information or to discuss rent levels in advance, landlords are encouraged to reach out to their Portfolio Manager: https://www.flatcompany.com/our-people/

These forthcoming changes reflect a significant shift in rent increase regulations in Scotland, aiming to strike a balance between tenant protection and landlord interests.