This Private Letting Sector update focuses on Premiums and covers:
Outcome of the Consultation
The current position and looking forward
What is the impact of the announcement on historic changes
The Scottish Government launched a Consultation on “premiums” which ran from 4 April to 28 May 2012. The Consultation looked at defining “premium” and whether the Government should provide exemptions to allow certain charges to be payable by tenants, with or without a maximum cap on how much can be charged.
The consultation sought views on three options to clarify the law on premiums in the private rented sector. The options were:
- Should the Scottish Government embark on a consumer focused communications exercise to amend the definition of “premium”?
- Should Scottish Ministers make secondary legislation that will identify categories of sums that are permitted to be charged to tenants and set maximum amounts for such charges?
- Should Scottish Ministers make secondary legislation that will identify categories of sums that are permitted to be charged to a tenant, without setting maximum amounts for such charges?
The Consultation closed on 28 May 2012 and an Executive Summary of the responses has been published. Overall there has been a mixed response to how exactly the problem should be dealt with.
An analysis of responses is available here.
Option One was the most popular option (although a considerable number of responses were in identical terms), with two thirds of the respondents supporting clarification of the definition of “premium” by way of a communications exercise. The main argument in favour of Option 1 was that it would allow the existing law to be developed.
One quarter of respondents supported secondary legislation which would list legitimate charges which were not premiums and the fixing of a maximum cap for those charges.
Option Three was the least favoured option, with less than 10% of respondents in favour of identifying categories of premiums without imposing a maximum charge for these.
Outcome of the Consultation
The Scottish Government has confirmed that option one is the preferred outcome and aim to introduce new legislation to this effect by the end of November 2012. This will see a new robust definition of “premium” without any exemptions! There is little doubt that the announcement will have an impact on the cash-flow of letting agents and landlords who had previously charged tenants a range of fees including credit checks, inventory fees, admin fees and renewal fees.Back to top
On Monday 27 August 2012 Scotland’s Housing Minister Keith Brown confirmed that, following a Government Consultation the decision had been taken that letting agents and landlords should not be charging a range of upfront fees (known as premiums) to private tenants. The law is to be changed to make it clear to letting agents that charges other than rent and a deposit are illegal.Back to top
The current position and the position looking forward
Under Section 82 of the Rent (Scotland) Act 1984, which is the law currently in force, letting agents and landlords are prohibited from charging tenants “premiums” as a condition of “the grant, renewal or continuance” of a protected tenancy. Section 27 of the Housing (Scotland) Act 1988 extends this provision to assured (and short assured) tenancies. It is a criminal offence for landlords and letting agents to charge premiums (under Section 82(3) of the Housing (Scotland) Act 1988). Landlords and letting agents face a fine of up to £1,000 if they are found guilty of charging illegal premiums.
Section 90 of the 1984 Act defines a premium as “any fine or other like sum and any other pecuniary consideration in addition to rent”.
Moving forward section 32 of the Private Rented Housing (Scotland) Act 2011 contains a more robust definition of “premium”, namely, “premium means any fine, sum or pecuniary consideration, other than the rent, and includes any service or administration fee or charge…”. In our opinion this will remove any ambiguity within the industry in relation to admin fees, referencing charges and other such fees.
What is the impact of the announcement on historic charges?
Many agents fear that the announcement may encourage tenants to pursue sums that they have already paid. Until now there has been confusion in the sector as to whether charging tenants some fees is challengeable. The announcement by the Scottish Government does not change the position historically as the new law is not retrospective. Therefore, whilst letting agents and landlords can still be challenged under the existing legislation, tenants will not be able to rely on the new legislation until it comes into force.Back to top
Our advice to letting agents and landlords is that they should take immediate heed, accept the clarification provided by the Scottish Government and revise their procedures accordingly. If letting agents and landlords require any further advice regarding their current position or the impending legislation please contact a member of our Housing Team.
This newsletter has been issued by Lindsays on the basis of publicly available information, internally developed data and other sources. Whilst all reasonable care has been taken to ensure the facts stated and the opinions given are correct, Lindsays does not accept any responsibility for its content and advise that specific advice should be sought regarding the topics covered.
© Lindsays 2013