Why Scotland’s Rent Controls Are Leading to More Frequent Rent Increases – What London Landlords Should Know

Scotland’s Rent Controls: An Unexpected Outcome

In response to the Covid-19 pandemic, Scotland introduced rent controls aiming to protect tenants by capping rent increases. Initially, landlords could raise rents by no more than 3% per year until April 2024. From then, any increase must be the lowest of three values: the open market rent, the landlord’s proposed rent, or the permitted rent established by legislation.

However, recent analysis published by Letting Agent Today reveals a paradox: though individual rent rises are smaller in Scotland, a larger share of Scottish landlords are increasing rents compared to landlords elsewhere in Great Britain. This has resulted in overall higher average rental growth in Scotland despite controls designed to moderate it.

Why Are More Landlords Raising Rents?

Several factors explain this behaviour:

• Preemptive Adjustments: Anticipation of tighter future controls, including the planned introduction of Rent Control Areas from 2027, is prompting landlords to adjust rents upward now to better align with market rates.
• Capped Increase Limits: Because the maximum increase is capped annually, landlords may prefer smaller, more frequent increases rather than risking larger hikes that may be blocked or disputed.
• Market Rate Alignment: Landlords aim to keep rents competitive with market levels, so they incrementally raise rents within permitted caps to avoid falling behind.

Implications for London Landlords

London landlords should heed these findings as rent control discussions gain traction in England. While London does not currently have rent controls like Scotland, proposals to introduce Rent Control Areas with limits such as CPI+1% increases capped at 6% are on the horizon for 2027.

Financial and Operational Impact

• Profitability Management: Smaller, regular rent increases may be necessary to maintain income levels under prospective caps.
• Budget Forecasting: Landlords should model cash flows assuming limited rent growth to avoid surprises.
• Compliance Burden: Understanding and adhering to caps reduces the risk of disputes and legal challenges.

Tenant Relations and Negotiations

• Increased Discussions: Expect more frequent rent negotiations as tenants become aware of limits and landlords seek to optimise rent within those.
• Dispute Awareness: While rent disputes remain rare, landlords must be prepared to engage with Rent Service Scotland (or equivalent bodies in England) if disagreements arise.

Record-Keeping and Documentation

Maintaining thorough records of rent agreements, notices, and increases is crucial for compliance audits or dispute resolution. Digital tools or property management software can streamline this process.

Tailoring Approach by Landlord Profile

• Single-Unit Landlords: May find it simpler to manage incremental increases and tenant communications directly.
• HMO Operators: Need to consider rent controls across multiple tenants and units, requiring robust administration.
• Portfolio Landlords: Should conduct scenario planning for rent control impacts across properties, possibly adjusting investment strategies.
• Accidental Landlords: It’s vital to seek professional advice early to navigate regulatory complexities.

Practical Next Steps

1. Stay Informed on Regulatory Developments: Monitor government updates regarding Rent Control Areas launching in 2027.
2. Review Current Rent Levels: Benchmark rents against local market data to identify where modest increases are feasible within legal caps.
3. Plan Incremental Increases: Implement modest annual rent rises now, avoiding sudden large hikes.
4. Enhance Tenant Communication: Prepare clear explanations of rent adjustments and legal limits to reduce disputes.
5. Audit Documentation: Ensure all rental agreements and rent increase notices are recorded and easily accessible.

How Rentals & Sales Can Support You

Our landlord intelligence hub offers tailored portfolio reviews, compliance audits, and pricing strategy consultations to help you navigate the evolving rent control landscape. We assist landlords in benchmarking rents, planning compliant rent increases, and improving tenant engagement to protect your income and reduce risks.

Disclaimer: This article provides guidance based on current regulations and analysis as of mid-2024. Landlords should consult legal or tax professionals for advice specific to their circumstances.