Private Residential Tenancy – Is it working for property investors?
Private Residential Tenancy
With 2019 now well underway, we are starting to see the effect of the Private Residential Tenancy (PRT) on the lettings market – the biggest update to the private rental sector in a generation.
PRT came into force on 1st December 2017 but it didn’t have a huge effect on the market in 2018 as many leases during last year were still Short Assured Tenancies (SAT) created prior to the PRT start date. Billed by the Scottish Government as.... ‘providing tenants with more security and stability coupled with better safeguards for landlords, lenders and investors’, the biggest difference between a SAT and a PRT is that under the latter tenants may terminate the tenancy at any time with just 28 days’ notice. For landlords and their agents this means having to react quickly to minimise any potential void period and loss of income.
On the face of it, this sounds good for tenants and potentially problematic for landlords. Tenants could, for example, use their rights under PRT to effectively have short term lets. Landlords and investors might then face a regular turnover of tenants. In theory, this can be minimised by asking tenants about their intentions, but fundamentally tenants retain their right to terminate regardless of any initial plans they may discuss with the agent or landlord.
However, from a tenant’s perspective, 28 days isn’t very long when looking to find and move into a new home. Before PRTs we typically expected to market one and two bedroom flats circa two months before the previous lease end date and for it to be taken by a new tenant within a week or two. This allowed all concerned circa six weeks to get organised.
The student market is now being affected more strongly. Student properties were typically marketed four to eight months ahead of the lease end date, allowing prospective student tenants to view and apply for flats in February and March, despite not wishing to move in until mid to late summer. Both markets functioned well.
Now, however, student tenants – like anyone else – can serve 28 days’ notice, meaning greater uncertainty for landlords and possibly a higher risk of a void period. The other party facing uncertainty are students looking for a property. They will see fewer flats advertised at the start of the year. They may now have to wait until mid-summer before suitable properties even come onto the market and given that many are simply not in the city from June to August this delay is likely to cause additional stress.
Landlords and investors also have to think carefully about how far in advance they are happy to agree a new lease. If the existing tenant has served their ‘Notice to Leave’ several months before the intended lease end, they could still submit a shorter notice and leave the landlord with a ‘void gap’ in between the current lease ending and a potential new lease starting. But delaying advertising too long may raise the risk of a void period after the current tenants leave.
It’s not all negative though! The new system does make provisions which make it easier to remove difficult tenants or those who are in significant rent arrears, or indeed for landlords who decide to sell. In addition, the new First Tier Tribunal has resulted in a much swifter legal process to deal with these events if a tenant chooses not to comply with a notice to leave.
Ultimately, the challenge for landlords, agents, current tenants and prospective tenants is to understand this ‘brave new world’ of lettings and work closely with each other and communicate well for the benefit of all. The relationships between them will be a key factor in determining whether the PRT system is a success.
At Cullen, we are pro-actively moving forwards to meet these challenges and using our vast knowledge of the Edinburgh residential letting market to minimise risks for our landlords and maximise the opportunities.
In conclusion, over the next few years, we expect the student market will continue its growth with most properties changing tenants in June as market forces take effect. Until then, agents and landlords will need to be vigilant and flexible in their approach to ensure they ‘mind the gap’ rather than fall unwittingly into it.
We hope you enjoyed our blog piece regarding the new Private Residential Tenancy act. To read more like this, click here.