Rental Income Guarantee Scheme introduced for private sector Build to Rent developments in Scotland

Real Estate Alert

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On 12 October the Scottish Government announced the launch of a Rental Income Guarantee Scheme (RIGS) which will see the Government sharing a proportion of landlords' rental income risk associated with qualifying Build to Rent private rented housing in Scotland within developments of at least 30 residential units. Details of the scheme, which is administered by the Scottish Futures Trust (SFT) are provided in a "RIGS Information Note", which is available on a dedicated RIGS website.

The RIGS application process is now open, and the RIGS Information Note states (at section 3.4) that applications will be considered in order of receipt. The RIGS Information Note also advises that the SFT plans to hold an information session in Edinburgh for potential RIGS applicants later in 2017. Anyone wishing to be informed of the date and venue of the information session is invited to contact the SFT at [email protected]

Key points to note on the question of eligibility for the RIGS are as follows:

  • Before an application under the RIGS can be made, the site on which the eligible units are to be developed must benefit from at least outline planning permission for the development
  • Affordable housing, sheltered housing or retirement housing units are not eligible
  • The intended management and maintenance provider of the eligible units is (or will be prior to the commencement date under a RIGS guarantee) registered as a managing or letting agent with the relevant Local Authority under applicable legislation, an accredited letting agent with Landlord Accreditation Scotland or any replacement body, and complies (or will prior to the commencement date comply) with any applicable letting code of practice
  • Eligible units must be complete and available for letting within two years after the date a RIGS guarantee is signed

The RIGS Information Note (at section 3.1) invites any potential applicant who is interested in RIGS but is unable to satisfy the mandatory criteria to contact SFT at [email protected] to discuss their proposed Build to Rent scheme.

Applicants under the RIGS can choose either a three- or five-year guarantee period. In the event that the actual revenue achieved by a development in any year during the guarantee period is below 95 percent of the annual core rental income forecast ("ARIF"), the Scottish Government will compensate the landlord for 50 percent of the shortfall between 95 percent and 75 percent. If the actual revenue in any year is below 75 percent of the ARIF, the landlord will be entitled to payment of 10 percent of the ARIF. Under the scheme, the "core rental income" is the minimum rental income which is forecast to be generated under residential tenancy agreements signed by tenants occupying eligible units. Example calculations are provided at section 2.1 of the RIGS Information Note.

There is no application fee under the RIGS but a guarantee carries an annual fee of 1.22 percent of the ARIF for each year of the guarantee period.

The rights of the beneficiary landlord in terms of a scheme guarantee may be transferred to a new owner if the eligible units are sold prior to the end of the guarantee period, provided that the conditions set out in the guarantee are met by the new owner.

To coincide with the launch of the RIGS on 12 October, a Homes for Scotland paper entitled "The Build to Rent Opportunity in Scotland" was published to highlight the opportunities for investment in the sector. The paper, which was commissioned by the Scottish Government, is available here.

The official launch of the RIGS and the Build to Rent Opportunity paper have been welcomed with enthusiasm by the Scottish property sector. It will be interesting over the coming years to see the extent to which the RIGS achieves its aim of helping to stimulate large-scale Build to Rent development in Scotland, an area in which there appears to be significant potential for growth.