Emergency Legislative Amendments herald key changes to Student Accommodation Contracts

The Background

The Coronavirus (Scotland) (No.2) Bill (the Bill) makes significant amendments to protect students in Scotland from having to pay for accommodation they cannot now occupy. However, these changes may pose operational difficulties for universities and colleges, as well as private accommodation providers.

COVID-19 has brought huge uncertainty to all sectors of the property market, and the student accommodation sector is no different. The lockdown has meant many students have opted to return to their family homes and have stopped physically attending courses. The Scottish Government were concerned that students who have left their Purpose-Built Student Accommodation or who are unable to return to it should be able to end their contracts early. Many providers have already allowed students to exit binding agreements early. However, this has not happened across the board, and so the Scottish Government has intervened to ensure that students do not suffer financial hardship.

Before COVID-19, it was the norm for students to opt to sign up early with providers of accommodation to secure the best locations and facilities in as early as November before the start of the next academic year. Therefore, a vast number of binding student lease agreements were entered into in anticipation of the academic year commencing in September 2020. These term commencement dates may now be questionable, and students may not need the accommodation they signed up for as early as they thought, so risked paying rent for rooms which they could not occupy. Many providers have already been allowing students with tenancies for the 2020/2021 academic year to delay paying rent and delay taking occupation of their student accommodation. However, the Scottish Government has intervened in this circumstance as they want to be able to give students seeking accommodation for the next academic year reassurance that an appropriate notice period will exist in respect of their tenancy.

The Bill

The Bill will come into force the day after Royal Assent has been received (which is likely to be in the week commencing 25 May) and will expire on 30 September 2020 unless Scottish Ministers extend the legislation to 31 March 2021 or 30 September 2021. The Bill provides that students will be able to give 7 days’ notice to leave contracts they were already tied into prior to the Bill coming into force where the student property was occupied by the tenant at any time prior to the Bill coming into force i.e. existing student tenancies for the 2019/2020 academic year. The Scottish Government has acknowledged that all universities and colleges and most private sector providers have already released students from their contracts for the 2019/2020 academic year, and so this provision is designed to catch the minority who have not offered that flexibility.

In all other cases, a 28 day notice period would apply e.g. for any existing tenancies already entered into for the 2020/2021 academic year where the student has not yet taken occupation or those entering into new accommodation contracts once the Bill comes into force, bringing this in line with other private rental sector accommodation in Scotland.

Students would only be able to use notice to leave periods for COVID-19 reasons and, for example, could not give notice simply because they have changed their mind about a particular university. This could be misused in situations where, for example, the lockdown is lifted but a student decides they think COVID-19 poses a risk and so they elect to terminate their contract. COVID-19 reasons, as a concept, are used throughout the Bill and could clearly be open to a broad interpretation. At the Stage 1 committee meeting on 12 May 2020, the Law Society of Scotland used the student accommodation provisions of the Bill as an example to explain what these reasons may be, as they are designed to capture both the direct and indirect effects of COVID-19. A direct effect would include, for example, a student being too unwell to attend and an indirect effect would be a course being cancelled because the numbers have fallen too far.

A university or private accommodation provider cannot contract out of these provisions – they must simply be “live” to the potential issues. Universities and providers may find themselves with disruptive contract cancellations, leaving vacant rooms which have to be re-let, which could be difficult where contracts are terminated close to the start of the academic year as there may be little scope to secure new occupants.

A further exemption has also been added to the Council Tax (Exempt Dwellings) (Scotland) Order 1997 to ensure that any dwelling which has become unoccupied for a reason relating to COVID-19 on or after 17 March 2020, and which was immediately prior to becoming unoccupied a property which would have been exempt for student purposes under the Order and remains unoccupied would be exempt from the Council tax regime. It is critical to note that the student property would have to remain unoccupied to benefit from the exemption.

The Bill represents the second piece of legislation published by the Scottish Government to combat the broad ranging impacts of the pandemic. Usually there would be a period of 9 months to shape the policy and a Bill would normally take around 9-12 months to get through Parliament, however, in the circumstances this has been shortened to a matter of weeks. Even in this short space of time, with support from the Scottish Property Federation, the sector has been listened to: the 7 day notice period as initially drafted would have applied to tenancies already entered into for the 2020/2021 academic year which was extremely short for any occupancy agreement and would mean providers would be left with an almost impossible window in which to organise a re-let. These 3 extra weeks will be very valuable for providers whilst giving students plenty of time in which to terminate for the 2020/2021 academic year. The Bill previously made no attempt to provide Council tax relief for student rooms vacant due to COVID-19, and for a sector that is not going to be achieving its usual rates of occupancy this will be extremely welcome.

The Sector & the Impact

The student accommodation sector is one of considerable market strength, demonstrated by a snapshot of the Student Accommodation Report 2019, which stated that:

• 2019 was a very strong year for the sector, with demand outstripping supply nationally and 32,000 new bed spaces delivered,
• 87% of all new beds were delivered by private sector providers, the joint highest proportion on record,
• demand for student accommodation continued to rise at around 30% faster than number of beds developed.
• 114,000 purpose-built student accommodation beds were in the pipeline, and two thirds have full planning approval,
• deals worth £2.5 billion were transacted by end of October 2019, and
• as of October 2019, 2020 was expected to see 25,000 new bed spaces delivered across the UK.

However, the uncertainty around the impact of COVID-19 on the sector cannot be underplayed. Construction work has halted in Scotland, meaning that programmes will be delayed and pipeline schemes may be delivered long behind schedule.

University decisions are awaited on the start date and duration of 20/21 academic year, and any periods of online learning, though it does seem likely that there will be a delay to the start date, and a potentially lengthy period of online learning.

Restrictions on travel pose uncertainty on overseas student arrivals, and UK student preferences (perhaps to study locally and live at home) are also unknown.

We do not have certainty on what social distancing rules will look like in the medium to long-term but providers may have to make a reduced number of offers to comply with social distancing rules e.g. a 10 bed flat with shared kitchen and bathroom facilities may be restricted to perhaps 5 students. Providers may have to be poised to alter layouts, entrances/exits, common facilities or existing facilities to enable social distancing and instil public confidence. We may even see providers look to slightly more out-of-town locations to secure a better return to provide for larger scale accommodation sites. However, it may be that the Scottish Government take a sensible approach when issuing guidelines and that students living in the same clusters would be deemed to be one household and therefore the student sector would safely be able to let out the full number of rooms within a cluster but that all remains to be clarified.

What next?

As with school age children, the drive to reinstate higher education provision will remain at the forefront of everyone’s minds, both in terms of a strict educational perspective, but also from a social/status/economic perspective, and so every possible measure will be taken to reinstate the “University experience” as soon as possible. If that means that the 2020/2021 academic year may see a reduction in students on campus, or an increase in online learning, rest assured it will be a sector which will bounce back with vigour. Even during the 2008 financial crash, the student accommodation sector continued to boom. Regardless of how the pandemic changes our lives, learning will not be left lingering.

There has been some commentary surrounding the potential for university mergers. Many Scottish universities are globally renowned and respected institutions with many hundreds of years of teaching, learning and success so predictions of possible mergers are speculative. Educational institutions are used to thinking creatively and addressing challenges and whilst the pandemic will temporarily change some aspects of student life, future outlook is positive.

There may be a transactional “pause” whilst we work our way out of or around the pandemic, Universities will need to determine how they will facilitate learning for the 2020/2021 academic year and there will be the obvious practical difficulties of easing the lockdown, but the student accommodation sector will not disappear, and as with previous economic downturns, may be considered “recession-proof”.