New legislation which forms part of the Coronavirus (Scotland) (No.2) Bill, which was given Royal Assent on 26 May 2020, will give students living in purpose-built accommodation the right to end tenancies if they are affected by the coronavirus.
The new Act, which will empower students, could create a greater degree of uncertainty for the upcoming academic year (and possibly beyond), to both those providing higher education and investors, operators and funders in the Scottish market, given the potential increased financial burden that will be placed on these parties if students decide either to terminate or not take up new tenancies.
The new student accommodation provision is a significant differentiator in the UK sector in the sense that students in Scotland will now have a flexibility that they don’t have in the rest of the UK.
Traditionally, the student accommodation markets in Scotland and England have always been on a level playing field. However, what we are now seeing in Scotland is a complete shift in who is in control of student tenancies, with the discretionary element of whether to charge or pay rent transitioning from operators, landlords and universities, to tenants.
Under the new legislation, students living in purpose-built student accommodation, and who entered into their tenancy agreement prior to the new Act coming into place,will be entitled to terminate their lease for a reason relating to coronavirus by giving their landlord just seven days’ notice. Additionally, students who enter into a tenancy agreement following the introduction of the new Act will be entitled to terminate their lease with a 28-day notice period.
Students looking to secure accommodation for the 2020-2021 academic year, can do so in the knowledge that, if they were unable to take up their accommodation due to coronavirus, they would not be liable to make rental payments for the full term of their agreement.
Initially in force until 30 September 2020, with the potential to be extended by the Scottish Government, the Act could cover not just the current period of lockdown but any subsequent lockdowns, or indeed, simply a one-off case suffered by an individual student.
This provision will be in place not just for the start of the new academic year but potentially for the entirety of the new academic year and possibly even the start of the next one, and with no clear definition of what “a reason relating to coronavirus” may be, this creates a level of uncertainty for the student accommodation market in Scotland, and in turn could lead to increased financial pressure on operators, investors, funders and universities.
One of the intentions of the provision is to bring closer parity between students living in the mainstream Private Rented Sector (PRS) and those living in Purpose-Built Student Accommodation (PBSA). Under the Private Housing (Tenancies) (Scotland) Act 2016, any tenant letting PRS property can terminate their tenancy with just 28 days’ notice.
This legislation does not apply to PBSA, and while all universities and colleges, as well a number of the larger PBSA providers, have allowed students to terminate their tenancies early, the new Bill puts students fully in control and on a similar footing to those letting PRS property.
With these factors in mind, landlords of PBSA are likely to be significantly and negatively impacted, with the new Act failing to recognise some of the key differences between PRS and PBSA, principally that PBSA lettings are cyclical and as such restricted to term time, unlike the open-ended PRS market.
The new Act in Scotland follows confirmation from the UK Government that universities can still charge full fees even if they deliver teaching remotely, reinforcing the growing divide in respect of the timing of the easing of lockdown restrictions north and south of the Border.
We are already seeing a growing differentiation between Scotland and England in terms of exiting lockdown, and the new Act, coupled with restrictions in Scotland on the construction industry and the uncertainty over when face-to-face higher education will return, creates a less than level playing field in the sector north of the Border compared to south, with the impact on PBSA landlords likely to be significant.
Alastair Cowan is a Partner at Addleshaw Goddard.