The student accommodation sector is the latest market to be impacted by COVID-19 legislation, with termination notice periods for existing student tenancies to be significantly reduced.
Scottish Ministers have approved these provisions as part of Stage 3 of the Coronavirus (Scotland) (No. 2) Bill, which has received royal assent and is now in force.
Protections afforded by the Bill include allowing tenants under “student residential tenancies” to give notice and terminate their lease for “a reason relating to coronavirus” by giving their landlord just seven days’ notice.
“Student Residential Tenancies” are those tenancies granted by universities and operators and providers of large purpose-built student accommodation (PBSA) where the accommodation provides for at least 30 beds and the tenant is permitted to occupy the property while the individual is a student.
These provisions are designed to more closely align leases of PBSA with private sector leases of accommodation occupied by students where a tenant can currently end a lease by giving 28 days’ notice.
The final cut of the Bill provides that only those tenancies that were (i) entered into before the Bill came into effect and (ii) which had been occupied prior to that date, can qualify for this seven-day provision.
This means the new notice period does not apply to any future tenancies or any already signed where the tenant has not yet moved in. All other PBSA tenancies entered into where occupation has not been taken will be subject to a 28-day notice period – if the reason for terminating the tenancy is coronavirus-related.
As with all COVID-19 legislation, the new provisions will expire at the end of September, with the possibility of extension through to the end of March 2021.
From a commercial perspective, the Bill has been criticised for its potentially damaging effect on student accommodation as an investment asset class.
Keith Hutchison, partner at property consultancy Montagu Evans, believes that the 28-day notice period for new tenancies may prove to be a more significant issue for the sector.
He said: “Many providers are reporting fairly healthy bookings for 2020/21 to date, largely in line with the previous year, but this could be a ‘false positive’.
Students have been encouraged to book up early for the forthcoming academic year and many have done so, but with the ability to end their tenancy on 28 days’ notice, the risk is largely with the provider and there is concern that many of these tenancies may not be taken up.
“This is causing significant uncertainty for universities and private sector PBSA operators, many of whom rely on high occupancy levels to pay head-rents to landlords or fund debt.
“The impact on PBSA providers could be significant; some will be better placed than others to weather this situation.
How much will depend on how the lockdown restrictions are relaxed in the coming months, and how universities respond, although indications thus far are that Scotland will be slower to relax measures than England.”
Nevertheless, it is not all bad news for those operators and providers who may suffer unwelcome voids as a result of these provisions.
Relief from exposure to Council Tax has been introduced by the amended Part 9 of the Bill. Accordingly, operators will not find themselves liable for Council Tax by virtue of the student accommodation becoming unoccupied for a reason relating to coronavirus.
However, could this much needed and vital component of the Scottish economy be afforded additional support from both the UK and Scottish Government?
For example, planning laws could be relaxed to enable student accommodation to be remodelled and repurposed for alternative uses, such as accommodation for NHS or other key workers.
This will not only support the student market as an investment class in the longer term and help keep these buildings and operators in the supply chain, but could also bring much needed spin-off benefits to other sectors of the economy.
Helen Abrams is a real estate partner at Brodies LLP. A version of this article originally appeared in the Press and Journal.
For a more detailed discussion of the present state of student accommodation market from an operator’s perspective listen to our interview with Stewart Moore of CRM.