Despite intense lobbying from landlord groups, there was no general student lettings exemption from the proposed reforms in the published Bill – save only for purpose-built student accommodation (PBSA), which has inevitably led to concerns about the emergence of a two-tier student lettings market.
The long-awaited Renters (Reform) Bill was finally laid before Parliament on 17 May, with many of the headline grabbing reforms broadly matching expectations. You can read the summary of the main provisions in our earlier article Renters (Reform) Bill 2023. But one feature of the anticipated reforms that has caused some confusion is how PBSA will be exempted from the tenancy protections when the new regime comes into force.
In the Government's White Paper, A Fairer Private Rented Sector, published last June, it was proposed that "students renting in the general private rental market will be included within the reforms". However, since PBSA "cannot typically be let to non-students", it was to be exempt, "so long as the provider is registered for a government-approved code".
Naturally, this prompted considerable concern from landlord groups as to the viability of student lettings in the private rented sector. Students typically sign up for tenancies well ahead of the start of each academic year, meaning that it is imperative for landlords to obtain vacant possession at the end of each fixed term tenancy. Conversely, landlords also depend on the security of having student tenants in place for the remainder of their agreed fixed term, given the difficulties in finding replacement tenants midway through any academic year if the sitting tenants decide to vacate early.
Such loss of confidence from landlords in their student letting business model could further deplete the already shrinking supply of suitable rental properties in university towns and lead to increasingly unaffordable rents for students desperate to secure a home for the duration of their studies.
What about the exemption for PBSA?
The explanatory notes published alongside the Bill once again reiterated that "Purpose-Built Student Accommodation (PBSA) will be exempt from these changes as long as the provider is registered for government-approved codes". Yet confusingly, the text of the Bill itself doesn't actually include any such specific exemption. So what's going on here?
Under the law as it currently stands, the narrow student lettings exemption from the assured tenancy regime (of which assured shorthold tenancies are a subset) requires the tenancy to be granted to a student either by the educational institution delivering their course of study or by another "specified institution or body of persons".
Over the years, only a very small number of providers have been specified through secondary legislation, with the overall effect being that, broadly speaking, only universities or other publicly funded higher or further education institutions and private registered providers of social housing can benefit from this exemption.
For those developing or investing in PBSA assets, it is common for a lease-based structure to be used, where the asset is leased back to the university for them to grant the student tenancies – partly so that they can benefit from this existing exemption. These tenancies are therefore not assured shorthold tenancies, and nor will they be assured tenancies under the new regime.
But other investors have, for various commercial reasons, adopted a direct let model. Here, the provider may only have a nominations arrangement with one or more educational institutions and otherwise takes the demand risk, with assured shorthold tenancies currently being granted directly to students. It is the owners of these direct let assets who will be most anxious to see the terms of the proposed new exemption for PBSA under the Renters (Reform) Bill.
What might happen next?
The White Paper last summer had stated that the three government-approved codes with which such providers would need to be registered were:
- Universities UK / Guild HE Code of Practice for the Management of Student Housing;
- Accreditation Network UK (ANUK) / Unipol Code of Standards for Larger Residential Developments; or
- ANUK / Unipol Code of Standards for Larger Developments for Student Accommodation Not Managed and Controlled by Educational Establishments.
But as yet we have no additional information beyond this, and can only assume that the new exemption will be brought into force through further secondary legislation after the Bill receives Royal Assent, meaning that the detailed terms of the PBSA exemption may not be known for some time.
Meanwhile, pressure continues to mount on the Government to extend the exemption beyond PBSA to the general private rental sector in order to prevent the emergence of a two-tier student lettings market. Whether or not this happens could have a significant impact on the demand and supply dynamics facing owners of PBSA assets, and all stakeholders affected by these forthcoming changes will need to watch this space.
