How are college estates reacting to today’s changing real estate environment?

David Hutber @irwinmitchell discusses the major changes to Property Law that could impact the FE Sector

Covid-19 has brought in major changes to property law, which though mostly temporary in nature, will affect many landlords and tenants in the short term. Longer term the government is pushing for the UK to be more environmentally friendly; with real estate playing a major part in those plans. And we have Brexit, which although partially forgotten because of the pandemic, affects every sector including real estate.

With large campuses and other property related interests, the FE sector is not immune to these changes. How will it be affected?

Turning first to Covid-19 related changes, at the end of last year the government extended the restriction on forfeiture of commercial leases for non-payment of rent until 31 March 2021 and plans for a further extension have been announced. Interestingly the government also announced, ‘a review of the outdated commercial landlord and tenant legislation, to address concerns that the current framework does not reflect the current economic conditions.’ It is not clear at this time what changes to the legislation will be made, but the announcement suggested some of the key landlord and tenant legislation (including the Landlord and Tenant Act 1954) could be reviewed. The progress of this review is something estate managers will want to watch out for so they can consider how any changes might affect their own lettings in the future. 

The Supreme Court’s recent judgement in The Financial Conduct Authority v Arch and Others has also thrown tenants a lifeline in that they may (depending on the precise wording of their policy) be able to claim under their business interruption insurance policy if they were unable to access their premises due to government lockdown. On the one hand estate managers will want to encourage tenants going through financial difficulties to review their policies, and on the other hand colleges may want to consider their own policies to see if they too have any viable claim for periods of forced closure.

Estate managers will be pleased that the direct impact of Brexit on English property law is minimal 

Turning to Brexit, the deal was obviously agreed. Estate managers will be pleased that the direct impact of Brexit on English property law is minimal. Some property relevant legislation is based on EU law (e.g. the EPC and Asbestos Regulations), but the majority is founded on English law that hasn’t changed as a result of Brexit. Some of the indirect effects however could be serious. One the most relevant to the FE sector is the effect of Brexit on current construction projects as the cost of materials and supply chains may well be affected, as may the labour market. It has been reported that the number of EU-born construction workers in London has halved in two years. The deal provides certainty which will mitigate against these risks and help estate managers to plan, but the exact detail of its 1,200+ pages still needs to be digested and colleges should ensure they keep up to date with any relevant analysis as it is released.

One current trend which will impact on college estates is the government’s push for the UK to be more environmentally sustainable 

One current trend which will impact on college estates is the government’s push for the UK to be more environmentally sustainable. In 2018 it introduced regulations requiring properties to have an EPC rating of E or above before granting a new lease. In 2023 those regulations will apply to existing leases. While many college buildings will meet the current required standard, the government has indicated they intend to increase the minimum rating to B by 2030. This will impact a substantial number of properties, and with potential fines of up to £150k for non-compliance; it needs to be taken seriously. In line with recent announcements that new petrol and diesel cars will be banned from 2030, the government has also been consulting on requiring owners of non-domestic buildings to install electric vehicle charging points. Further change in this area is expected and estate managers must stay aware.

The above changes have and will have an impact on the real estate sector and college estates and trends look set to continue in 2021. The impact on colleges, whether positive or negative, will at least in part depend on keeping up to date and careful planning.

David Hutber is a Solicitor in Irwin Mitchell’s Real Estate Division