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Coronavirus - Commercial issues (Education) - UK

  • United Kingdom
  • Education - Briefings
  • Education - Coronavirus

12-03-2020

Overview

Our previous briefings on this topic (Coronavirus: Implications for Institutions and CoVID 19: UK update for institutions) focussed on the most important considerations for institutions - people.

In this briefing we look at other issues of importance – commercial ones and how to protect the institution itself.

Collaborations

In the current health crisis, institutions should review existing contracts as part of their contingency planning in order to take into account current recommendations from the World Health Organisation (“WHO”) in relation to ways in which the public can avoid infection and travel advice to limit the spread of the virus.

In seeking to limit the spread of the virus, many institutions will be considering virtual, online and remote provision of services. As such, existing contracts may need to be amended to accommodate this. This is in addition to the institution’s review of its own as well as its third party supplier’s technology, capability and capacity to deliver services online.

We have already been approached by institutions which are considering varying collaborations to teach students in a different location. This will almost certainly mean amending agreements with partners and will normally require their consent and support.

International Campuses

Institutions with international campuses in affected areas should comply with local regulations and guidance from international bodies such as the WHO. Institutions operating in these areas may also be subject to local laws requiring them to implement special measures or to notify public health bodies if any of their students or employees are suspected to be ill.

Beyond compliance obligations, institutions should ensure measures are taken to properly assess the risks to staff and students as well as the impact on business continuity. This would include a review of collaboration contracts and sponsorship agreements.

Force Majeure Clauses

Many institutions are asking us whether they can rely on force majeure clauses in their contracts to suspend or terminate their obligations, or indeed whether their partners have the right to do so. This really does depend on the drafting of the clause in question. We strongly advise against relying on such a clause without checking that it applies to the facts in hand and taking specific legal advice.

Claiming relief under force majeure provisions is only the starting point: there are hurdles to surmount, not simply any conditions set out in the force majeure clause but ensuring a clear causal link between the consequence of COVID-19 and the delay in or failure to perform. With what is becoming a long term situation, triggering force majeure may simply result in triggering termination of the contractual relationship, not necessarily the outcome that will be required. The focus needs to shift to longer term solutions

International Student Recruitment

The outbreak of CoVID-19 has already had a notable impact on international student recruitment, particularly in relation to students from China. Just how severe the impact will be depends on a number of unknown variables, among them are:

• how long the outbreak will last

• whether and to what degree it can be relatively contained

• when local and international travel restrictions, or recommendations not to travel may be lifted

• how damaging the impact of the virus will be on local economies as well as the wider global economy.

Some students may choose to defer or delay their studies until the health crisis has eased. As a result, education institutions will need to be flexible and offer greater leniency than normal in order to maintain and continue to attract international students. Allowing students to defer, whether that’s for a semester or a year, and offering greater leniency around strict application processes and deadlines will help ease the burden on prospective students.

Finances

The significant drop in student numbers, particularly numbers of Chinese students, will likely have a dramatic effect on some UK institutions’ financial performance. For some institutions which may already be in a difficult financial position, this could make the difference to their solvency. We have been advising a number of institutions in this area.

An institution that is suffering, or anticipating, financial distress will be at risk of triggering one, or likely several, events of default in its loan documents. Cashflow and other typical financial covenants may be breached as income deteriorates. A lender’s response will depend upon the severity of the financial impact on the business as well as its effect on the lender’s risk profile. Regardless, the risks must be actively managed.

Regulation

All Office for Students (OfS) registered organisations are required to report certain events (called “reportable events”) to the OfS. The OfS regulatory framework defines a reportable event as “any event or circumstance that, in the judgement of the OfS, materially affects or could materially affect the provider’s legal form or business model, and/or its willingness or ability to comply with its conditions of registration”. A copy of the OfS guidance on reportable events is available on its website (https://www.officeforstudents.org.uk/publications/regulatory-advice-16-reportable-events/) (the “Guidance”).

Whilst issues associated with CoVID-19 are unlikely to trigger a reportable event in the short term, providers should be aware of their longer term obligations and the potential impact CoVID-19 could have on their businesses. The Guidance provides examples of what the OfS will consider to be a “reportable event” and includes instances where a provider has had to close an overseas campus (with impact on financial viability and sustainability) and significant financial events including a substantial decline in student numbers or loss of resource (affecting quality and standards). The OfS has now published a link to various CoVID-19 guidance on its website: https://www.officeforstudents.org.uk/advice-and-guidance/student-wellbeing-and-protection/coronavirus/

On 9 March 2020 the OfS wrote to higher education providers to request information on an ongoing basis about confirmed and suspected cases of COVID-19 (Coronavirus) at their institutions. This letter has been sent directly to providers registered by the OfS, with the exception of those further education colleges and sixth form colleges that are registered with the OfS and also regulated by the Education and Skills Funding Agency (ESFA). For those further education colleges and sixth form colleges, the OfS says it will rely on information provided to it by the EFSA to fulfil its regulatory needs.

The letter asks for information about:

• the number of staff and the number of higher education students that have reported a confirmed diagnosis of COVID-19

• the number of staff and the number of higher education students that have reported symptoms that are suspected to be a result of COVID-19, but where there is not a confirmed diagnosis

• information about the actions institutions are taking in relation to any confirmed or suspected cases of COVID-19

The OfS says it requires this information “to monitor and understand in a timely way how COVID-19 may be affecting students and higher education providers, the actions providers are taking in response, and how this might affect the ability of registered providers to continue to deliver higher education and comply with their conditions of registration”.

Institutions that are registered charities with the Charity Commission (“Commission”), such as Welsh universities, are required to report serious incidents to the Commission in accordance with their online guidance. The Commission has separate guidance requiring charities to make a serious incident report when a serious incident occurs involving one of its partners in the UK or internationally.

Student Accommodation

Coronavirus could also have an impact on university estates. In particular, a fall in international students able or willing to travel to the UK to study or domestic students not wanting to take up accommodation could mean universities find themselves with voids in their accommodation that they struggle to fill with their students.

Universities may need to think of alternative uses for accommodation or look for alternative occupiers. However, careful consideration needs to be given to this as it may be that, where they have leasehold accommodation, there are restrictions in their headleases that preclude lettings to anyone other than their students or the planning permission may prohibit use by anyone other than students. It could also have safeguarding implications for the students who are also occupying as there are often issues with students and non-students occupying the same blocks.

In addition, thought needs to be given to the Council Tax exemption enjoyed by halls of residence. Universities could find their Class M exemptions being disapplied if the occupiers of halls of residence are no longer predominantly students and this may cause a further administrative burden on the University to ensure their students claim their exemptions on an individual basis rather than enjoying the Class M exemption.

There may also be VAT consequences of letting to non-students with VAT becoming due on the accommodation fees and specialist tax advice will need to be sought.

Finally, this may have financial consequences for universities if they have underwritten any nominations arrangements and are unable to find sufficient students to take up rooms thus leaving them to pay the shortfall of rent received by the providers of the accommodation.

Conclusion

The commercial consequences of CoVID-19 on education institutions is an evolving area and not all of the implications are readily predictable. Our team is responding to issues alongside our clients and will issue further guidance as matters develop.

This brief note sets out a few ideas on what institutions might do and some potential consequences of CoVID-19. As ever, we are helping institutions to ensure that they have a sound strategy in place and that the strategy is based on solid legal foundations.

Links to guidance

Visit our CoVID-19 hub to access our other briefings.

The UK government’s website provides the latest official information on CoVID-19 in the UK - https://www.gov.uk/guidance/coronavirus-covid-19-information-for-the-public

The government has also published ‘Guidance for educational settings’ - https://www.gov.uk/government/publications/guidance-to-educational-settings-about-covid-19/guidance-to-educational-settings-about-covid-19

The World Health Organization’s information on the CoVID-19 may be found here: https://www.who.int/emergencies/diseases/novel-coronavirus-2019

Other useful links for employers are as follows:

Latest travel advice on GOV.UK

coronavirus on NHS.UK

Find your local PHE health protection team on GOV.UK

 

For more information contact

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