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Education briefing - Covid-19 - Termination of Students’ Accommodation Contracts

  • United Kingdom
  • Education - Briefings
  • Education - Coronavirus

20-03-2020

One of the issues which accommodation teams in the Education Sector will be grappling with will be students trying to terminate their accommodation contracts early because of the Coronavirus outbreak. The impact this will have on the institution’s income if students are able to do so will be very significant; whether because students seek a refund of accommodation fees or are not required to make any further accommodation fee payments for the remainder of the academic year.

Exactly how the institution should respond to those sort of requests from students will depend upon a whole range of issues - legal, financial and reputational. We have set out in this note some pointers about how you might approach those sort of requests.

This note is focused on those accommodation agreements entered into directly between institutions and their students. The implications may be different for those arrangements where there are nomination agreements in place and for contracts between students and private providers.

1. Back to basics - what does the contract say?

The starting point is that a student’s ability to terminate an accommodation contract - and therefore the ability of institution to hold students to their contracts (specifically, in continuing to demand accommodation fee payments) - depends upon the terms of the individual agreements.

Leaving aside the question of force majeure (see below) the law does not imply any rights of early termination into accommodation contracts. Put simply therefore, students will not be automatically entitled to terminate their accommodation contracts as a result of the Covid-19 outbreak. It’s all about the terms of the contract.

Most contracts will include an express right for the student to terminate in certain specified circumstances. Those rights are unlikely to be sufficiently clear though to put beyond doubt whether the student is entitled to terminate because of the Covid-19 outbreak of itself. Largely because it will not have been something that could have been foreseen at the time the contract was entered into.

2. How might a Court interpret the contractual terms in this unchartered territory?

If a student attempts to terminate their contract, but it is not clear whether the particular contractual provisions give students the right to terminate, and there is then a dispute as to whether or not the student has effectively terminated the contract, that will ultimately (absent an amicable resolution) be determined by the Court as a matter of interpretation. And in reaching a decision it is likely that some tried and tested rules of interpretation will be applied.

Loyalty to the text - what is the literal meaning of the text used?

Whole contract approach - what does the contract say in the round; as opposed to focusing excessively on a particular word, phrase, sentence, or clause.

Context - how would a reasonable person interpret the clause equipped with the background information reasonably available to the parties when the contract was made?

Business common sense - what was the purpose of the contract and what interpretation would be most consistent with business common sense?

Reasonableness - quite simply, what’s reasonable? The Courts will avoid giving literal effect to the words of the contract where that would lead to very unreasonable results.

3. When might one size fit all?: Institution Wide Factors

Where there is doubt as to whether a student does have a contractual right to terminate their contract early (for instance, because it is only exercisable in “reasonable” circumstances and there is therefore debate over what is “reasonable”), then there are some institution wide factors that are likely to influence the conclusion reached:

(i) Whether a student’s course of study is continuing and whether there are plans in place for students to participate in their course of study using remote learning and whether they have the facilities to do that from their accommodation (e.g. sufficient Wi-Fi coverage, access to laboratories and research materials in the library).

(ii) Whether students have access to suitable facilities and services and they remain open (e.g. (i) nearby shops to purchase food, drink and essential toiletries (ii) cleaning and cooking facilities,(iii) on-site security (iv) pastoral care and any other such services that are provided by the institution as standard to those students in accommodation.

(iii) The financial impact on the students, for example if particular’s student’s costs under the accommodation contract will be covered by student loans / grants. In that event then a Court may be less reluctant to say that the contract has been terminated as there will be no loss caused to the student.

4. What Individual Student Circumstances might be particularly relevant?

Institutions are already experiencing a range of different scenarios where students are seeking to terminate their accommodation agreement and where the contractual position is not clear cut.

Assuming that the student accommodation contract permits termination in “reasonable circumstances” the issue will be whether the particular circumstances of the student triggers that entitlement. We comment below on some of those scenarios. We emphasise that these are though all subject to the fine detail of the contract; the contract is the starting point and each student’s position must be considered on a case by case basis. Here are some points to assist in any such deliberations.

Circumstances where it may be more reasonable for students to terminate their accommodation agreements:

• International students, where the Government in the student’s home country or the student’s home education institution has instructed or advised the student to return to their home country

• Vulnerable students (e.g. those who are 70 or over, have a long-term condition, are pregnant or have a weakened immune system) who have shared access to facilities (e.g. kitchens and bathrooms) and are therefore unable to self-isolate within their accommodation

• Students who share accommodation or facilities with someone who has Covid-19 symptoms (e.g. a high temperature or new continuous cough)

• Students with vulnerable family members who require care or assistance resulting in the student having to move home to care for them

• Students with mental health problems or autism who may be struggling with the anxiety of continuing to live in their student accommodation during the current crisis

• Students under the age of 18 (more relevant to FE institutions)

• Students diagnosed with Covid-19, or suspected Covid-19

Circumstances where it may be less reasonable for students to terminate their accommodation agreements:

• International students, who elect to return to their home country and are not doing so in accordance with Government advice or instructions from their home institution

• Home students who have decided to return home

• Students (including vulnerable students) who have access to their own private kitchen and bathrooms and are therefore able to self-isolate if required

• Students who are concerned by someone in their Halls of Residence who is self-isolating or has symptoms

5. But what about force majeure?

The one circumstance in which the law implies a right to bring a contract to an end early is “force majeure” – sometimes referred to in the case of leases as “frustration”. If there was a force majeure event in the context of accommodation contracts, then the contract would be deemed to immediately come to an end. In those circumstances the student would no longer be liable for any payments due under it.

Force majeure might be claimed if, after the contract is entered into, there is an intervening event - without default by either party and for which the contract makes no provision- which so significantly changes the nature of the outstanding contractual rights and/or obligations from that which the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of the lease terms. In those circumstance both parties will be discharged from their obligations under the contract.

The circumstances in which the courts have been willing to find that an occupancy type contract can be brought to an end on the grounds of force majeure/frustration are very limited indeed. The kind of scenarios in which it has been upheld are where an occupational agreement is granted for a single purpose and that use subsequently becomes illegal; or in times of war where wartime restrictions make the performance of the contract impossible. In the recent case of Canary Wharf (BP4) TI Limited v European Medicines Agency (2019) EWHC335 a tenant failed to persuade the court that Brexit was a basis for force majeure.

Whether Covid-19 could ever be regarded as a force majeure event remains to be tested by the courts (and no doubt it will be!). Whatever else though, it won’t be a blanket principle. The specific circumstances of an individual case would still be scrutinised to establish whether the accommodation contract really was incapable of being performed. A very high hurdle to overcome.

6. And then there’s the broader context

Overarching all these points will of course be the reputational impact of the decisions an institution takes about whether or not to allow students to leave early balanced against the effect its decisions will have on the income generated by accommodation agreements.

The best way to manage that reputational impact is to be clear consistent and transparent. We would also recommend that institutions review such matters with their insurance providers.

That approach will also be consistent with guidance published this week by the OfS which indicates that they will not be seeking to challenge decisions taken by institutions in response to the current crisis, provided such decisions are reasonable.

And that approach will also be consistent with the consumer law obligations of which any institution will need to be mindful in the decisions it takes.

That means that the principles of openness and transparency should also extend to the individual decisions taken in respect of specific students. Care should be taken to ensure that the decision (and reasons for that decision) are properly recorded. Institutions may also want to consider introducing a new policy or guidance note for the benefit of the students in such uncertain times.

Finally, and mindful of the OIA, it is important that the institutions have sufficient complaints procedures in place, that students are reminded of where to find these and that any complaints made are dealt with promptly.