Accommodation costs in the private rented sector in many university towns and cities are high, and it is frequently difficult for overseas students in particular to secure accommodation without paying substantial rental upfront – often the full academic year’s rent. These difficulties are increasingly highlighted as negatives in student satisfaction surveys.
As a consequence, universities are beginning to look at ways in which they can assist their students to make life a little easier in the private rental market. Students’ Unions are also keen to see action being taken.
One option is for universities to guarantee student rent, as a way of persuading landlords not to insist on large advanced payments. This, of course, presents a financial risk to universities, alongside the benefit to students.
Insurance-backed schemes are starting to emerge which might help meet student needs whilst protecting universities from financial liability under guarantees.
This article discusses some of the fundamental issues you need to consider and some of the pitfalls that need to be avoided. The schemes offered are new and a number of pitfalls (many of which are practical) are likely to be ironed out over time as both universities and insurers spot the anomalies.
Power to guarantee
A starting point will be to ensure the university has the necessary power to enter into rent guarantees under this type of scheme. Prior to any negotiation of documents relating to an insurance-backed rent guarantee scheme (or indeed any guarantee scheme), the university must ensure that the arrangement falls within its objects and powers and that any restrictions, whether under its Charter, articles of association, instrument and articles of government or otherwise are considered carefully, along with compliance with general charity law where applicable. While it is necessary to check in each case, entering into a rent guarantee will likely fall within the objects and powers of a higher education corporation, provided the governors are satisfied that it is required in order to advance the objects, and in our experience it is likely to fall within the objects and powers of many universities structured in other ways.
One common problem is the procedure for executing deeds, and for this reason it is preferable that the scheme does not require guarantees to be executed as deeds.
Universities are finding a way to offer significant assistance to their student body in a way that will enhance their reputation and their rankings in student satisfaction surveys
Reading the small print: What exactly are your obligations?
At a practical level, once you have satisfied yourself that the university has the power to enter into the proposed arrangements, the key to assessing and running an insurance-backed guarantee scheme is to ensure that the university’s own student eligibility criteria, along with the terms of tenancy agreements you are asked to guarantee, align fully with the insurance policy terms under which you hope to be paid out in the event a landlord calls your rent guarantee.
Another key factor to consider is the extent of the administrative burden on the university in running the scheme, which may include ensuring specific eligibility requirements, along with the form of tenancy agreements used by landlords, comply with policy conditions, as well as notifying claims to the insurer within the time limits required for recovery under the policy.
The administration of the scheme may well be absorbed by the university’s accommodation services department through its existing platforms, but this does need to be checked to ensure you have the necessary resources available or can fund additional resource. There is comfort in significant direct involvement as you will otherwise need to ensure that insurance providers deal with your students fairly and reasonably in situations where they may be seeking to recover against them using their subrogation rights for sums paid out under insurance policies.
One typical problem (by way of example of checking terms against actual practice) is that students will often be applying for accommodation in the summer before their exam results and final confirmation of a place to study for the following academic year – strictly speaking those students may not meet insurance policy student eligibility criteria at the time they are applying for guarantee support.
The aim of the scheme will be to create a streamlined procedure whereby students can apply for assistance through the provision of a guarantee, the eligibility criteria can be assessed and approved, and the guarantee then issued to the landlord. Financial risk criteria such as maximum guarantee amounts should be factored in.
History and the electronic signature
The Statute of Frauds, passed in 1677 during the reign of Charles II is, remarkably, still the authority for the requirement that guarantees must be in writing and signed by the guarantor (or a person authorised by the guarantor). Guarantees do not have to be by deed. Modern life and in particular the rise of electronic communication has seen the courts find ways of acknowledging that email signatures, or even a chain of emails, can constitute both writing and signature in the context of guarantees.
For governance and risk control purposes, the university will need to ensure that the electronic signature platform chosen to facilitate guarantee signatures is secure and offers robust security features (for example logins, or PIN numbers). This will enable the university to demonstrate that the electronic signature provides an ‘authenticating intention’ (that is, that the signatory intends to be bound by the terms of the guarantee) to the same degree as a ‘wet-ink’ signature, and also provide a proper record of liabilities undertaken. The less technologically sophisticated forms of electronic signature (for example, typing the signatory’s name into a document) are unlikely to demonstrate the same degree of integrity.
To outsource or not to outsource?
As already mentioned, there needs to be some thinking about the extent to which you want to offer arrangements as a direct service, or to outsource to third parties, including the insurer’s back office team.
Should the university outsource the platform to handle the communications between the parties, it will need to ensure that it has in place a service agreement which details clearly the services that the third party will undertake, including in relation to its brokering of the insurance policy and its release of the guarantee agreement for signature. The university may consider making it a condition of the service agreement that any changes that the third party negotiates to the insurance policy, are communicated to the university immediately, to allow the university to amend its agreements accordingly to minimise exposure.
The attraction of using an insurance product to mitigate the financial risk of offering rent guarantees, to assist students in securing private rented accommodation is obvious. The challenge is to think through the standard policy terms devised by the insurer to ensure that the requirements of the scheme are deliverable, and actually mitigate the risk you think you are mitigating. The smooth administration of a scheme is important for your relationship with students, and with the local private rented sector.
With careful analysis of rent guarantee schemes on offer, and dialogue with insurers, student representatives and local landlords, universities are finding a way to offer significant assistance to their student body in a way that will enhance their reputation and their rankings in student satisfaction surveys.
David Emanuel is a partner at leading education law firm Veale Wasbrough Vizards. David can be contacted on 020 7665 0848 or at email@example.com
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