PBSAs: An unintended consequence of the RRA
Paul Moran and Emily Vandenberg of Howard Kennedy consider the interaction between the Renters’ Rights Act 2025 and the right of first refusal under the Landlord and Tenant Act 1987.
Legislation is rarely drafted in isolation. New laws must operate alongside a complex framework of existing legislation, and where those interactions are inadvertently overlooked, unexpected consequences can arise. One such consequence appears to have emerged from the implementation of the Renters’ Rights Act 2025, creating potentially significant challenges for the purpose built student accommodation (PBSA) sector and the relationship with rights of first refusal.
The PBSA exemption
The core principle behind the Renters’ Rights Act 2025 was to provide residential tenants with stronger, statutory-based rights upon which they can rely in what many perceived to be a landlord-favourable rental market in England and Wales. Legislators recognised that the reforms could affect student accommodation, an area where such wide-ranging protections were deemed unnecessary, and therefore introduced a mechanism allowing PBSA providers to remain outside the stricter rules applying to the new Assured Periodic Tenancies (APTs). Providers who satisfy certain criteria and subscribe to a government-approved code of practice are able to grant common law tenancies to students rather than APTs. Common law tenancies give landlords more flexibility, and you do not have to satisfy grounds for possession, and therefore are very useful in a student setting, where fresh students need the properties the following academic year.
This has, however, resulted in an unintended interaction with legislation governing rights of first refusal, which was introduced almost 40 years earlier.
Rights of first refusal: an overlooked consequence
The right of first refusal, commonly referred to as the s5 regime, is contained in Part I of the Landlord and Tenant Act 1987. On any intended sale of a freehold or headlease interest to which s5 applies, qualifying leaseholders have the option to acquire that interest on the same terms offered to a third-party purchaser.
A landlord must serve notices on qualifying tenants setting out the principal terms of the proposed disposal, including details such as the purchase price. Different forms of notice apply depending on the type of transaction, whether by private treaty, auction or otherwise, but the principle remains the same: qualifying tenants have first refusal rights.
The issue for PBSA providers arises from s3 of the 1987 Act, which defines who is entitled to these protections. Rather than positively defining who a qualifying tenant is, the legislation identifies various categories of tenants who are excluded.
These include protected shorthold tenancies, assured tenancies, assured agricultural occupancies, business tenancies, employment-related tenancies and occupation contracts introduced by the Renting Homes (Wales) Act 2016.
Notably, common law tenancies do not appear on that list.
“There are growing calls for the government to amend the legislation and address this apparent unintended consequence as a matter of urgency.”
Implications for PBSA transactions
This creates an immediate transactional challenge for institutional investors and developers active in the PBSA market, as many schemes contain hundreds of units and therefore sometimes hundreds, if not thousands, of students. If those students are living there under a common law tenancy, they could be qualifying tenants. As a result, a proposed disposal of the freehold or superior leasehold interest could require s5 notices to be served on each qualifying occupier.
This presents practical and financial difficulties. Not only will compliance increase costs through the service of notices, but transaction timetables may be significantly affected.
The statutory notice period of at least two months must expire before a sale can be completed. In addition, if the principal terms of a transaction change during the course of negotiations, fresh notices may need to be served. For example, a reduction in the agreed purchase price could trigger the need for new notices, resetting the statutory timetable and requiring the two-month period to begin again. In a fast-moving market, where investors often need to realise sale proceeds within specific timescales, this has the potential to disrupt disposal programmes and undermine previously approved business plans.
Looking ahead
The consequences for failing to comply are serious. Failing to serve the required notices before proceeding with a sale can attract criminal sanctions.
We are already seeing transactions impacted by this issue, with some deals failing to proceed within the timescales anticipated in agreed heads of terms. There are growing calls for the government to amend the legislation and address this apparent unintended consequence as a matter of urgency. While it seems unlikely that Parliament intended short-term students to benefit from rights of first refusal, the position remains uncertain unless and until primary legislation clarifies the issue.
In the meantime, sellers of PBSA assets should undertake careful analysis at an early stage of any proposed disposal so that potential timing implications can be assessed and reflected in discussions with prospective purchasers.
The issue may not be confined to the PBSA sector. Other investment landlords exploring alternative tenancy structures outside the APT regime could encounter similar concerns and should consider whether rights of first refusal may be engaged.