Five ways independent schools can generate revenue using their property

Sale and leaseback

Independent schools fortunate enough to have surplus land will be best placed to exploit this possibility.  Under this arrangement, the school sells its freehold/long leasehold interest in the land to release capital and gain an immediate injection of cash whilst simultaneously the buyer grants a lease of the same land to the school which will remain in occupation.  The lease term, rent, conditions on use and security of tenure will be important considerations when negotiating any lease to ensure the school’s interest in the land is not unduly restricted or limited.

Financing

Another way of releasing capital from land but without losing the freehold or long leasehold interest is for the independent school to obtain a mortgage or refinance its current mortgage over its land.  This option may allow for a drawdown of cash or a reduction in debt repayments.  Thought needs to be given to the value of the land, the costs of any repayment terms and any guarantees which may be required.  Financing transactions also take time as lenders will often require a thorough due diligence exercise on the condition and history of the property.

Property Investment

An independent school may consider acquiring the freehold or head leasehold of neighbouring properties with a view to granting leases and generating regular income to be used to further the school’s interests.  Like any investment, acquiring property carries risks and rental values/yields fluctuate with the market.  Unless the school has knowledge of the land or is buying at a cut price, a thorough due diligence exercise is recommended on the land and, where applicable, care should be taken to ensure any investment is in line with charity regulations.

Licences to Occupy

Independent schools can offer licences to organisations, such as nurseries and sports clubs, allowing them to occupy space which is unused outside teaching hours in exchange for a licence fee. When compared to leases, licences to occupy tend to be shorter (in term and document length!) and more flexible.  However, care must be taken to ensure any licence covers the key terms of occupation but does not grant exclusive occupation nor is so detailed to suggest it is a de facto lease which may give tenants greater rights of occupation.

Funding

Independent schools with listed buildings or with plans to build property which can be used by the community at large, for example, may benefit from heritage or local funding to ease the financial outlay of any works.  It’s important that funding terms are adhered to and for funding to be put in place as early as possible into any development to ensure the development can progress in a timely manner and achieve completion dates.

If your independent school is considering one of these options or looking at a different approach to its property, do not hesitate to get in touch with the Real Estate team at Greenwoods Legal LLP to see how we can help.