Higher Education SORP: Accounting for Student Accommodation Transactions
Higher Education SORP: Accounting for Student Accommodation Transactions
With the implementation of the new HE SORP from January 2026, there are some changes to the accounting treatment of student accommodation projects. We have considered the potential implications and key areas of focus for universities as they navigate the changes to the standard.
Context
The implementation of the new FEHE SORP from January 2026 brings important changes to the accounting treatment of student accommodation — including nomination agreements, DBFO transactions, and joint venture structures. This note sets out the key changes and what universities should be considering now.
Who does this affect, and when?
The FEHE SORP 2026 was published on 3 November 2025 and is effective for accounting periods beginning on or after 1 January 2026 (SORP 2026, para. 1.3). For universities with a 31 July year end, the first affected accounts will be for the year ending 31 July 2027 — but preparation should be underway now. The new SORP aligns with the March 2024 amendments to FRS 102 and replaces the 2021 edition. The primary change for student accommodation is the removal of the distinction between operating and finance leases under the revised Section 20 of FRS 102, with almost all leases now required to be recognised on balance sheet.
What has changed?
Previously, depending on the length of the agreement, it was possible to recognise a nomination agreement as an operating lease which meant that there was no balance sheet liability and only an annual lease expense through the statement of income and expenditure (“I&E”). Under the revised Section 20 of FRS 102 (as adopted by Section 14 in the SORP), the majority of leases must now be recognised on balance sheet. The limited exceptions – leases of less than 12 months, or where the underlying asset is of genuinely low value – are practically unlikely to apply to student accommodation.
There are also changes to how leases are reported through the I&E with depreciation on the right of use asset and interest on the lease liability replacing the single lease expense under the previous SORP.
Recognition of Student Accommodation Agreements
As with prior versions, the SORP contains helpful guidance on how to determine whether your accommodation agreement is a Service Concession Arrangement (“SCA”) or a lease. A series of tests must be satisfied to be recognised as a SCA and, depending on the specific nature of the contract, there may be a requirement to recognise all, or part, of the contract value.
The following tests must be met to determine if an arrangement meets the definition of a SCA.
Should all of the above tests be answered “yes”, the project is therefore a SCA and the University must then consider whether or not there is any liability (and matching asset) to be recognised on balance sheet.
DBFO accommodation transactions will usually meet the definition of a SCA. Where there is no explicit guarantee of senior debt, the arrangement will typically remain off balance sheet, due to the nature of the annual nominations (which confer the university the right but not the obligation), Once one year’s nominations has been made, then the university will be required to recognise the value of this charge as both an asset and liability on balance sheet.
Lease Recognition
Where an accommodation arrangement does not meet the SCA criteria, it may be the case that this is accounted for as a lease. Under this scenario, the University should recognise the present value of future lease payments as a liability (and matching asset) and this is then unwound over the life of the nomination agreement.
In terms of I&E treatment, the University would depreciate the asset in line with its existing policies and also recognise the interest charge associated with the arrangement.
Universities must consider how the new treatment of leases will interact with any financial covenants under existing borrowing arrangements. Gearing levels may be negatively impacted by the inclusion of a new lease liability on balance sheet while EBITDA tests could be positively affected by the shift of lease costs from operating expenditure to interest and depreciation. A clear and robust analysis of any potential impact should be undertaken before entering into any new arrangements.
Existing leases that were previously recognised as operating leases will now be required to be brought on balance sheet (subject to the criteria noted above). However, the assessment of the liability will be based on the present value of future payments and there is no need to restate prior year financial statements.
Joint Venture Arrangements
Joint ventures (“JVs”) are another potential structure which can be used to deliver student accommodation and there are recent examples of agreements being reached by universities and private sector partners.
There are no material changes to the accounting treatment with the new SORP and these will generally continue to be recognised under the equity accounting method. Any nomination agreement should be assessed under the new lease and SCA regulations and any balance sheet impacts accounted for accordingly.
Three Takeaways to Consider
When considering student accommodation transactions, it is important that the following areas are considered:
- Balance Sheet Impact: Determine whether your arrangement is an SCA or a lease — and, if a lease, quantify the liability now required on balance sheet, including for arrangements previously treated as operating leases.
- I&E Volatility: Potential for increased variability with lease interest charge and depreciation adversely impacting underlying surplus, while EBITDA may improve. Both effects require proactive communication among governors and other stakeholders.
- Interaction with existing borrowing: Awareness of potential impacts on any current financial covenants and implications for institutional headroom against current tests and the need for lender engagement.
How can QMPF Assist?
QMPF is one of the leading advisors to the education sector, supporting on student accommodation developments as well as debt raising and restructuring of existing debt facilities. We can provide support to universities in navigating this environment, evaluating any accommodation proposals and considering the potential impacts on your overall finances. Our experience supporting the sector is longstanding and we have significant experience of delivering student accommodation projects and strong relationships with the primary lenders to the sector.
Ultimately, the accounting treatment of any accommodation project will be subject to your auditor’s sign off. QMPF can support you not only in developing projects but also through engagement with them. Our support includes:
- Financial Modelling & Forecasting: We build robust, transparent project models that integrate with wider institutional forecasts. We also provide “critical friend” reviews of existing models to ensure they are funder ready.
- Market & Partner Insight: With over 20 years’ sector experience, we leverage deep relationships across the funding and student accommodation markets to facilitate candid negotiations and drive optimal client outcomes.
- New Accommodation Projects: As leading advisors on off-balance sheet projects, we specialise in innovative structures, including disaggregated procurements and incremental partnerships, tailored to specific university needs.
- Covenant Management: Since early 2024, we have supported over £300m in new borrowing. We assist with covenant negotiations and use live market intelligence to assess impacts and support funder engagement.
- Governance & Audit Support: We provide commercial input for internal governance reporting and external auditor discussions, specifically regarding balance sheet treatment and the long-term consequences of accommodation arrangements.
Further information on the SORP can be found here:
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