B&D’s Brad Noyes was interviewed recently for a Chronicle of Higher Education article about new challenges in structuring student housing P3 deals. An excerpt is below, and the full article is available to Chronicle members here.”
Covid-19 has compromised institutions’ ability to host students on campus, and so it has undercut key components of many P3 business models. The best P3 operations are partnerships, as the name suggests, but an “act of God” like a pandemic — outlined in “force majeure” clauses in many legal documents — may be the ultimate test of the strength of those partnerships.
“Is the partnership set up to handle a force majeure event?” said Brad Noyes, who advises colleges and public-sector entities on P3 deals at Brailsford & Dunlavey. “That is actually the question.”
In many cases, he said, when a force majeure clause is part of the agreement, the parties have been able to work together in good faith to find a way forward. He described how two parties had renegotiated a P3 arrangement after Covid-19 hit: The insurance on the project would not cover the shortfall, so the company gave money to the university to refund the housing costs to the students. Then the university and the company restructured the repayment plan so the company could recoup the loss over time.
In some cases, he said, colleges are absorbing the financial shortfall, even when they are not legally bound to do so. In other cases, partners have held parents, students, or the university to the payments outlined in their leases or contracts, regardless of the unusual circumstances.
The pandemic will encourage colleges and their partners to structure disciplined agreements, where risks are identified, understood, and addressed, he said. But risks will continue to exist in contracts, simply because risk is by its nature unpredictable. “You still can’t structure real-estate transactions to cover all force majeure events,” Noyes said, because that would be far too costly to the parties. “Force majeure is a thing for a reason — it’s not suddenly going to go away from contracts.”