Co-living: opportunity within complex regulatory landscape

Co-living key considerations

• Securing planning consent and the correct use class at an early stage is critical for programme certainty, exit liquidity and valuation.
   
• Co-living schemes may be brought forward under a sui generis classification, a C1 (Hotels) use class, or, less commonly, a C3 (Dwellinghouses) use class. Each route operates within a different regulatory framework, with implications for tax treatment, yield profile, operational model, and planning obligations. Getting this right at the outset is essential.^[5]
   
• The appropriate use class will depend on how the scheme operates in practice – including the level of shared amenity, how rooms and living spaces are accessed and the services provided. Where proposals do not clearly fall within an existing use class, they are likely to be treated as sui generis, bringing additional planning complexity.
   
• The choice of use class directly affects speed to market and scheme viability:
  • C1 schemes can offer a more established and potentially fast planning route, particularly where they involve the conversion or change of use of existing buildings. In addition, C1 proposals can, in certain circumstances, alter or reduce affordable housing requirements compared with alternative residential use classes, which can affect or improve scheme viability; and
  • sui generis schemes lack a standardised planning policy framework which can lead to a more discretionary and often more protracted consenting process. Applicants may need to spend more time evidencing the suitability of the scheme and its alignment with local housing objectives, which can impact both programme certainty and early-stage underwriting.
     
• Sui generis classification can also affect liquidity and exit optionality if not carefully structured, reflecting both the bespoke nature of planning consents and the more operationally-driven nature of co-living assets, which may narrow the pool of potential buyers and increase scrutiny at exit.
   
• Co-living schemes often present as residential accommodation but operate with hospitality-style features, including shared amenities, services and active management. This can create tension between planning classification and operational reality. Licensing regimes operate independently of planning classification and may apply depending on how units are occupied and managed. Mandatory HMO licensing under the Housing Act 2004 applies where a property is occupied by five or more persons forming two or more households sharing basic amenities. Beyond this, many local authorities have introduced additional HMO licensing schemes applying to smaller shared properties, meaning licensing obligations can arise even where mandatory licensing is not triggered; selective licensing may also apply in designated areas. Critically, these thresholds are not mapped to planning use classes: a scheme with C3 or sui generis consent is not thereby exempt if the relevant licensing conditions are met in practice. This reinforces that planning and licensing regimes do not always align, introducing additional cost, compliance obligations and operational complexity.^[6]
   
• Early engagement with local planning authorities is critical. Clearly articulating the operational model and the role of co-living in meeting local housing needs can materially influence outcomes. Without this, schemes - particularly those falling within sui generis use - may face delay or resistance.
   
• Investors and developers should therefore approach planning as a strategic workstream, balancing speed to market against long-term operational flexibility, exit strategy and regulatory alignment.

• The RRA, phase one of which comes into effect on 1 May 2026, introduces significant reforms to the assured tenancy regime that will affect the co-living sector.
   
• Operators currently utilising assured shorthold tenancies (ASTs) will need to reassess their occupational model in light of the RRA. The legislation introduces fundamental changes to tenancy structures, including the effective removal of fixed-term ASTs in favour of periodic arrangements and tighter controls around rent review mechanisms. Obtaining possession of units will also become more complex with the abolition of the section 21 notice process. As a result, investors and developers will need to reconsider income profiles, capacity management and operational planning within co-living assets.
   
• Some UK co-living schemes operate on a licence to occupy basis, reflecting the shorter-term, flexible nature of occupation typically associated with the sector. When properly structured, licence models can align with sui generis planning classification and offer operational agility. However, careful drafting and genuine operational substance are essential to avoid unintended tenancy creation and the associated statutory protections.
   
• While some schemes pursue C1 classification to enhance operational flexibility, planning status alone does not determine whether the RRA applies. The legal character of occupation will be assessed on substance rather than label. Developers and operators must therefore ensure that planning strategy, occupational structure and management model are fully aligned from the outset to avoid regulatory mismatch and downstream risk.
   
• Co-living schemes which have a student-orientated or student inclusive purpose occupy a position where the boundary between co-living and PBSA becomes less distinct. This distinction carries important regulatory implications: PBSA benefits from a specific exemption under the RRA, whereas co-living schemes that do not satisfy the relevant PBSA conditions under the RRA (i.e. the landlord being signed up to a Government-approved code) will not. The significance of this is that PBSA providers will still be able to grant fixed term tenancies outside of the provisions of the RRA.

• The BSA defines a "higher-risk building" as a building in England that contains at least two residential units and is either at least 18 metres in height or has at least seven storeys - thresholds which many higher-density co-living schemes will exceed.
   
• For large scale and high-density schemes, the BSA requires Building Safety Regulator approval to be obtained at ”Gateway 2” before construction of a higher-risk building can commence.
   
• In practice, the approval process is taking longer than anticipated, and the absence of established precedent makes it difficult for developers to forecast timescales with certainty.^[7] For co-living schemes, which often depend on building height to deliver viable unit numbers, this regulatory uncertainty creates challenges for programme certainty and investment underwriting.
   
• Separately, and distinct from the BSA regime, fire safety legislation (in particular the Fire Safety (England) Regulations 2022) imposes additional operational obligations on buildings at or above 11 metres in height. In response, some developers are designing projects to fall below this threshold. The 11 metre mark has therefore become a key consideration in the design and configuration of co-living schemes, independent of, but alongside, the BSA's higher-risk building regime.^[8] 

• The Building Safety Levy (England) Regulations 2025 have been passed into law and will come into force 01 October 2026. It is a tax on certain new residential developments in England, the proceeds of which will fund the remediation of building safety defects.
   
• A building control application for new dwellings or PBSA submitted on or after 1 October 2026 will be caught by the Regulations (unless the development constitutes an “exempt building”). If the development satisfies the chargeable conditions, a levy will be payable by the developer, calculated by reference to the combined gross internal area of the chargeable dwellings and any communal floor space used by residents, multiplied by the applicable rate set out in statute.
   
• The levy therefore applies to communal areas that cannot be sold separately, which is particularly relevant for co-living schemes where a greater proportion of floor space is typically given over to shared amenity. As the levy is calculated by reference to gross internal area, this can result in a higher effective levy burden on a per-unit basis, placing additional pressure on scheme viability. 

• Co-living schemes are typically more operationally intensive than traditional residential assets, requiring experienced management platforms capable of delivering community-led environments and high levels of resident engagement. Higher tenant turnover and shorter average lengths of stay can increase the importance of active management and leasing capability in maintaining stable income performance.
   
• The strength of the operational platform and brand proposition is therefore central to scheme performance. Community programming, shared amenity management and placemaking are key to the resident experience, supporting retention, differentiating schemes within competitive urban rental markets and underpinning income resilience. As the sector matures, the ability to scale and consistently deliver this operational model across multiple assets will become an increasingly important consideration for institutional investors.