Occupying a Property “In the Line of Duty”

How to Avoid Potential Pitfalls when Accommodating Staff

Many employers will require or allow an employee to reside in a particular property that the employer owns as part of their job. Some employees will occupy such properties “rent free” as a perk of the job and others may be charged rent.

However, very often employers do not properly understand the true nature of their employee’s occupancy of their property and fail to properly record the arrangements in writing. This can have significant consequences when the employment relationship comes to an end and the employer wants to get their former employee out of their property.

There are three different types of arrangements that might be applicable when an employee resides in a property belonging to their employer. It is really important that employers identify the correct arrangement that will apply to their specific circumstances and ensure that they document those arrangements properly.

Service Occupancy

The key features of a service occupancy are that either:

a)            It is essential that an employee live in a particular property (they couldn’t do their job properly or effectively otherwise); or
b)            There is an express clause in the employment contract requiring the employee to live in a particular property and doing so enables them to further and better perform their obligations under their employment contract.
There may be circumstances when, if needed on a 24 hour basis, or needed to work unsocial hours, it is important that an employee lives in a particular property so that they can properly carry out their duties. For example, this may be the case for those employed as caretakers, on-site security or those who provide 24-hour care. If an employee could live elsewhere and still carry out their duties to an acceptable standard, the arrangement is unlikely to be a service occupancy.

Under a service occupancy arrangement, the accommodation is usually part of the employee’s remuneration which means that the accommodation is usually provided free of charge or at a reduced rent. In addition the employee should not have exclusive possession of the accommodation.

One of the key features of a service occupancy is that it terminates automatically when the employee’s employment terminates.  There is no need to give separate notice to an employee to quit the property. Termination of the employment contract is sufficient.  This can be particularly beneficial if the employee is summarily dismissed for gross misconduct.

Assured Shorthold Tenancy (AST)

As a matter of course, to create a tenancy you need the following:

1. The payment of rent which can be in money, a deduction of wages or the provision of services in lieu of money.
2. Exclusive possession (which means the tenant has sole control over who enters the premises).  They can therefore exclude the landlord from the premises, should the chose to do so; and
3. A clear term of the tenancy – either a fixed term or a periodic term.
   An AST may be appropriate where it is not essential for the employee to live in a particular premises or they are not there so as to further and better perform their job.

Termination of an AST is likely to be the biggest issue for an employer as an AST will not automatically terminate when the employee’s employment terminates. Under an AST there is a statutory notice procedure which must be followed in order to bring the arrangement to an end. The usual notice period is two months, however this period has been extended during the COVID-19 outbreak.

Common Law Tenancy/Licence

Where it is not essential for the employee to live in a particular property (nor does living there enable them to further and better perform their obligations under their employment contract) and one of the criteria for an AST is missing, the arrangement will be a mere licence.

In these circumstances the employer will have a great degree of control over the employee’s occupation, therefore depriving the employee of exclusive possession.

Unlike an AST, there is no statutory regime to govern the method of termination.  If the licence is for a fixed term then the employer must ensure that they obtain possession of the premises at the end of the fixed term.  If the employee remains in occupation after the contractual expiry of the licence and accepts rent, a further tenancy will be created.

If the licence is for a rolling periodic basis (as is likely to be the case in most situations where the occupation of the accommodation is linked to employment), the employer must give a minimum of one period’s notice to terminate the licence.  The notice must expire on the last day of a period. In most cases, the length of a period is determined by the frequency on which the tenant pays rent.  Therefore, as with an AST, an employee’s right of occupation would not come to an end automatically when their employment ends.

Service Occupancies – Top Tips

A service occupancy is likely to be the most appealing arrangement to an employer, given the lack of any requirement to give notice to terminate the arrangement (over and above any notice required under the employment contract) so here are our top tips to employers who are considering such an arrangement:

1. There is no point calling the arrangement a service occupancy if it doesn’t genuinely reflect the nature of the arrangement. Regardless of what is written in the service occupancy agreement and/or an employment contract, the courts can review how the relationship operates in practice.  The courts will consider whether there is a genuine requirement that the individual live in the particular property and whether this was of material assistance to the individual in performing his/her duties.  If this is not the case, the courts may find that a tenancy exists, making it harder to exit the individual from the accommodation regardless of whether the employment has terminated or not. Therefore defining and documenting the nature of the occupancy correctly from the outset is paramount.
2. If an employer believes that a service occupancy arrangement applies to their employee’s situation then an express term should be added to the employment contract confirming that the individual is required to live on site for the better performance of their duties. Without such an express term, it would be up to a court to decide whether such a term should be implied into an employment contract. In addition, a Service Occupancy Agreement should be put in place granting the individual a personal licence to occupy the accommodation.
3. Where a service occupancy exists, it is possible for the immediate family of the employee to occupy the property with the employee . This does not give the family members a tenancy, as they would not have exclusive occupation of the property. The basis of their occupation would be as licensees, with the right to occupy for the duration of the employee’s service occupancy.
4. Even though a service occupancy terminates automatically upon the termination of employment, for the avoidance of doubt, we would recommend that employers tell their employees that they are required to leave the accommodation by a certain date.  Care needs to be taken to ensure that the employee does leave at the end of their employment.  If they do not, there is a risk that a further relationship (either a tenancy or licence) could be created following the termination of the service occupancy.

For more information please contact Camilla Beamish: Camilla.beamish@Crippspg.co.uk