We’re seeing an increase in calls on the BII helpline which involve landlords facing difficulties removing employees from their premises after terminating their employment.
The difference between types of legal agreement is extremely important to both parties and employers should never assume that the occupation is connected with the employment.
There are different types of ‘live-in’ arrangements under the law:
Service Occupancy Agreement
In order for there to be a service occupancy, the occupation must be essential for the performance of their duties, or it may be required in the contract that they should live there for better performance of their duties. This means that the legal situation can actually change when their role does.
Important things to know
- A service occupancy agreement terminates automatically when the employment contract ends, without the need for a notice to quit (Norris v Checksfield  1 WLR 1241).
- The fundamental principle is that there is not a tenancy.
- Employees who might be service occupiers include caretakers, hotel managers, housekeepers and teachers at a residential school. Where an employee is of a ‘lower level’ e.g. pot washer or bar staff, its clear that whether or not they reside on the property is of no material difference and does not benefit their employment.
- The test applied by the courts is whether the employee’s occupation is of “material assistance” to the employee in carrying out their duties (Glasgow Corporation v Johnstone  AC 609).
- According to Street v Mountford  UKHL 4, a tenancy will usually be created if the occupier is granted exclusive possession of the property for a term at a rent. However, the court stated that a service occupier who appears to enjoy exclusive possession would not be a tenant.
A service tenancy may arise where an employee lives in accommodation provided by their employer, but their occupation is not so closely connected with their employment. E.g. it is not necessary for them to reside there to do their job more effectively.
Important things to know
- There is no difference between an ordinary tenancy and a service tenancy, aside from the fact that the employer is the landlord and the employee is the tenant. This means that where no service occupancy can be established, a license or lease will be in place with all the associated rights.
- Unlike a service occupancy, a tenancy gives the employee an interest in the property, not just a licence to occupy it. The tenancy will not end automatically when the employment terminates, so the employer would need to follow the appropriate procedure to gain possession. In any event, you cannot evict a residential occupier without an order from the court.
- Tenancy will only exist if the employee has exclusive possession of the property. If the employee does not (for example, if they share with other employees) and is not a service occupier, then it is likely that they will be a licensee.
- A service occupier should not pay rent. In any event, the word “rent” implies a tenancy, so the term for any payment should be “licence fee” or “occupancy fee”. The employer should take account for this in the employee’s salary.
National minimum wage
Where accommodation is not provided as a benefit and the worker pays rent to the employer (whether or not deducted directly from wages), any rent up to the value of the accommodation allowance can be disregarded, but any excess (for example gas and electricity) will be treated as a deduction so as to reduce the pay for NMW purposes (regulation 14(1).
Service occupancy agreement
A service occupancy agreement terminates automatically when the employment contract ends, without the need for a notice to quit (Norris v Checksfield  1 WLR 1241).
Because no tenancy exists, the occupier does not have security of tenure once employment ends. When that happens, he no longer has a right to remain in the property. If he stays, he is a trespasser.
Other types of leases and license agreements
Generally, a licensee who occupies a property as a dwelling must be given at least four weeks’ written notice to quit (section 5, Protection from Eviction Act 1977 (PEA 1977)).
In any event, you cannot evict a residential occupier without an order from the court.
How can we help?
We can draft a service occupancy agreement for you and also provide a guidance pack at a fixed cost. Call our experienced employment law and HR experts for advice on 0114 3032300 or email email@example.com