You’ve allowed someone that you employ to live in your premises. You might not have a written agreement. Even where the agreement is in writing, there can be uncertainty as to whether you created a tenancy or a service occupancy. You may not be sure whether you are paying them correctly. Instead of them paying rent, you might pay them less because they enjoy the benefit of the accommodation, but are you paying minimum wage? The occupier’s legal status as either a tenant or service occupier makes a significant difference to their rights to stay in the premises, particularly after their employment ends. The following should give you a better idea of whether you have a tenancy or service occupancy. If in any doubt you should always get legal advice to avoid the risk of illegal eviction.
What is a Service Occupancy?
If you require an employee to live in your property for the better performance of their duties, and there is a close link between the employment and occupation of the property, that is likely to be a service occupancy (SO). A SO is different from a tenancy because it is only a licence to occupy, which lasts for as long as the employee works for you. A licence is a permission to live in the property, which permission automatically ends as soon as the employment ends. The employee does not have the additional rights and protections afforded to tenants, which are covered below.
Landlords of assured shorthold tenants are required to do certain things at the start of the tenancy such as provide an EPC and How to Rent booklet. This is not needed for a SO, neither is the Right to Rent check which is a check of immigration status; this is because employers are in any event required to do right to work checks. However, a “tenant” for the purposes of the gas safety regulations includes licensees, so you should still be sure you are following those.
If Service Occupants have fewer rights, can’t I just say that all the accommodation I offer to my employees is a service occupancy?
No. Don’t fall into the trap of thinking that because you call something a service occupancy that it is. It depends upon the reality of the situation. Even if the occupant has signed a document which calls itself a SO agreement, a court could find that in reality, it is more like a tenancy and that the tenant has additional rights. Consider the facts. How strong is the connection between the occupation and the employment? Is it essential? If not, does the contract of employment require the employee to live at the property for the better performance of their duties? Is living in the property of material assistance to the employee in doing their job? Are there other employees able to do the same job without living in the accommodation? If you removed the requirement to live in the accommodation, would the employee still be able to do their job? Sometimes an employee is offered accommodation in their employer’s property but it is not essential or required that they live there; that would not be a SO. Ideally, the contract of employment will state that either it is essential for the employee to reside in the accommodation, or that it is required for the better performance of their duties. However, if that is not stated, it can be implied if it is obvious enough from the circumstances.
Where a tenant lives in accommodation provided by their employer but it doesn’t have the hallmarks of a SO it is probably a tenancy. The main test for a tenancy is whether the tenant has exclusive possession. This typically means in practice that their landlord or others, for example, other employees, do not enter the property without giving the tenant prior notice. This could be things like entering without notice when they choose to clean, or to bring meals or to inspect. Confusingly, a service occupier can have exclusive possession and not be a tenant so long as they meet the test for the accommodation being essential or required as set out above. The idea of a service occupancy goes back to a somewhat outdated concept of a master and servant-type relationship.
Where the employer provides the accommodation but there is not a sufficiently close link to be a SO, and the tenant has exclusive possession, it will be a tenancy (sometimes called a service tenancy). If it is not a SO and there is no exclusive possession either, it will probably be a bare licence, which is simply permission to occupy until that permission is withdrawn. A service tenancy is no different to an ordinary tenancy except that landlord is the employer. Depending on the type of tenancy (in most cases it will be an Assured Shorthold Tenancy (AST)) the tenancy gives the employee interest in the property. This gives the tenant the right to remain in the property even when their employment has terminated. The landlord/employer will have to go through the lawful procedures for serving notice on the tenant and then obtaining a possession order from the court and a warrant of possession if necessary.
Ending the Service Occupancy or Tenancy
It is not always possible to say for certain whether an arrangement is a SO or tenancy. Seek advice if you are not sure. If you know which it is you can determine how it can be lawfully ended.
If there is nothing in any oral or written SO agreement which gives a notice period, a service occupancy agreement terminates automatically when the employment contract ends, without the need for any notice to quit because the permission only lasts for as long as the employee is employed. Any immediate family members living with the service occupant would also have to give up possession. Written SO agreements tend to allow a notice period to give the employee chance to vacate, so check you have complied with this. Even if the employee is dismissed in breach of contract, termination of the employment will terminate the SO, so service occupiers are in quite a precarious position as regards their security of tenure. However, they do still have the basic protection of a possession order being needed from the court before they can be evicted. if they refuse to leave you must obtain a possession order from the court before they can lawfully be evicted. A possession order would be obtained on the basis that they have become a trespasser since their employment terminated. The court process is quicker than for tenants.
The SO will terminate even if the employee was dismissed in breach of contract. The only exceptions to this are where the employer is a local or public authority, in which case the occupier may be able to raise Human Rights arguments about whether an order for possession is proportionate, or if Section 11 of the Children Act 2004 about the welfare of children could be relied on.
The tenant of an AST has much better protection and the landlord must serve the correct type of notice under the Housing Act 1988, then obtain a court possession order, then a warrant of possession. For more information about the possession of residential properties on ASTs.
Instead of the service occupier paying rent to the employer, the benefit of the accommodation will usually be taken into account and set off against wages, making the wage lower. The employment contract is the appropriate place to set out the agreed terms about this. It is possible but unusual to charge rent on a service occupancy. If you do, it is better to refer to it as a “licence fee” in the SO agreement. Employers should make sure that they are paying the National Minimum Wage. They can assign the accommodation a value (accommodation off-set) but it would be very unlikely the occupier would receive no additional wage.
Bhayani law can advise you at the start of any arrangement whether a service occupancy agreement or tenancy agreement should be used, can prepare the relevant agreement for you, and advise you about any landlord’s legal obligations at the start of the tenancy. Having certainty about the arrangement from the start should make it easier to end the arrangement later.
If you already have a tenant or service occupant and you are not sure which you have, or you need advice about getting possession, we can help.
How can we help you?
If you need advice in connection with Tenancies or Service Occupancies, contact Sarah Coates-Madden.