Do you have any employees living in accommodation provided by you? This article offers advice on how to minimise the risks involved in creating a service occupancy agreement and allow you to get your accommodation back in the event that you end up in a service occupancy trap.
Many employers in the Healthcare sector have difficulties recruiting. Something we see adopted regularly to attract employees is to offer accommodation with the job. This is then set up as a “service occupancy” by the employer, on the basis that this will allow them to easily remove the employee from the accommodation, should the arrangement not work out or the employee leaves the position.
This is a good plan in principle but the risk lies in being sure that you have created a genuine service occupancy. You don’t want to afford the employee various rights to remain in the accommodation.
With a bit of care and planning beforehand, it is possible to minimise the risks involved and allow you to get your accommodation back in the event that you no longer wish for the employee to live there.
What is a service occupancy?
A service occupancy arises when an employer requires an employee to reside in the employer’s property for the better performance of that employee’s duties.
It is worth reading the above statement twice. The first thing that should strike you about this is that it comes down to an employer’s requirement. This is therefore driven by the requirements of the employer, not by the desires of the employee. The second point that will strike you is that the accommodation is essentially required to allow the better performance of the job involved.
In short, it is about the employer’s requirements and ensuring the better performance of the job.
Some key characteristics of a service occupancy include:
- The occupation of the property is closely linked to the occupier’s employment;
- The occupier has a personal licence to occupy for so long as the employee is employed by the employer; and
- It terminates automatically when the employment contract ends.
The occupation of the property by the employee must be closely linked to their employment by the business. Accordingly, it is always recommended that a clause is inserted in their employment contract stating that they are required to live in accommodation provided by the company for the better performance of their duties. Further, the employer and employee should enter into a written service occupancy agreement which stipulates how they are to reside at the property.
What are the risks of using a service occupancy agreement?
However, simply providing your employee with documentation stating that they are occupying the property by way of a service occupancy would not prevent a court from deciding that the employee is in fact occupying by way of a tenancy agreement. The Court will look at the substance of the agreement, not the form.
By way of example, in the case of Hughes v Greenwich LBC [1994], a school headmaster signed an employment contract which stated that he occupied the property provided by the school as a service occupier. Nevertheless, the court found that he was not in fact a service occupant as he was ‘not required to occupy the property for the better performance of his duties… the employer was providing a facility but not imposing an obligation’. This case highlights the importance of establishing that the employee is required to live in the property in order to carry out their role.
Service occupancy vs tenancy
Any employee who occupies a property by way of a purported service occupancy who is dismissed from employment could try to defend a possession claim or, if evicted without a possession claim, pursue a claim for unlawful eviction. If a court were to find that they did not in fact occupy the property by way of a service occupancy and were instead tenants, a determination of unlawful eviction could have severe ramifications for the business, plus you have an ex-employee in your accommodation which you may not want.
Unlike service occupancies, which are terminated automatically on the employment contract ending, tenants require the service of proper notice. Further, there is a wealth of law and regulations applicable to private sector tenancies (which any failed service occupancy may well end up actually being).
With the clear indication from the new Government that “no fault” evictions are on the way out, if your arrangement is determined to be a tenancy rather than a service occupancy, the options for you to recover possession of the accommodation may well be limited and expensive both in terms of costs and time.
The best option therefore is to take stock of your current arrangements and seek advice as to the proper status of your employees who are in occupation of company premises. There are various options available but this will always depend on the circumstances. If in doubt, please do seek advice.
The Property Litigation team at Stephens Scown has lots of experience of advising in this area, and if you would like to discuss this issue please contact Ian Thomas on i.thomas@stephens-scown.co.uk or 01872 307352.