A service occupancy agreement is, to all intents and purposes, a licence to live in a property provided specifically as part of a person’s employment, such as a farm worker. The term normally extends for as long as that person is employed; if the person leaves their job, they will also have to leave the property. This is unlike an assured shorthold tenancy which is granted for a fixed term.
For employers who value employees living on the premises, a service occupancy agreement whereby the house goes with the job is a much more flexible way of managing the property. Note that tax and NIC are payable by the employer on the value of the benefit.
There are three principal differences between an assured shorthold tenancy and a service occupancy agreement:
Rent
Someone living in a property under a service occupancy agreement will not pay rent as it is part of their employment contract and thus part of their overall package. An employer wishing to deduct a licence fee from their employee’s salary should take legal advice before doing so as taking payment is contrary to such an arrangement.
By contrast, a tenant under an assured shorthold tenancy will be legally obliged to pay an agreed rent at an agreed time.
Termination
Under a service occupancy agreement, the tenant will have to leave if they leave their job or if they decide to live elsewhere. Employers can also issue a notice to quit which may be used if they need their employee to move into different premises rather than wanting to terminate their employment contract.
Control
In order to ensure that a service occupancy agreement is just that, it must be aligned with the employment contract of the person living in the property. Beware inadvertently granting a service tenancy which is where an employee lives in a property provided by their employer, but their occupation is not closely linked to their need to live in the property.
Key points to consider in a service occupancy agreement
The critical point is to link the employee’s contract of employment with the service occupancy agreement. If the link is open to question, outline clearly why the employee needs to live in the property. Include a clause that allows you to terminate the licence, as needed, without terminating the employment contract. Make it expressly clear that this is a service occupancy agreement and not a tenancy agreement. Set out the notice terms if you need to ask the employee to leave the property, for instance if it is sold. This can be with immediate effect or a after specified notice period. Finally, seek legal help before drafting such an agreement so that the contract matches your objectives.
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