The Renters (Reform) Bill poses questions to rural estates that house employees on the estate. For over 25 years estates have been able to let accommodation to employees on an AST, for a rent, safe in the knowledge that they can get the property back quickly by serving a section 21 when employment is terminated. The Renters (Reform) Bill proposes that section 21 notices will be abolished.
There will be a revised ground for possession to allow landlords to seek a mandatory court order on the basis that (a) a dwelling is let to the tenant in consequence of their employment and (b) that employment is terminated. But – unless the tenant leaves voluntarily – court proceedings will be required. The landlord will need to prove that the grounds for possession exist (here, that the tenant was employed and that the employment has been terminated) and it appears the accelerated possession procedure (which bypassed the need for a hearing) will no longer be available. The upshot is it will be more difficult for estates to evict ex-employees housed under ASTs, when there may be very pressing reasons for wishing them to leave the estate quickly.
Estates may wish to consider whether they can accommodate staff under a different arrangement known as a service occupancy. These were common in rural estates in the 19th and early 20th centuries when many staff lived in the main house. There is a strict test to qualify for a service occupancy:
- there must be an express term in the employment contract that an employee must live in the property for better performance of their duties, and
- it must genuinely be the case that the required occupation enables the employee to better perform those duties (ie it is not a sham).
The right of occupation under a service occupancy ends with the termination of employment. Because it is only a licence, there is no security of tenure, save for the most basic protections afforded by the Protection from Eviction Act. Service occupancies therefore provide employers with maximum flexibility to move out employees when their employment ends.
However, an estate cannot simply create a service occupancy purely through the employment contract requiring the employee to reside somewhere. The requirement must be genuine: living in a particular dwelling must lend “material assistance” to the employee in carrying out their duties.
The payment of a meaningful rent (or a deduction from salary in lieu of rent) is usually indicative that a service occupancy does not exist. Moreover, if it is greater than the minimum rent thresholds in the Housing Act 1988 (£250 per annum outside London; £1,000 per annum inside London) this could bring the arrangement within the ambit of the Housing Act and the security of tenure it will soon afford.
There is another potential trap – the risk of creating an Assured Agricultural Occupancy. Where an employee works in agriculture (see below) for a qualifying period of 91 out of 104 weeks and has a tenancy or a licence from their employer (even rent free) then they will be an Assured Agricultural Occupant. They will have security of tenure under the Housing Act; their right of occupation will not cease with their employment and the ground that otherwise permits a landlord to regain possession on that basis in the Housing Act is specifically excluded from applying to agricultural occupancies. This will remain so with the Renters (Reform) Bill.
This begs the question “who is employed in agriculture?”. The definition is in the Rent Act 1976, but all sorts of estate workers are not agricultural workers, from game keepers and ghillies to grooms, gardeners, chauffeurs, groundsmen and workers in the farm shop (provided none have agricultural duties).
Whilst care needs to be taken, many estates will wish to check that existing service occupancy arrangements are fit for purpose and / or consider the use of service occupancies for other staff in future. This may involve a trade-off: a service occupancy makes regaining possession easier, but may involve a loss of revenue from rent and the employee having to pay income tax on the benefit of their accommodation through PAYE (unless HMRC’s better performance test is met).
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, July 2023