Staff accommodation and the Renters’ Rights Bill: what schools need to know

Whilst the Government’s announcement about VAT on school fees may have been grabbing all the headlines, schools that own staff accommodation or let residential property also need to keep an eye on the progress of the government’s reform of the private rented sector. The Renters’ Rights Bill is making its way through Parliament and is due its third reading in December, before going up to the Lords. Current indications suggest it may become law by next summer.

Tenancy reform

The first half of the Bill deals with tenancy reform. it amends the Housing Act 1988 and makes all assured tenancies of less than seven years periodic, introduces a statutory rent review procedure, and abolishes “no fault” evictions currently available under section 21 of the Housing Act, among other measures. This means that landlords will no longer be able to obtain vacant possession from a tenant on two months’ notice without giving a reason. Landlords will instead have to identify which of the (newly extended) mandatory or discretionary grounds apply and use that as the basis for giving notice – some require two months’ notice, but others require more. Crucially, however, the tenant can dispute the ground and refer the matter to court with all the attendant delays, cost and uncertainty that entails. 

These changes could prove a challenge for schools, who need to be able to regain possession of property from staff promptly when they leave or are dismissed. For precisely this reason many schools use licence arrangements for staff accommodation, because they are more flexible and more easily terminated than tenancies. The starting point is that the Bill does not catch licences – but what it does do is raise the stakes considerably if schools get it wrong and if what is thought to be a licence turns out to be a tenancy. 

When is a licence not a licence?

Calling an arrangement a licence will not make it one and the law will “look through” the paperwork to the realities of the situation on the ground. The main distinction between a tenancy and a licence is whether the occupier has exclusive possession. Some common examples of arrangements include the following:

1. Hostels: staff may be housed in rooms in hostels (or houses) with shared facilities such as kitchens and living rooms. Where a true licence is created, there is no security of tenure (save for basic protection under the Protection from Eviction Act) and the school can regain possession at the end of the licence period, or by following the licence’s (usually short) contractual notice provisions. However, just making staff share a kitchen and sitting room is not sufficient to make it a licence: the law is clear that where an occupation has exclusive occupation of “separate accommodation”, most commonly a bedroom, that will count as a dwelling in its own right and a tenancy will be created. Moving staff between rooms, organising cleaning centrally and the school retaining spare keys to the rooms may indicate that the arrangement is a licence, but other factors such as payment of rent (which is not a requirement of a tenancy, but is indicative of one) may point towards a tenancy.
2. Service occupancy agreement: this is a particular type of licence where, even although the occupier may have de facto exclusive possession because additional criteria are fulfilled, it is still deemed to be a licence. Those additional criteria are that there must be both an express term in the employment contract that an employee must live in the property for the better performance of their duties, and it must also genuinely be the case that the required occupation enables the employee better to perform those duties, ie it is not a sham. A true service occupancy will terminate immediately upon termination of the employment. Where a house master is required to live in or adjacent to a boarding house, for example, this is likely to satisfy the service occupancy test. Where, however, it is merely convenient but not essential for a teacher to live near the school, the arrangement is more likely to be a tenancy.

When is a tenancy not an assured tenancy?   

Even where a licence turns out to be a tenancy, all may not be lost. So called ‘common law tenancies’ sit outside the Housing Act and are, therefore, not caught by the Bill. There are various reasons arrangements fall outside the Housing Act, but commonly it is because little or no rent is charged. The minimum rent thresholds for a tenancy to be protected by the Housing Act are £250 per annum outside London and £1,000 per annum inside London. Applying that to the situations above, even if it turns out the occupier has a tenancy (either because the service occupancy test is failed, or because they have exclusive possession) where they are not paying rent, the tenancy will still fall outside the Housing Act and the Bill will not apply. It follows that where a school is uncertain whether an occupation will qualify as a service occupancy or licence, an added “safety measure” would be not to charge rent.  Remember though that a deduction from salary in lieu of rent, is likely to be construed in the same way as rent paid directly.

The big risk for schools is that what you think is a licence is in fact a tenancy protected by the Housing Act and the school is stuck with a tenant in occupation. At present, schools can fall back on using the section 21 procedure to obtain possession, but this will change when the Bill becomes law.

How can you get possession under the Bill?

The Bill’s newly extended grounds for possession include new, mandatory ground 5C. This provides that where the dwelling was let as a result of the tenant’s employment by the landlord and the employment has come to an end (or the tenancy was not meant to last the duration of the employment and another employee now needs it) the landlord can regain possession on two months’ notice. Although it is a mandatory ground (the court must order possession where it is made out) unlike section 21 the tenant can still challenge the ground and if they refuse to go, full possession proceedings will be required. Especially where there are safeguarding issues, the delay caused by court proceedings in what is already an overstretched system could be deeply problematic.

Know your why

Although it is still only draft legislation, the scope of the Bill and the future trajectory of the private rented sector is becoming clear – tighter regulation and increased rights for tenants. In addition to tenancy reform, the second half of the Bill seeks to reform the private rented sector generally (and applies to more than just Housing Act tenancies): it introduces an ombudsman, an online database of landlords and properties and significantly extends tenants’ rights regarding decent home standards and hazards like damp and mould. The Bill rightly aims to protect tenants against unscrupulous landlords, but it will substantially increase the burden on all landlords. 

In advance of the Bill coming into force, therefore, schools would be well advised to review their staff occupations now, bearing in mind the risks outlined above. More fundamentally, they might also ask themselves what strategic purpose their residential properties serve. Are they a valuable source of additional income, let on the open market, on commercial terms to third parties? If so, it might be worth the time and effort of complying with the additional new regulatory burden, but only if the numbers stack up. Where, on the other hand, they are used purely to accommodate staff on a non-commercial basis, it will be crucial to ensure the arrangements are properly constituted service occupancy agreements or licences and that any changes needed to achieve that (such as stopping paying rent) are made now, to ensure that they evade the scope of the Bill and all that entails.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.