Service occupancy

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 the employee’s duties. A service occupancy gives the employee a personal licence to occupy the property for so long as the employee is employed by the employer. 

The key characteristics of a service occupancy are:

• 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 
• The service occupancy terminates automatically when the employment contract ends 

Under a service occupancy agreement, the employee occupies the property as a licensee, even if they have exclusive possession of the property.  A service occupier cannot be a tenant. 

Connection between employment and occupation

For a service occupancy to exist there must be a strong connection between the employee’s occupation of the property and the performance of their duties. For this connection to exist, one of the following must apply:

• The occupation is essential for the performance of the employee’s duties.
• The employment contract expressly requires the employee to live at the property for the better performance of the employee’s duties, even though it may not be essential. 

The test applied by the courts is whether the employee’s occupation is of “material assistance” to the employee in carrying out their duties. 

An employee who occupies a property before the start of employment may still be a service occupier.  However, there must be a sufficient factual link between the occupation of the property and the employment which would benefit from that occupation. 

The service occupancy arrangement could also be affected if the employee’s duties change during their employment. 

A service occupier is distinct from an employee who is permitted to live in a property owned by their employer as part of the employee’s remuneration package. 
Service occupancies do not benefit from statutory security of tenure because they are licences rather than tenancies. 

Termination of a service occupancy

A service occupancy agreement terminates automatically when the employment contract ends, usually without the need for a notice to quit. 

It is also possible for the service occupancy agreement to contain express terms requiring a notice to quit to be provided. However, the notice to quit requirements outlined in section 5 of the Protection from Eviction Act 1977 (the PEA 1977) will not apply. 

The service occupancy agreement will also terminate where an employee is dismissed in breach of contract.

If the employee does not voluntarily leave the property at the end of their employment term, an eviction order via a Court would be required. 

If the service occupancy was granted by a local authority, and there are possession proceedings, it is open to the occupant to raise defences based on public law duties of local authorities.  Where the party seeking possession of residential property is a local authority or other public authority, an occupier can raise the question of whether it is proportionate to make an order for possession based on Article 8 of the European Convention on Human Rights. 

Service tenancy

A service tenancy may arise where an employee lives in accommodation provided by their employer, but their occupation is not so closely connected with their employment as to create a service occupancy. 

A service tenancy may be granted in return for an employee’s services, with no rent payable.  There is no difference between a service tenancy and an ordinary tenancy, aside from the fact that the employer is the landlord, and the employee is the tenant. 

Unlike a service occupancy, a tenancy gives the employee an interest in the property, not just a licence to occupy it. A tenancy will only exist if the employee has exclusive possession of the property.  In addition, the tenancy does not end automatically when the employment terminates, so the employer would need to follow the appropriate procedures to gain possession depending on the type of tenancy. The type of tenancy the employee has will depend on whether the landlord/employer is a public or private entity. 

If the employer is a private landlord, then the employee may be able to argue that they have protection and will potentially benefit from residential security of tenure under the Housing Act 1988 (the HA 1988) as an assured tenancy. 

If the service tenancy is not an assured tenancy, or an assured shorthold tenancy (for example, if no rent is paid or the level of rent paid is below the minimum threshold under the HA 1988), the tenant’s occupation is likely to be as a common law tenant. Their interest will still need to be terminated in accordance with the tenancy agreement, or by way of an appropriate notice to quit if it is a periodic tenancy, and in compliance with the requirements under the PEA 1977. 

If an employer is a public landlord, the employee is more likely to be able to argue that they have a secure tenancy. For example, in the case of Hughes v Greenwich LBC 26 HLR 99, a head-teacher lived rent-free on a property next to a school where he taught. His employment contract did not require him to live on the property. His work at the school was made easier by his proximity to it, but it was not essential that he lived next to the school to carry out his duties. The head-teacher was recognised as a secure tenant. 

If the employee does not have exclusive possession, because for example they share the property with other employees, and it is not a service occupier, then it is likely that they will be a licensee.