A ‘service tenancy’ is where an Employer provides an Employee with a property to live in during the period of employment. Service tenancies are covered by the Residential Tenancies Act so the standard rules for Landlords and Tenants apply, however there are a couple of distinct differences each party should be aware of.
The Landlord (Employer) must provide the Tenant (Employee) with a written tenancy agreement either as part of, or separate to, the Employment Agreement. This records all the terms and conditions of the tenancy, such as how much the rent is. Even if the Tenant isn’t paying any rent to live in the property, it is still considered a service tenancy and all the rules for Landlords and Tenants apply.
The Landlord can automatically deduct the rent from the Tenant’s pay if:
- The Tenant agrees;
- It is written in the employment agreement; and
- It is in accordance with employment law.
If these requirements are met, the Employer is able to deduct the market value of the accommodation from the Employer’s pay before the Employee receives it. This prevents unnecessary changing of money between the parties, and means that the value of the accommodation forms part of the Employee’s total remuneration.
It is therefore important (for tax purposes and to ensure the Employee is being fairly compensated) to identify the market value of the accommodation.
Market rent is defined as what a willing Landlord might reasonably expect to receive, and a willing Tenant might reasonably expect to pay for the tenancy, in comparison with rent levels for similar type, size and location.
The Employer should undertake regular inspections of the property to ensure it is clean and tidy, and free from damage. The Employer must:
- Give at least 48 hours’ notice before conducting an inspection;
- Inspect between 8am and 7pm; and
- Only inspect once in any 4 week period.
If at the end of the tenancy the property is not left clean and tidy and/or is not free from damage (other than normal wear and tear) the Agreement may allow for the Employer to, after consultation with the Employee, deduct from any money owed to the Employee (including holiday pay) to cover the costs of any cleaning and/or repair needed.
Ending a service tenancy
A service tenancy usually lasts for as long as the Tenant’s employment, and the notice period is often different to other tenancies. For a service tenancy, the Landlord or the Tenant must give at least 14 days’ written notice to end the tenancy if the Tenant’s employment has ended, or a party has given notice to end the Tenant’s employment.
If the Tenant wishes to end the tenancy before their employment ends, they must give the standard notice required for ending a tenancy (at least 21 days’ written notice unless agreed otherwise).
A Landlord cannot end the tenancy before the Tenant’s employment comes to an end, or give less than 14 days’ notice unless the Landlord:
- Believes on reasonable grounds that the Tenant will substantially damage the premises if the Tenant is allowed to remain for 14 days; or
- Needs to have a replacement Employee appointed within less than 14 days and no other suitable accommodation is available for that Employee during that period.
Determining the Market Value: The Department of Building and Housing has helpful information for determining the market value of the accommodation. Additionally, Employers may wish to ask their neighbors in the area to compare rent prices.
Duties of each party: Who is required to pay the power? Can the Employer enter in a case of emergency? Having all of these situations covered in the Employment/Tenancy Agreement will ensure there is no contention over rights and responsibilities in relation to the property.
Does offering a service tenancy suit the particular circumstances? The Employer should consider if it is necessary to provide accommodation. If the Employee already occupies accommodation on the farm, as the partner of an existing employee, it may not be appropriate to offer a separate right of occupation attached to an employment relationship. An example is where one partner is employed as the manager, with the accommodation as part of their remuneration package. The other partner is then employed to do relief work. If the second employment agreement includes the accommodation and the couple separate, both have the right to occupy the accommodation, which could cause problems.
Whilst an Individual Employment Agreement or Tenancy Agreement may just seem like a formality at the commencement of employment, you will be pleased to have done it correctly and in detail if an issue does arise.