The Renting Homes (Wales) Act 2016 (the “Act”) and Service Occupancy Agreements

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What was the position in Wales pre-1 December 2022?

Service occupancy agreements were either licences or tenancies that were linked to an individual’s employment. If residing in specific premises was essential for the better performance of the employee’s duties, then the occupation would often be governed by a licence agreement.

A licence is easy to terminate as it falls outside the majority of housing legislation. An employer could easily terminate the agreement if they required the accommodation back (subject to any provisions in the employment contract or any relevant implied terms) or if the employment was terminated.

If the occupation was not essential and was being offered as an optional arrangement for the employee, then the occupation was most likely a tenancy agreement. However, each situation is fact specific and even then, the relationship may still have been governed by a licence.

To terminate a tenancy agreement, employers could serve a ‘Section 8 notice’ when the employment was terminated so that the tenancy would end on 2 weeks’ notice.but for service occupancies in Wales, this all changed on 1 December 2022.

What is the position in Wales from 1 December 2022?

Going forward, individuals who receive accommodation as part of their employment (a service occupancy) are likely to fall under the Act’s provisions and benefit from the protection of an occupation contract rather than a simple licence.

To be an occupation contract, and caught by the Act, there must be rent or ‘other consideration’. As the Act is in its infancy, the term ‘other consideration’ has not been tested. Service occupancies may not include a provision for rent to be paid per say, but there may be a reduction in the employee’s wages to allow for the use of accommodation provided by the employer.

We anticipate this will be seen as a form of ‘other consideration’. An employer could consider making no rent payable to escape being caught by the Act – but this may not be attractive to an employer as it will result in them being unable to reduce the wage for their employee and/or or loss of rental income.

I am an employer that provides accommodation to employees, what do I need to do?

Firstly, these are very fact specific relationships, and this Act is novel – therefore you should obtain advice on whether you are caught by the Act.

If you are, there are several steps you may need to take, including:

  • Issuing a written statement of the occupation contract. This must be done by 1 June 2023 for converted contracts (i.e. licences or tenancies already in place as of 1 December 2022) and within 14 days for any new service occupancies entered into from 1 December 2022.
  • The type of contract that will apply will depend on which type of landlord you are. If you are a private landlord, a standard contract will apply. If you are a community landlord a secure contract will apply as standard. However, community landlords who have service occupancies, such as a local authority that employs a school caretaker to live on site, do have the option to serve a notice on the employee to convert the contract from secure to standard. To fall within this exception, the contract-holder must be required by their employment contract to occupy the dwelling. There are substantial benefits of taking this step if it is available to an employer as secure contracts offer heightened security to contract-holders in comparison to standard contracts.
  • Registering with Rent Smart Wales.
  • Providing an EPC, electrical condition report and gas safety certificate.

You will also need to understand the new provisions on repair obligations and compliance with the Fitness for Human Habitation Regulations, or you may fall foul to a disrepair claim by the employee.

Do I have to issue one of the Model Contracts or can I vary the terms?

Yes and no. Our Key Terminology article explains the different types of terms.

In short, there are some terms that are fundamental and can only be removed or modified if they benefit the employee. Other terms are supplemental, which can be removed or amended if they do not compromise the fundamental terms. Finally, there are additional terms, which are further terms negotiated between the parties but cease to have effect if they are incompatible with either a fundamental or supplemental term.

We have been assisting landlords in varying the Model Contracts to tailor them to landlord’s specific situations.

Can I still terminate the occupation contract if an employment contact is terminated?

Yes – but the process will not be as simple as before the Act came into force.

If the occupation contract is for a fixed-term, then an employer cannot serve a no-fault notice with a termination date that is before the end of that fixed-term. An employer could serve a no-fault 2 months’ notice before the end of the fixed-term to expire on the last day of the fixed-term at the earliest.

If the occupation contract is periodic, then the employer can serve a notice to terminate the contract, providing at least 2 months’ notice to the employee. This is an area where the Act makes provision for service occupancies to be treated differently (in a way that benefits employers) than other standard contracts – where 6 months’ notice is required.

Where there has been a breach of an employee’s occupation contract then there are specific procedures to follow to remove a contract-holder, all of which allow for a shorter notice period. Alternatively, an employee may agree to leave if their employment contract is terminated.

This is where varying the Model Contracts will assist employers as there are ways of including additional terms to the effect that termination of the employment or, for example, acts of gross misconduct by the employee could trigger a breach that would allow either a fixed-term or periodic contract to be ended early.

In all cases, new specific procedures and forms must be used to terminate the occupational contracts.

In conclusion

The Act is likely to scare employers – it is a complete overhaul. However, with the correct advice and preparation, there is no reason to be concerned.

Here at Capital Law, we can help landlords and employers adopt the new rules imposed by the Act by advising how best to implement and comply with the new changes. To discuss this further, please get in touch at c.good@capitallaw.co.uk.