Complex legal obligations
In certain sectors, particularly agriculture, tourism and residential care, it’s common for employers to provide housing to their employees as part of the job. These arrangements are known as ‘service tenancies.’ They can be legally complex due to being dually governed by both employment law and residential tenancy law.
While providing accommodation for employees can support recruitment and retention, it also creates legal obligations that employers must manage carefully. In particular, an employer who provides accommodation becomes a landlord under the Residential Tenancies Act 1986 (RTA), with all the associated duties and liabilities.
What is a ‘service tenancy’?
A service tenancy exists when an employer provides accommodation as part of an employment package. The key legal feature is that the right to occupy the premises is tied to the job – if the employment ends, an employer can give notice to also end the right to stay in the accommodation.
As the RTA applies to service tenancies, employers are subject to the same rules as residential tenancies, including:
- The requirement for a written tenancy agreement
- Obligations around rent, maintenance and quiet enjoyment, and
- Dispute resolution through the Tenancy Tribunal.
Employers as landlords: key obligations
Employers offering accommodation must meet the full legal obligations of residential landlords, including:
- Healthy homes standards: all residential rental properties, including service tenancies, must meet the standards’ requirements around heating, insulation, ventilation, drainage and moisture control
- Tenancy agreements: a written tenancy agreement is mandatory, even when the housing is ‘part of the job.’ The agreement should clearly state:
- That the tenancy is a service tenancy
- The relationship between the tenancy and the employment agreement, and
- The rental value or allowance (even if nil)
There need not be two separate documents: an employment agreement may incorporate the terms of the tenancy agreement, provided the requisite detail above is included.
- Bond lodgment: if a bond is taken, it must be lodged with Tenancy Services within 23 working days after it’s received from the tenant/employee, even if the employer sees the accommodation as part of a broader employment arrangement, and
- Notice periods: termination of a service tenancy must be handled according to section 53B of the RTA. If the employment ends, the landlord (employer) may give 14 days’ notice to vacate. However, this must be done with due process to avoid unlawful eviction claims.
Common pitfalls
Employers sometimes assume that service tenancies are informal or outside standard tenancy rules. This is not the case. Common mistakes include:
- Failing to record the tenancy in writing
- Not meeting healthy homes requirements, exposing employers to fines
- Assuming the tenancy ends automatically with employment termination
- Failing to consider the tax implications of the value of the rental, and
- Charging rent without clearly defining it in the employment or tenancy agreement.
These errors can lead to disputes before the Tenancy Tribunal, with potential penalties for unlawful eviction, unlawful entry or breaches of maintenance obligations.
Employment relationship risks
As the accommodation is tied to employment, disputes can straddle two legal regimes: employment law and tenancy law. For instance, if an employee is dismissed and then evicted from their home they may challenge both the dismissal and the tenancy termination. However, while they can overlap in practice, the legal jurisdictions remain entirely separate and legal disputes can only be pursued in the relevant jurisdiction. For example, an employee cannot raise an issue with the compliance of healthy homes standards as part of a personal grievance claim in the Employment Relations Authority for unjustified disadvantage.[1]
Careful drafting is essential. Either the employment agreement needs to fully encompass the terms of the tenancy, or a standalone tenancy agreement also needs to be prepared.
Best practice for employers
- Clearly link the accommodation to the employment but avoid automatic termination clauses that breach tenancy law
- Ensure housing meets healthy homes standards, even if the employee is not paying rent, and
- Talk with us before terminating the tenancy, especially if the employment ends in contentious circumstances.
Real benefits but be careful
Providing accommodation as part of an employment package can offer real benefits – but only if managed correctly. Employers must wear two hats: one as an employer and the other as a landlord.
Understanding and fulfilling their obligations under the RTA, as well as employment laws and regulations, is essential to avoid costly legal disputes and to ensure that employees are treated fairly and lawfully.
If you’re providing housing to staff, we recommend reviewing your tenancy and employment documents to ensure they’re up to date and legally compliant.
[1] Unjustified disadvantage is where an employer takes actions that negatively impact an employee’s working conditions, or ability to do their job, without a reasonable or justifiable reason.
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Copyright, NZ LAW Limited, 2022. Editor: Adrienne Olsen. E-mail: [email protected]. Ph: 029 286 3650
