Service Tenancies

At a time where many employers and employees are looking for creative and effective solutions to the ongoing worker accommodation issues, particularly within the Queenstown Lakes Region, some may have come across the term or concept known as “Service Tenancy’s”. So, what are they, and could they work for you?

What are service tenancies?

A service tenancy is where an employer provides accommodation for a worker to live in during their period of employment. As the Residential Tenancies Act 1986 (RTA) covers service tenancies, all standard rules apply, except for a couple of differences in relation to rent and ending a service tenancy.

For a service tenancy to apply, the Employer (acting as the Landlord) must provide the Employee (as the Tenant) with a written tenancy agreement. This can either be included in the Tenant’s Employment Agreement or kept separate. We note it is often preferable and clearer if these are kept separate.

How does rent payment work?

The Tenancy Agreement will record all the terms and conditions of the tenancy, such as how much the rent is. As it’s common in a service tenancy for the value of the accommodation to be factored into the overall employment package, it is therefore important for an employer to consider and identify the market value of the accommodation to ensure the employee is correctly compensated.

Given the above, service tenancies have certain rules that allow the landlord to deduct rent directly from the tenant’s pay each week or fortnight, provided:

• The tenant agrees; 

• It is clearly written in the employment contract; and 

• It complies with employment law.

Allowing the landlord to deduct rent directly from the tenant’s pay prevents any unnecessary changing of money between the parties and means that the value of the accommodation forms part of the employee’s total remuneration.

Please note, that if an employee receives accommodation as part of their employment but doesn’t pay any rent to live in the property, it will still be considered a service tenancy and all the rules for landlords and tenants will apply.

How do you end a service tenancy?

Unlike other tenancy types, a service tenancy normally ends when the tenant’s employment ends, or their employment is transferred. Given this, the notice period is often also different to other tenancy types.

Importantly, a landlord can only give notice to end a service tenancy if the tenant’s employment or engagement has ended or is due to end. A notice to end the service tenancy cannot generally take effect before the employment or engagement ends or before the transfer occurs.

Where a tenant’s employment has ended, or a party has given the required notice to end the tenant’s employment, the landlord must give at least 14 days’ written notice to end the tenancy.

In some situations, the landlord can give less than the required 14 days’ notice. These provisions only apply if the tenant’s employment has already ended, or the tenant is transferred with less than 14 days’ notice and 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 

• A replacement employee is hired within less than 14 days and no other suitable accommodation is available for that employee during that period.

In situations where the tenant’s employment is to continue but the tenant wishes to end the tenancy, the tenant must give the standard notice requirement for ending a tenancy, being 28 days’ written notice.

If you are unsure or need any assistance regarding Service Tenancies, please contact one of TODD & WALKER Law’s Employment or Property Team at [email protected] or 03 441 2743.