January 21, 2023
Can a Company Rent a House for an Employee?
Due to the rising cost of property and increased living costs, it’s harder than ever for many people to own a property. As a result, some companies may look to provide accommodation for employees who are working in the area. With this in mind, a common question asked is, can a company rent a house for an employee? UK wide, landlords are keen to rent to professional tenants who are having their rent paid by an employer. So here’s a look at how it all works, and why you might wish to consider it yourself as a landlord.
Can a company rent a house for an employee in the UK?
The short answer to this question is that yes, in most cases, a company can rent a house for an employee in the UK. This is done via a ‘company let agreement’.
The tenancy for a company let, however, is different from a traditional assured shorthold tenancy (AST) where the landlord has a direct agreement with the tenant.
When a landlord enters into an agreement with a company seeking to accommodate its employees, this is known as a non-assured tenancy agreement.
How is a company let different from a standard assured shorthold tenancy?
Via the Housing Act 1988, an AST offers direct protection to individual tenants.
A company let, however, is governed by common law, because an AST can only apply to an individual.
This means that the way in which the landlord can increase rent, reclaim possession of a property and bring a tenancy to an end is different with a company let compared to an AST.
The company let – what are the key differences affecting landlords?
The main differences affecting landlords renting to a company rather than an individual are as follows:
Unlike an AST which offers protection to the tenant with regard to the rate at which rent is charged, with a company let the rental rate is unregulated. This means that once the agreement has been signed, the company cannot challenge the rental rate and claim it is too high.
If the landlord wishes to increase the rent, they can either include a rent review clause in the agreement, or seek to agree a new rental rate by drawing up a fresh tenancy agreement.
Unlike with an AST, under a company let, a landlord cannot serve notice to the occupants to reclaim possession using a Section 8 or Section 21 notice.
They can, however, serve the company with a Notice to Quit, followed by possession proceedings if the desired result is not achieved. This can only be done at the end of the fixed term set out in the agreement, unless there has been a breach of that agreement.
What are the advantages and disadvantages of a company let?
When answering the question “can a company rent a house for an employee UK?” there are several advantages and disadvantages for landlords to consider.
Most company lets tend to be for a longer period than an assured shorthold tenancy, with some lasting as long as 10 years. Landlords can also expect to charge more for company lets.
One downside to a company let is that if the company becomes insolvent, the landlord is unlikely to recover the rent if it hasn’t already been paid. Another disadvantage is that as the landlord, you do not get to choose who physically lives in the property. Any references or checks on individuals become irrelevant, because the tenant is chosen by the company. So in effect, you are at the mercy of their decisions and judgement.
What are the tax implications for companies renting for employees in the UK?
If you’re trying to determine can a company rent a house for an employee UK, it makes sense that you also look carefully at the tax implications too.
Rental payments made by a company are considered a benefit-in-kind, which is subject to tax and National Insurance contributions.
How the benefit is taxed depends upon whether the accommodation is job or non-job related. It also relates to the factors surrounding the accommodation.
There will usually be no charge to tax if:
The job-related accommodation is deemed essential to the performance of the employee’s duties. For example, caretakers who are on call outside of their normal working hours, or agricultural workers living on a farm.
The job-related accommodation ensures that the employee performs their job to a better standard, for example, the manager of a pub or restaurant.
The job-related accommodation is provided because of a threat to the employee’s security due to the nature of their work.
If an employee receives accommodation that does not fit into the above criteria of job-related accommodation, a taxable benefit may need to be calculated. This will take into account how much rent the employer pays, along with the value of the property.
If you’re wondering can a company rent a house for an employee UK, we recommend seeking professional tax advice before you do so.
What are the legal responsibilities of companies renting for employees?
Companies that rent houses for their employees have certain legal responsibilities that they need to fulfil.
Firstly, the company should enter into a formal tenancy agreement, with the landlord outlining the terms and conditions of the lease. The company is responsible for ensuring that the property meets health and safety requirements, and for handling any necessary repairs and maintenance.
The company should also consider the implications of the Equality Act 2010 which prohibits discrimination based on protected characteristics such as age, disability, gender and race. It’s essential to ensure that the selection process for employees who receive housing benefits is fair and unbiased.
Can a company rent a house for an employee UK? Here’s some advice for companies…
If your company is contemplating renting a house for an employee, here are some key points to consider before doing so:
Financial analysis – Conduct a cost / benefit analysis to assess whether renting a property is a financially viable option compared to other compensation or benefit packages. Remember to think about rental costs, taxes and administrative expenses.
Communication – Clearly communicate the terms and conditions of the rental agreement to the employee ensuring their consent and understanding of any financial implications or obligations.
Compliance with laws and regulations – Familiarise yourself with the relevant laws and regulations regarding tenancy agreements, tax obligations and employee benefits, and always seek legal advice to ensure compliance.
Also be aware that company lets tend to be for a longer amount of time than when renting to an individual. Sometimes they can last for up to 10 years.
Whilst landlords enjoy the convenience and peace of mind of longer-term lets, there remains the risk of the company going bankrupt. To overcome this, the company usually has to endure stringent referencing checks to prove their solvency. For this reason, it is common practice for landlords to ask the business directors to act as personal guarantors to the property, so that if a company does goes bankrupt, the directors are personally liable for any outstanding rent. Of course, stringent credit checks will need to be carried out on the directors if they are to be guarantors.
What are the alternatives for companies looking to rent a property for employees?
Can a company rent a house for an employee UK? Whilst renting a property for an employee may seem like an attractive option to retain or relocate an employee, there are alternatives that are worth considering:
Offering employees an allowance – Instead of renting a property, businesses can provide a form of allowance that allows employees to choose their own accommodation. This provides flexibility and empowers employees to find a home that matches their own needs.
Company-owned housing – Some businesses opt to purchase a property instead of renting. They can then offer this to employees as temporary or permanent housing. This option gives greater control and flexibility in managing accommodation needs for the long term.
How are future trends for companies renting to employees shaping up?
With house prices remaining high, an uneven supply of rental properties available and energy and food prices still at an alarming level, employees continue to feel the squeeze on their income, and it looks likely that employers will need to continue to support their workforce in the immediate future.
Working from home and hybrid working have soared since the pandemic, which may mean that some businesses end up reducing their office or real estate space. However, for companies where offices or a shared place of work remain essential, employers are increasingly likely to show more of a commitment to attracting and retaining the right type of employee. This could mean more renting or purchasing of property for employees, offering an allowance for living expenses or funding travel expenses, as employees accept a longer form of commute.
We may even reach a point in the future where employers work proactively with developers on build-to-rent schemes which house their own employees.
What are the alternatives to a company let for landlords looking for peace of mind?
Whilst a company let may seem appealing, as you get a longer term let which generally means less void periods and marketing costs, and you can also charge a higher rental rate, the downsides really must be considered, especially in respect of a lack of control over repossession should you wish to bring the tenancy agreement to an end early.
An alternative for landlords seeking peace of mind is a guaranteed rent scheme. This involves renting your property to local authority tenants via a property management company that guarantees your rental payments for a set period, usually three to seven years, and that also takes full responsibility for managing the tenancy and the property on your behalf.
City Borough Housing is a guaranteed rent company for landlords in London and parts of Kent and Surrey. Property management, everyday repairs and maintenance, quarterly property inspections and a guarantee that your property will be returned to you in its pre-let condition at the end of the agreement, allowing for fair wear and tear, are all part of the scheme, which is designed to save landlords both time, and money, as well as provide valuable peace of mind.
To learn whether our guaranteed rent scheme could benefit you as a landlord, please get in touch with our helpful team. Why not request your free rental valuation today?