Service occupancies are a common but often misunderstood arrangement, especially for organisations like charities, schools, care providers and religious institutions that offer housing to employees as part of their job. While convenient in many ways, service occupancies carry significant legal complexity, particularly if the employment relationship ends or changes over time.
What is a service occupancy?
A service occupancy arises when an employee lives in accommodation provided by their employer as a requirement of their job. It is not a tenancy, but a licence to occupy, meaning the employee has no legal interest in the property beyond the continuation of their employment.
Examples include:
- A caretaker lives on a school premises to respond to emergencies or perform after-hours maintenance.
- Live-in domestic staff, such as nannies or housekeepers.
- Religious ministers or clergy required to live in church-owned properties (e.g. vicarages) to serve the parish and conduct services.
To qualify as a true service occupancy, it must be either:
- Essential that the employee live in the accommodation to do their job; or
- A term of the employment contract that the employee resides there to better perform their duties.
It must be a genuine requirement. Tied accommodation provides fewer rights than a tenancy, and employers cannot label an arrangement as a service occupancy purely to avoid statutory tenant protections.
How does a service occupancy differ from an assured shorthold tenancy?
The key difference lies in the nature of the arrangement and the rights that follow. See below for an overview of the differences.
| Service occupancy | Assured shorthold tenancy (AST) | |
| Legal status | Licence tied to employment | Tenancy under the Housing Act 1988 |
| Exclusive possession | Usually yes, but contingent on the job | Yes, independent of employment |
| Termination | Ends automatically with employment | Requires notice (e.g. Section 21 or Section 8) |
| Security of tenure | None beyond employment | Protected by statute |
| Deposit protection | Not required | Legally required under a government scheme |
| Rent and market terms | Typically subsidised or incidental | Often market rent |
An AST gives a level of autonomy and statutory protection that a service occupancy does not. If the courts find that the accommodation is not truly required for the role, or that the employee remains after employment ends with no action by the employer, an AST or periodic tenancy may inadvertently arise, sometimes this is referred to as a “service tenancy”.
How do you terminate a service occupancy agreement?
A true service occupancy ends automatically when the employment ends. If occupation continues post-employment and the employer accepts rent, courts may infer the creation of a tenancy, which could delay recovery and trigger statutory protections.
Why do disputes arise over service occupancy agreements?
Service occupancies often begin informally and are treated as a practical HR solution. Problems typically arise when:
- Employment ends, but the occupant refuses to leave.
- Documentation is vague, with no clear statement that accommodation is tied to the role.
- The employee’s role evolves, making on-site living less obviously necessary, weakening the basis for the arrangement.
- Rent continues to be accepted after employment ends, potentially triggering a periodic tenancy.
Such disputes can lead to lengthy possession proceedings, reputational risk, and unplanned legal expenses, particularly for charities or public-facing organisations.
We regularly draft service occupancy agreements for clients and are well equipped to assist on disputes where occupation continues after employment ends or the arrangement is challenged. If you need support with managing existing arrangements or putting new ones in place, please get in touch.
The material in this article is provided for guidance and general information only and is not intended to constitute legal or other professional advice upon which you should rely. In particular, the information should not be used as a substitute for a full and proper consultation with a suitably qualified professional. Please do contact the Bates Wells team if you require further information.