Employee housing as a form of remuneration causes problems when employment ends
"Forty years ago, we allowed one of our production staff to occupy a house belonging to the company. He pays us an extremely low rent for it. We don’t have a separate written tenancy agreement with him. Being able to rent the house for a minimal amount forms part of the terms and conditions of his employment, as an employee benefit. Recently we terminated his employment contract. Now we’re wondering whether we can say he has to vacate the property at the same time."
There are still a number of positions that have the privilege of being accompanied by the use of a house owned by the employer. Examples include security guard, branch manager, park ranger, janitor and vicar. In addition, these days it is no longer common but companies used to have housing built for their employees and allow them to live there for a low rent. This is reflected in the provisions of Article 7:617 of the Dutch Civil Code, which states that “the use of housing and the lighting and heating of the same” is an acceptable method of remuneration for work.
However, this form of remuneration can cause complex legal problems if the employment relationship is terminated. In such situations, the question arises of whether the use of employee housing can automatically be regarded as having terminated as well. Bitterly contested cases on this issue have gone all the way to the Dutch Supreme Court in the past. On the one hand, the employer has an interest in being able to make the property available to another employee or receive a market rent as return on the investment. On the other hand, the employee in question may have an interest in invoking statutory rent protection. In this type of situation, lawyers call this a ‘mixed agreement’. In other words, the employment contract and the tenancy agreement (which is not generally in writing) are mixed together.
From a legal perspective, the decisive factor is whether the housing that has been made available is “proper” or “improper”. Employee housing can be said to be “proper” if residing there “forms part of the employee’s obligations arising from his employment”. Consider, for example, the park ranger, branch manager, janitor and vicar referred to earlier. In this context, it is not a requirement that residing in the housing provided is “essential” for the employee to perform his duties well. It is sufficient if residing in the housing provided contributes to the employee performing his duties well. According to the Supreme Court, such proper employee housing does not have the characteristics of a tenancy agreement. In that case, the Supreme Court has held that “given the nature and purpose of a mixed agreement, rent protection is not appropriate”.
By contrast, employee housing that is not necessary for the employee to perform his duties well is referred to in legal terms as improper employee housing. Terminating an employee’s occupation of such housing at the same time as terminating employment will cause a lot more legal difficulties. In this case, an employee whose employment is being terminated by the employer will be entitled to rely on statutory rent protection. You will then have to take account of the additional rules in the Civil Code, in particular the section of the Civil Code on Landlord and Tenant Law, the Rent Act and the general law of property.
Landlord and tenant law is characterised by a significant decree of legal protection for the tenant. The tenancy agreement can only be terminated or amended in a limited number of situations. One of the possibilities for termination is under Article 7:274, paragraph 1(d) of the Civil Code. This allows you to terminate the tenancy agreement if the tenant does not accept a reasonable offer to enter into a new tenancy agreement with respect to the same property, provided that the offer does not constitute any change to the rent or service charges. This option is mainly used in the case of renovations. Your offer is permitted to include an increase in rent, provided that the offer is also reasonable in view of the other circumstances of the case (i.e. improvements to the property). This option has potential to be useful.
Another possibility is for you to argue that you, the landlord, urgently require the property yourself. This option is contained in Article 7:274, paragraph 1(c) of the Civil Code. The court may also regard your wish to make the property available to another employee in accordance with the purpose you have appointed for the property as constituting an urgent requirement for your own use. In that case, the court will evaluate the interests of the parties to decide whether the necessary urgent requirement for own use is sufficiently urgent that you cannot be required to permit the current tenant to enjoy the property any longer. In this context, the matters considered will include the fact that the employment contract has been terminated and the terms on which this took place.
Article 6:258 of the Civil Code provides for the possibility of applying to the court to amend an agreement in the event of unforeseen circumstances. This is also an option. According to the parliamentary history of this legislation, the main decisive factor when relying on this provision is what the assumption of the parties was when entering into the tenancy agreement. You may be able to demonstrate this with interview records showing that the low rent was only offered as a term of the employment and was intended as such.
There have also been cases where courts held that it would be a breach of good faith for the employee concerned to rely on rent protection. The circumstances of the case may mean that it is only possible for termination of the employment relationship by the employer to take place simultaneously with termination of the tenancy agreement. In case law, a breach of good faith was held to exist when a property was rented to the director of a company for considerably below market rent and he had agreed to vacate the property on ceasing to hold his position. A court also held that there was a breach of good faith in the case of an employee who deliberately accepted a position that was far beyond his capabilities and experience, purely with the objective of obtaining housing.
Finally, it is worth considering whether you can revise the rent unilaterally under the Rent Act. The possibilities in a specific case will depend on the current rent, the property size in square metres, the state of repairs, the facilities, the surrounding area and so on, in accordance with the points system applied by the Rent Tribunal. This is the most obvious solution. As a landlord you may also qualify for application of the ‘catch-up rule’. You can obtain more information about this from the Rent Tribunal.
In the case described in the introduction, the first thing you should do is to assess whether your dismissed employee needed the housing to perform his duties well. If that was not the case, a tenancy agreement exists (or an implied agreement at least). You will then need to consider whether there could be good reasons to terminate this tenancy agreement, for example due to an urgent requirement for your own use. If no such reasons for termination exist, you still have the final option of revising the rent to match the market rents of comparable properties.