COVID-19: Service Tenancy​

Video four in our informative legal advice series. Norris Ward McKinnon Associate Rob Davies discusses service tenancies. 

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A “service tenancy” means accommodation provided by an employer to an employee as a condition or benefit of employment.  An employee might be in shared accommodation, or may have exclusive use of a service tenancy (for them and/or their family).  The Federated Farmers’ employment agreements include comprehensive provisions regarding service tenancies, including an accommodation checklist. 

On 25 March 2020, the government passed the COVID-19 Response (Urgent Management Measures) Amendment Act, which made a number of changes to the Residential Tenancies Act 1986.  These changes also affect service tenancies, whether or not they are fixed term and/or periodic. 

Key changes include a 6-month rent freeze as well as a 3-month moratorium on ending tenancies.  Significantly, the moratorium on ending tenancies can be extended by the government for a further 3-months if required. 

During any period in which these changes are in force, service tenancies cannot be ended, except in certain circumstances or by agreement.  In particular: 

  • Any notice by a landlord issued on or after 26 March 2020 which purports to end a tenancy or increase rent is of no effect. 
  • Any notice by a tenant issued on or after 26 March 2020 which purports to end a tenancy can be changed by the tenant so that it is of no effect.

Notwithstanding these changes, tenants are still obligated to make reasonable efforts to pay rent, and remain liable to the landlord for any rent arrears. 

So, how can tenancies be ended during the time the government’s changes are in effect? 

  • By agreement – cases where both the landlord-employer and tenant-employee agree to end the tenancy, and where the tenant-employee leaves the tenancy voluntarily; 
  • By order of the Tenancy Tribunal – in cases where the tenant:
    • substantially damages (or threatens to substantially damage) the tenancy; 
    • assaults (or threatens to assault) the landlord, their family, or the neighbours; 
    • abandons the property; 
    • engages in antisocial behaviour (i.e., harasses others, commits any intentional act that reasonably causes significant alarm, distress, or nuisance); 
    • is 60 days (or more) behind in rent (although the Tenancy Tribunal will still take account of whether the tenant is making reasonable efforts to pay rent, which could be influenced by the fact the tenant is either unemployed or is receiving less income than previously).   

All of the circumstances identified above require an order of the Tenancy Tribunal, meaning a landlord must make an application to the tribunal to end the tenancy.  The Tenancy Tribunal is hearing many of these applications “on the papers” (i.e., without a hearing), but landlords need to factor this additional step (and the time it will likely require) into their decision-making.

These changes will obviously impact employers who require service tenancies for their essential employees because of a change in season, or because of other factors, like the conclusion of a disciplinary process (that results in an employee’s dismissal) or a change process (that results in an employee’s role being disestablished).  While these processes can still take place (so an employee’s employment can still be ended where the process was fair and the justification was fair and reasonable), they will no longer serve to automatically end a service tenancy as they once may have. 

The penalties for breaching these changes could be significant – including awards of exemplary damages up to $6,500. 

So, what do we recommend given these changes? 

  • Communication is essential – if a landlord and tenant can agree on ending a tenancy, the process is largely unchanged.  If agreement cannot be reached, the tenant may be able to remain in the tenancy, irrespective of the kind of tenancy (fixed term or periodic). 
  • Employers should take these changes to ending service tenancies into account before commencing a disciplinary or change process.  The changes themselves shouldn’t affect the outcome of either process, but there will be practical implications if a tenant’s employment is ended that the employer needs to be aware of.  Importantly, employers should avoid delaying commencing these processes because of the moratorium, as there is still an obligation to remain responsive and communicative with employees (i.e., raising any concerns about their conduct promptly). 

We note the Government will review the moratorium on ending tenancies in late June 2020 – and the moratorium could be extended for a further three months (i.e., until 26 September 2020) at this time.