Out with the Old, In with the Old
How Employment Protection Regulations can Affect Landlords.
Imagine for a moment you are a landlord of a block of flats and unhappy with your managing agents. Taking matters in hand, you fire the agents and carefully select a new firm to act for you, confident that your choice will deliver the service you deserve – until, that is, you discover the same people are handling your account! Believe it or not this scenario is possible – thanks to the snappily entitled Transfer of Undertakings (Protection of Employment) Regulations 2006, more commonly known as TUPE.
The application of TUPE is more widespread than one might imagine and, in the context of property, both large and small landlords alike may be caught. Where, for example, a lease provides for the landlord to perform certain services to a building, those services may well be carried out by managing agents. Commonly, a particular individual will be appointed to deal with the building in question and this is where TUPE can bite.
The purpose behind TUPE was quite simple. To ensure that employees' jobs were safe if a business or undertaking (or even part of one) was transferred from one employer to another. Rather than their contracts of employment being terminated on transfer and replaced with fresh contracts with the new employer, the TUPE regulations transfer these automatically, as though their original contracts of employment had been made with the new employer. The consequence of this is to provide continuity of employment for the employee and ensure the rights and obligations created by the contract remain intact. The new employer assumes responsibility for any liabilities relevant to the employee including, where applicable, ongoing unfair dismissal claims or extended maternity/paternity leave.
Fine so far as business transfers go but less than fine when applied (as it does) to service providers. Enter the hapless managing agents we have just met. Aside from the obvious disadvantage of having the same inept individual deal with your affairs, greater inequity can lie in the transfer of employment terms. The freeholder could inherit an agent on a particularly high salary, for example, or one who is provided with a company car. As he is the new employer, responsibility for these costs falls to the freeholder and the intention to reduce outgoings can, frustratingly, lead to the very opposite taking place - increased expenses, and sometimes prohibitively so. Out with the old perhaps but, thanks to the regulations, re-enter the old shortly afterwards.
So what are the solutions in this unfortunate situation? Disappointingly, the regulations cannot be avoided by contract but their effect can be reduced. The first step is to plan ahead. Taking advice from your solicitor on the best questions to raise with a service provider before entering into a contract can prove indispensable. Equally, including well drafted indemnities and warranties in the service contract can protect the freeholder from the very outset and provide a shield from additional costs. In either case, good quality legal advice is critical and can ensure out with the old, means just that!
Article written by Anna Favre
Karen O'Grady, Solicitor
Company & Commercial Practice
email k.ogrady@pglaw.co.uk
tel 020 7591 3341