Friday, 19th April 2024Property Management Agreements – The Application of TUPE
Whilst it is relatively common knowledge that the Transfer of Undertaking (Protection of Employment) Regulations (“TUPE”) apply to the sale of a business as a going concern, TUPE also applies to service provision changes. TUPE will transfer employees “wholly or mainly engaged” in the provision of the services and preserves their terms and conditions of employment.
In relation to property management this can present unique challenges for those practicing and working in this area which we will summarise below.
Change of managing agent
When there is a change in the managing agent of a property, the employment terms and benefits which had been provided to the staff by the incumbent managing agent will often be at odds with those typically provided by the incoming agent to their existing workforce. This can mean that the managing agent is engaging staff working under a variety of different terms. This can be commercially unattractive and administratively burdensome.
Furthermore, the incoming managing agent may be unable to replicate certain benefits that it is required to (for example if it is a different type of corporate body), even though these benefits are in theory preserved by virtue of TUPE.
For example, the employee may have the benefit of an employee share scheme but the incoming agent is not a company, and therefore does not have shares to offer. To replicate this benefit, it may need to look at “buying out” the right from the affected employees. The value of any right may be very difficult to quantify, require specialist advice, and may not have been anticipated when the tender was submitted at the outset.
Change of client with change of property manager
The cases of McCarrick v Hunter [2012 EWCA Civ 1399] and Taurus v Crofts [UKEAT/0024/12] established the principle that where there is a simultaneous change of ‘client’ and incoming service provider/managing agent, then TUPE will not apply. In relation to property transactions this means that if a property is sold and the new owner simultaneously changes managing agents, then the site-based staff who work at the property will not necessarily transfer under TUPE. It is important to note that this does not affect circumstances where a property is owned by a corporate body and there is a sale of shares in that body. In such circumstances the owner or client remains the same, albeit with a change in shareholders, and TUPE would not be applicable.
Furthermore, who is the client is a question of fact, as opposed to law and it is important to look to see who is the ‘ultimate’ client. In your typical property management scenario, the ‘client’ would be the owner of the property who would employ a management company or managing agent to manage the same. However, difficulties arise where there are sub-contractors involved, for example, where the managing agent employs cleaners or security staff for the property. These would be deemed as ‘sub-contractors’ and the managing agent would be their ‘client’, with the property owner being the managing agent’s ‘client’ (Jinks v London Borough of Havering [UKEAT/0157/14]).
So, which ‘client’ needs to remain the same for TUPE to apply? Each situation will need to be looked at on its facts but, when considering if TUPE should apply on a property sale, it is important to look beyond the initial client and identify the end client for whom the services provided ultimately benefit.
Who bears the employee risks in a property management agreements?
Whilst certain management costs are usually recoverable through service charges, one of the key issues is which party (the owner, or the managing agent) should bear the risk of claims or disputes, especially any claims which could arise on termination if TUPE does not apply. The provision of appropriate indemnity protection (whatever side you are working for) is therefore crucial.
It is important to note that if TUPE does not apply when there is a change in managing agent, if the outgoing managing agent cannot relocate its staff to other properties it manages, the default position is that is required to cover the costs of redundancy of these staff members (some of whom may have been inherited from an outgoing agent and never have worked elsewhere).
The managing agent can therefore be reluctant to take on such risk if the staff have been inherited from a previous managing agent if appropriate indemnities cannot be obtained, and further, if the fee negotiated does not cover the potential risks. The owner can be reluctant to assume the risk given that they have little control over the managing agent or its staff and feel that staff should not be their responsibility or cost.
An additional challenge can arise given that management agreements can often provide that the client can compel the agent to remove a member of staff from the property. The agent, as the employer, must be mindful of the employment rights of its employees, particularly if the agent considers that the request could result in an unfair or discriminatory dismissal. This results in a tricky challenge of balancing its contractual requirements and the wishes of its client, together with the employment rights of the individuals engaged by it.
Negotiation of Agreements
The above are all factors that come into consideration when negotiating property management agreements. Underwood Solicitors LLP have extensive experience in all aspects of property management agreements, from both the managing agent’s and the landlord’s perspective, and in respect of both residential and commercial properties and portfolios. Please contact Michael McDonnell, William Gubbins, or your usual contact at the firm, if you would like assistance with this.
This article is for general purpose and guidance only and does not constitute legal advice. It should not replace legal advice tailored to your specific circumstances.
