An attractive tool for recruiting and retaining employees
In recent years, housing shortages and high rents have motivated companies to increasingly offer employee accommodation as a means of enhancing the company’s attractiveness as an employer among current and potential employees. This not only saves applicants the expensive and time-consuming search for a suitable place to live but also reduces the risk if the employment relationship ends after the probationary period. Employees often have to pay comparatively less than the local rent and some companies even go so far as to pay the entire rent. Eliminating the time wasted commuting to work enables employees to achieve a better work-life balance. In turn, this increases their motivation and satisfaction. Large companies are not the only enterprises investing in rental real estate for employees. Family businesses in the hotel and catering industry with seasonal staff are another example. Employers need to establish the right legal and tax-related framework to establish this as a successful model.
1. Company rental or company service accommodation?
Two models exist, each with different legal consequences for the lease and the employment contract.
- According to § 576 German Civil Code (BGB), the company rental apartment is rented out “in view of the existence of employment relationship”. In this case, the employment and rental contracts exist separately, ensuring flexibility: The continuation of the lease does not depend on that of the employment relationship. Both agreements can be terminated independently of each other and the tenancy law provisions of the German Civil Code (BGB) apply regarding the use of the living space. However, if desired, the ordinary termination of the lease can also be excluded for as long as the employee works for the company. If the employment relationship ends, § 576 (1) of the German Civil Code (BGB) permits the landlord to terminate the lease with shorter notice periods if they need the apartment for another employee. It is irrelevant whether the employer or a third party acting on behalf of the employer is the lessor. The works council has a right of co-determination when allocating and terminating company rental accommodation.
The local courts are responsible for disputes relating to company rental accommodation (German Federal Labor Court, decision dated November 2, 1999, Ref. 5 AZR 18/99). - The company service accommodation is provided in accordance with § 576 b of the German Civil Code (BGB) “in view of the existence of a service relationship”. The agreement regarding the provision of the company service accommodation becomes an integral part of the employment contract. This means that labor law is predominantly decisive. Accordingly, the labor courts also have to be involved in the event of a dispute. In most cases, the apartment represents part of the compensation and serves to enable the employee to better fulfill their work obligations. Examples include caretakers, gatekeepers, security guards, or agricultural workers. The employee loses their entitlement to the accommodation as soon as the employment relationship ends. Explicit termination of the lease is not necessary and the employee is obliged to vacate the accommodation. However, exceptions apply if the employees have largely furnished the accommodation themselves or if they live there with their family. A provision governing the employee’s retirement is also essential.
As long as the employment contract continues, employment law applies to the termination of the use of the accommodation: Employers can either make the provision of the accommodation conditional in the employment contract or limit it for the specific purpose: As a consequence, the entitlement to the accommodation expires as soon as the employee no longer holds a specific job (Hamm State Labor Court, decision dated June 11, 2012 Ref. 17 Sa 1100/11). The employer may reserve the right of revocation in the contract. However, exercising this right requires an objective reason and must comply with the principle of reasonable discretion (State Labor Court, decision dated March 04, 2008, Ref. 11 Sa 582/07).
In principle, the works council does not have any right of co-determination regarding the provision of company accommodation. However, according to § 87 (1) No. 10 of the Works Constitution Act (BetrVG), this does not apply to the determination of the remuneration for the company accommodation. The labor courts are exclusively responsible for disputes arising in connection with a company apartment.
2. Essential for employers: the option of terminating the lease
Whether a company rental or company service apartment – both models serve to increase the employer’s attractiveness. This distinction is especially important with regard to the options for terminating the lease. As a rule, companies primarily aim to ensure that the apartment is used by current and not former employees.
§ 576 (1) No. 2 of the German Civil Code (BGB) allows employers who prefer the company rental accommodation model to require the employee to use the accommodation: Accordingly, a functional relationship can be agreed if the job requires the employee to live near the company.
3. The details make the difference
The deciding criterion when distinguishing between a company rental or company service apartment is not how it is named in the contract but rather how the parties to the employment contract are dealt with.
The functional connection between the provision of the accommodation and the employment relationship implies company service accommodation. One particular indication thereof is that the employee does not pay or only pays a small amount for the use of the accommodation. Or that the employer is contractually obliged to move into the accommodation.
In the case of company rental accommodation, the rental and employment relationships are governed by two separate contracts.
4. Tax benefits exist since 2020 – check existing contracts!
The Annual Tax Act 2020 provided significant tax-related improvements: Whereas cost-reduced company accommodation previously had to be taxed as a non-cash benefit for the most part and required social insurance contributions, financial relief is now available subject to two conditions:
- The employer demands at least two-thirds of the typical local rent and
- the price per square meter does not exceed 25 euros.
5. Integrated approach including legal and tax aspects
However, it pays to be careful: The amount of rent also plays a role if employers intend to tax deduct the acquisition costs for a employee accommodation. As a consequence, offering employee accommodation requires an integrated legal and tax concept which addresses issues such as: Is it more advantageous to include the accommodation as company property or as the employer’s personal property? Can problems arise due to business succession or in the event of insolvency?
Given the housing shortage in Germany, employee accommodation undoubtedly increases a company’s attractiveness as an employer, especially with the improved tax conditions. However, employers need to review the employee accommodation leases on a regular basis. Do the leases still fulfill the comparative local rent conditions to receive tax benefits? When drawing up new contracts, it is essential to ensure that the company rental or company service accommodation provided can be terminated at short notice if an employee leaves the company.
