The change began as part of a drive by many employers to reduce in-house administration associated with expat management, a trend which accelerated with the outlawing of "tax-free" Employee Benefit Trusts.
However, the feedback we receive from relocation management companies suggests that many employers are still wedded to corporate leases, particularly where the employer is headquartered in the USA. A desire by US employers for global consistency may be coming into play here. If so, we suggest that the benefits of consistency should be weighed against two specific disadvantages of using corporate leases in the UK.
Both disadvantages relate to the fact that UK consumer protection law operates for the benefit of individuals and does not assist businesses. In the context of tenants' rights, this means that two important areas of protection for tenants are lost if the lease is taken in name of a company.
1. Protection of tenant's deposit - Landlords and letting agents are legally obliged to lodge the deposit with an independent deposit protection scheme. Any dispute relating to the return of the deposit is independently adjudicated at no cost to the tenant. This legal protection does not apply to a company lease (nor to a rent above £100,000 per annum). The practical effect is that a corporate tenant is in a weaker negotiating position, unless the corporate tenant has been able to negotiate that no deposit will be paid.
2. Enforceability of an "unfair term" in a lease - Tenancy Agreements fall under a very useful piece of consumer legislation called the Unfair Terms in Consumer Contract Regulations 1999. An example of an "unfair term" in a lease is a clause which states that a tenant may not make a deduction from rent (even where the landlord fails to carry out necessary repairs). Such a clause would be enforceable in a corporate lease, but is likely to be unenforceable in a personal lease.
So there are now legal advantages to a personal lease in the UK, which employers and their relocation advisers should consider when assessing how best to manage expat tenancies.
If you would like advice on tenancy issues, please contact us on the details below.