Property management companies must now consider the Transfer of Undertakings Regulations (TUPE) when tendering for or terminating property management services contracts.
When a property management service is retendered, the staff may transfer to the new service provider under the “service provision change” rules in TUPE (Transfer of Undertakings (Protection of Employment) Regulations 2006). We also know that splitting the services on a retender can sometimes circumvent the effects of TUPE so that staff employed by the original service provider do not transfer. Similarly, when the client’s identity changes following a service provision change, TUPE will not apply. However, what about when a service which is shared by multiple clients (such as separate resident management companies in a large housing complex) is retendered? Does TUPE apply?
A recent case indicates that it may well do. In Ottimo Property Services Limited v Duncan, a property management company, Ottimo, provided its services to various residents’ management companies. Each of those companies operated separate blocks of residential housing at a village complex. The Site Maintenance Manager based in the village was employed by the service provider, Ottimo. When another management company acquired the property management contracts from Ottimo, he lost his job as it was understood that TUPE did not apply.
An employment tribunal said there had been no TUPE transfer because, although TUPE could have applied in relation to each individual management contract with each separate client, the rules did not allow for a number of contracts with different clients to be aggregated together to make one service provision change.
The Employment Appeal Tribunal (EAT) considered that the tribunal had interpreted the TUPE rules too literally; TUPE could apply even if the service to be transferred was provided to a group of clients. This would not be so in every case though – for TUPE to apply, the identity of the clients (i.e. here the residents’ management companies) must remain the same before and after the change. In addition, there must be a “common intention”, on the part of all the clients, that following the service provision change, the activities will be carried out by the transferee. The EAT said this common intention would be easier to establish if there was a single umbrella contract between a group of clients and the service provider, rather than separate contracts, as was the case here. The case is going back to the tribunal to consider the question of common intention and whether TUPE did in fact apply.
What this case means for property managers
This decision has ramifications for property management service providers and the staff employed by them. The case establishes for the first time the general principle that TUPE can apply even where there are a number of clients to whom a service is provided. Now this principle has been established, it will be important for property management services companies to consider TUPE on a case by case basis when tendering for or terminating property management services contracts.
Equally, landlords and investors will need to have TUPE in mind when buying/selling real estate. The Ottimo case suggests that fragmentation of contracts remains a means to increase the prospects of TUPE not applying. However, this will not always align with the commercial efficiency of combining contracts/providers. Therefore, a strategic and holistic approach to each transaction is recommended.