Avoid employee leases in exchange of labor

workWhy it’s unwise to house an employee in return for services

There’s a story making the rounds on the news about a nanny in Upland, California who, despite the fact that she failed to perform agreed upon nanny services, has refused to vacate the home she moved into in return for her services.  The story even indicates that her “former employers” have tried to evict her in court without success.  Now, the family is living a nightmare with their children locked in their rooms at night for safety reasons.  I have always cautioned my landlord clients against a “work-in-exchange-for-a-room” situation.  This is one area where work life and home life should not be mixed.  Why?

Quite simply, because of the complications created by the multiple relationships: landlord-tenant and employer-employee.  Things get too muddy.  Many landlords will allow a tenant to occupy a property “for free” or “in exchange for labor”.  This happens when a landlord installs an on-site manager or someone who will perform maintenance or rehab/remodeling work on the rental property.  At the beginning of the process, everything seems simple and the relationship is easy.  The trouble begins when the tenant/employee begins to fail at the job.

In most “work-for-room” situations, the real problem is documentation… or lack of documentation.  In most cases, there is no written lease or employment agreement or if there is an agreement, it is woefully insufficient.  Rarely have I seen a landlord do a good job defining the tenant’s work duties and the repercussions for the tenant’s failure to perform.  As I mentioned, in most cases, there is no contract at all.  Good luck proving what the deal was in front of a judge!  In the “disaster” scenario, what happens next?  Well, like clockwork, the tenant then stops doing the work, stops doing as much work, does the work wrong, or never even starts to do the work.  This becomes a proof problem.  Facts, facts, and more facts become the focus of the case.  Problems crop up: we need to prove what the agreement was, what work wasn’t being done, and that the lease was breached by that failure.

What kind of notice (5 day?, 10 day?, 30 day?) should a landlord use in such a circumstance?  Well, that depends on the lease.  Was an amount of rent specified?  Was there just work to be performed?  What if the work to be performed was loosely defined or non-specific, like “maintenance”?  You can probably see where i am going with this.  And, even if the landlord goes one way with a notice, an employee-tenant seeing and explaining the facts differently could thwart the case if the “wrong” notice is chosen.

So, what could help solve this problem?  Don’t mix home and work.  When a landlord wants to hire a tenant to do work, there should be a clear delineation of the landlord-tenant relationship and the employer-employee relationship.  A smart landlord would probably set up a separate lease and a separate employment contract.  That same smart landlord might consider the wisdom of actually paying the tenant directly for the tenant’s work and letting the tenant pay the landlord for the rent.

The two relationships become a lot easier to manage when separated.  Now, if the work is not done around the property, the landlord might withhold payment.  If the tenant fails to pay rent, a five day notice can be issued.  The employment issues and the rent are no longer inter-mingled.  When the landlord wants to evict for, say, nonpayment, the landlord’s case is streamlined.  When the landlord wants to “fire” the tenant from the job, the landlord’s case is streamlined.

This is not to say that those folks in California could get a tenant out any sooner – they would still have to go through the eviction process and the courts, however, they would have eliminated a major bit of confusion from the case.  Proper planning early on is the key to a successful tenant relationship with an employee.