PMAs and AMAs are, essentially, outsourcing agreements. Typically, the owner of the property will appoint the property manager and/or asset manager, and those service providers will employ staff to manage the property. Some of those employees will be on-site and dedicated to the property in question. Others will be office-based and may work across several different clients and properties.
Service provision change TUPE transfer
On commencement or termination of a PMA or AMA, there is the potential for the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) to apply. Although there are two potential triggers for the application of TUPE, a "service provision change" TUPE transfer is often the most likely in this context. For such a transfer to apply, the following conditions must be met:
- There must be an organised grouping of employees who are directly involved in the delivery of services to the client, rather than other aspects of the service provider's business.
- The principal purpose of that organised grouping of employees must be to carry out activities on behalf of the client.
- Fundamentally the same activities must be carried out by the new provider following the changeover.
- The client must remain the same.
- The activities being carried out by the new provider following the changeover must not be a single specific event or task of short-term duration.
If the above test is satisfied, those employees of the outgoing provider (which may be the client itself in the context of a first generation outsourcing of the services) who are assigned to the organised grouping of employees will be in-scope to TUPE transfer to the new provider following the changeover.
What is the key impact of TUPE applying?
If TUPE applies, the key consequences are as follows:
- There are information and consultation obligations on the existing employer (transferor) and the new employer (transferee).
- Liabilities under or in connection with the contracts of employment of the transferring employees will transfer to the transferee. This is wide ranging and would include, for example, discrimination claims and unlawful deduction from wages claims.
- Dismissals (where the sole or principal reason is the TUPE transfer) will be automatically unfair, if the dismissed employee has two years or more of service.
- There are significant restrictions on changing terms and conditions of employment.
Sale of a Propco
Where a Propco is sold, the existing PMA/AMA may not be terminated. In those circumstances the status quo remains. However, if the purchaser (i.e. the new owner of the Propco) terminates the PMA/AMA, that may trigger a "service provision change" TUPE transfer.
Sale of property
The position will be different where there is a change of the property manager and/or asset manager in the context of a sale of the property. In such circumstances, the "client" for the purposes of the property/asset management services (i.e. the property owner) will change and this will prevent the application of a "service provision change" TUPE transfer.
However, a change of owner will not necessarily mean that TUPE will not apply. There may still be a "traditional" TUPE transfer. For such a transfer to take place, the services must amount to an economic entity and that economic entity must retain its identity following the change of providers. This is a more difficult test to satisfy, but there can still be a TUPE transfer where there is a change of client.
TUPE protections in a PMA or AMA
Given the application of TUPE in this context, it is important that its impact is addressed in PMAs and AMAs. The generally accepted position is that each property manager and/or asset manager will be responsible for any employment liabilities that arise during the term of their PMA/AMA and they will provide indemnity protection to the owner and any replacement property/asset manager in respect of such contingent liabilities.
The above involves ensuring that indemnities are, so far as is possible, aligned between outgoing and incoming property/asset managers so that reciprocity is achieved. Where an alignment cannot be reached, it will be necessary to carry out a gap analysis to establish the extent of any contingent liabilities and the parties will need to agree who bears that liability. If agreement cannot be achieved, the risk may be reflected in the contract price.
Typically, PMAs and AMAs will also include a raft of other employment-related provisions which are designed to ensure that the correct employees TUPE transfer on termination of the agreement and adequate information is provided in relation to those transferring employees.
Whilst TUPE is only a small aspect of a PMA/AMA, it should not be overlooked, and it often requires significant drafting and negotiation.