The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) is often associated with the buying and selling of businesses, assets and goodwill but TUPE can also have significant implications for certain types of commercial property transactions. In practice we frequently see TUPE being overlooked in these kinds of transactions.

TUPE protects the rights of employees on a “relevant transfer” and imposes obligations on employers to inform and, in some cases, consult with representatives of affected employees.

What is a Relevant Transfer?

The official definition of a relevant transfer is where there is “a transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity.”

A business transfer could therefore take place by way of a sale or other disposition, or on the grant or termination of a lease. Many potential transfers fall within the business transfer definition however service provision changes are also covered by TUPE.

When TUPE applies; employees transfer to a new employer with continuous service and terms and conditions of employment preserved. Dismissals that are because of a TUPE transfer are likely to be automatically unfair and there are potential claims and financial sanctions available to employees where the obligations of the legislation have not been complied with.

Commercial property transactions where TUPE can apply include:

The grant, termination or assignment of a new lease

TUPE may apply where a landlord determines a lease (by forfeiture) or exercises a break right or agrees a surrender of a lease with a tenant and either assumes the activities carried on at the property itself or grants a new lease to a new tenant to carry on the same activities at the property.

For example, the owner of a property leases the property to a company operating as a restaurant business. The lease is determined and the landlord grants a new lease to another tenant to run a restaurant business on the premises. Alternatively, the owner of the property may determine the lease and not grant a new lease, but instead assume the activities at the property.

There may even be a transfer of employees where there is a temporary cessation of the undertaking. In a leading case of Landsorganisationen i Danmark v Ny Mølle Kro [1989] IRLR 37, the ECJ found that there was a relevant transfer to a landlord who assumed the business previously operated from the premises by the tenant, although there was a two-month period following termination of the tenant’s lease when there were no staff due to the business being seasonal in nature.

In another leading case, Wood v Caledon Social Club Ltd (Debarred) and another UKEAT/0528/09, the EAT decided that a temporary closure of a bar while the new owner was applying for a premises licence did not prevent there being a TUPE transfer. In both of these cases the closure was temporary and after the change of owner the undertaking retained its identity.

Sale of commercial freehold or leasehold property

TUPE may also apply where the seller is selling commercial freehold or leasehold property as a stand-alone property transaction. The property may be being sold subject to existing leases or with vacant possession.

For example, the seller may be selling a shopping centre or other commercial building where parts of the property are subject to leases or licenses. Alternatively, a seller may be selling a building with vacant possession with a view to future occupation or redevelopment by the buyer.

When considering the sale of commercial freehold or leasehold property, the first question to consider is whether the property is an undertaking that will retain its identity and whether the transaction will therefore fall within the business transfer definition.

For example, will it continue to be run as a shopping centre, hotel or as a serviced office block after the sale? If it is an economic entity which retains its identity, then it is likely that TUPE will apply. If a building is being sold with vacant possession with a view to its redevelopment, then it may not retain its identity after the sale and, if so, TUPE will not apply. It is however a far from black and white area and careful assessment is needed on a case by case basis.

If there is a sale of a commercial property and the seller employs staff directly, the seller will be the transferor and the buyer will be the transferee. The issue can be complicated when any employees working in the property are not employed by the seller of the property, for example if they are employed by a managing agent, a service provider or a tenant.

If you are dealing with a commercial property transaction, it is important to obtain expert employment law advice and assistance on TUPE.

Farleys Solicitors LLP specialise in a commercial employment law & HR for businesses. Advice and support includes TUPE, contracts of employment, staff handbooks, directors service agreements, apprentices, equal pay, recruitment, restructures, disciplinaries, grievances, employee exits, settlement agreements; and Employment Tribunal defence and representation.

If you require any assistance with any of the above please contact Farleys Employment Law & HR team on 0845 287 0939 or contact us by email.