As many of you know, as AIRINCers we each have our favourite type of data! It may seem a bit geeky and, to an extent it probably is! There are the people who relish the nitty-gritty of COLA, those who love to delve into the nuances of hardship, or plunge into the intricacies of airfare pricing. For me, it’s a toss-up between airfare and housing. I think our approach to expat housing is super cool!
Photo of Colmar, France by the Author
There are other blogs about housing that you can take a look if you want to understand our approach and why I think it is so great. What I want to talk about today, is some of the lesser discussed issues around housing, which can catch you and the unsuspecting assignee off-guard. When I’m doing policy design projects, I always get clients to consider what their stance is, so they can get ahead of any issues and have clearly stated positions before they arise.
Deposits
Putting a down payment as a security for the rental property is common practice in most markets. However, the amounts can vary significantly. In some locations, it is a nominal sum. In others, it can be the equivalent of 3 or more months’ rent. Now, if the company is taking out the lease for the property, you can deal with that, but if the assignee is signing the lease directly, that’s a lot of cash.
At the point of relocation, cash-flow issues can be a significant challenge for assignees. It certainly was when I relocated to Belgium. From a policy perspective it is worth considering how you might help with this.
Most commonly, I see companies provide the employee with an advance to cover the deposit. This is then recouped from the employee’s salary as a deduction over a period of time. The timeframe often varies depending on the size of the deposit. One month’s deposit may be recouped over a 3- or 6 -month period, while a 3 -month deposit may have extended repayment terms of up to 2 years. Beware that in certain jurisdictions this may be seen as an interest free loan and get taxed as a benefit in kind!
Alternatively, the company may pay the deposit and then have the deposit returned to them at the end of the assignment. Deductions from the deposit are usually the employee’s responsibility, so the employee has to make good the balance to the company.
Pre-payment of rent
On top of the security deposit, in some markets the rent must be paid up to one -year in advance. Normally, rent is paid monthly to the employee through payroll so there can be significant cash-flow issues. As an alternative, you might want to have the company pay the landlord directly or pay the full rent to the employee with their first payroll so they can pay it when it is due. The rent might need to be paid before the assignment begins to secure the property, so make sure you know how you’ll arrange for the payments to be made.
Its also tricky if an assignment comes to an early conclusion. If the end of the assignment is at the company’s instigation, the lost rental is generally considered a sunk cost of the assignment. The same is true of rent due during a notice period, which can be anything from a couple of weeks to a year!
What happens if the assignee wants to return home early or resigns? It’s worth having thought this through so you’re not dealing with issues like this in the heat of the moment. In my experience, companies will recoup the cost from the employee through deductions and claw back clauses if the employee resigns. It isn’t always possible, but you’re on much firmer ground to make it happen if your policy clearly sets out the employee’s obligations.
Agent’s fees
The last of my trio of things to plan for is the real estate agent’s fees. When entering a contract, the realtor or estate agent fees can catch assignees off guard. In many locations, it is the landlord’s responsibility to pay these fees. In plenty of locations though, the tenant is liable. In others, the landlord and tenant have to share the cost. AIRINC has this information available for cities worldwide.
For example:
- Accra, Ghana - An agent's fee of 1 month's rent is paid by the tenant.
- Ashgabat, Turkmenistan - An agent's fee of 5 to 6% of the annual rent is paid by the landlord.
- Astana, Kazakhstan - An agent's fee of 1 month's rent is split between the landlord and tenant.
Knowing where the assignee is likely to incur additional costs and preparing for them can greatly improve the assignee experience (or, in fact ensure you don’t inadvertently create a bad assignee experience by not planning for when this occurs).
In most locations, the payment of agent fees is not regulated by government laws or local regulations. In some locations, these fees are open to negotiation either with the agency or with the landlord. It should also be noted that even if the local practice is that landlords are responsible for the payment, if a tenant chooses to work with an agent on their own, to represent their interests, they may be responsible for paying a separate fee to their agent.
Also of note, in some places the party responsible for paying the agent fee shifts depending on market conditions. For example, in NYC during the COVID crisis and immediately after when the market was soft, landlords started paying the agent fees then it shifted back to tenants as the market heated up again.
What does your policy say about real estate agent fees? Does the company cover this cost, or is it the employee’s responsibility? Many policies I see simply don’t say. This ambiguity can lead to confusion, frustration, and negatively impact the assignee's experience.
Conclusion
The fun thing about global mobility is that we live in a complex, nuanced, and ever-changing world. The more you dig, the more there is to uncover. Your policy can’t legislate for every eventuality, but by understanding some of the situations you and your assignees are likely to encounter, you can put in place the guidelines and principles to help you navigate the complexity on a consistent and equitable basis.
