Providing housing accommodation to employees either free of rent or on subsidized rent under the contract of employment or under any law applicable to the establishment creates an additional relationship of landlord and tenant between the employer and the employee. Therefore, in a situation like the one described in your post, the employer has all the rights of a landlord to take back the possession of the property after the expiry of the contract of employment between them.
It is to be borne in mind that the employer should not withhold the disbursement of the terminal benefits, if any for this reason.
Whether you have raised the query to avoid the problems arising out of overstay of the employee at the company-provided accommodation or you are facing this problem is not understood. However, if you wish to avoid the problem of overstay on cessation of employer-employee relationship or to protect the interest of the employer in case if there is overstay by him or his kith and kin, then you need to obtain application from the employee for the allotment of housing property. On receipt of the application you can issue the letter to the employee in order to intimate the terms and conditions of the occupation and under what circumstances the property needs to be vacated either by him or his kith and kin, in case of the death of the employee.
Nothing wrong to enter into proper legal agreement with the employee. Documentation that is legally valid, obviously helps to protect the interest of the employer.
Whilst completely agreeing with the learned seniors here, I would propose to take necessary steps of drafting a common agreement of all such employees/employee in future to avoid legal complications.
And when HR takes through the induction of company rules let him make aware of these points because employer is providing the facility and the guardian of the property is employer himself.
We are well aware of issues related to such a situation.
In case , the occupants do not vacate after due date and due notice, the only option is to go to court and courts are not famous /known to settle such cases at fast pace.
It may take years to get a verdict.
Precautions that can be taken are-
Registered lease deed with hefty security deposit.
Clause of penalty rate rent after date of vacation.
And hope for best.
Am aware of few cases where friends have suffered when they have rented out flats.
It is also advisable to facilitate the employee directly renting accommodation and employer reimbursing the rent amount to the employee.
You can follow the strategy as under:
1. I presume that you may be charging subsidised license fee, increase that to match the market rent of the property.
2. Start charging market rate on electricity & water also.
3. In the Indian Companies Act 1956 there is a provision in Section 630 to get the Company property illegally occupied vacated. Contact some advocate and file a case. I the case is filed in the criminal court.