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Monthly Archives: May 2012
Residential Tenancy Deposit Scheme Changes
On 6 April 2012, section 184 of the Localism Act 2011 came into force. The section amends section 213 to 215 of the Housing Act 2004 and provides the following:
The period in which a landlord must protect a deposit by paying it into a scheme and give prescribed information to the tenant in accordance with the rules of a Tenancy Deposit Scheme has been increased from 14 to 30 days;
A tenant can now apply to court if the landlord fails to protect the deposit within the 30 day period and the landlord cannot obtain a defence to such an action by protecting the deposit late. A tenant can apply to court under these provisions even if the tenancy has ended;
The penalty for failing to comply with the Tenancy Deposit Scheme will be a sum not less than the amount of the deposit and not more than three times the amount. This is instead of the mandatory penalty of three times the deposit that previously existed. In addition the landlord will still have to protect the deposit or refund it.
The changes have been designed to give more force to the scheme by removing the court’s discretion not to penalise landlords for not paying deposits into a suitable deposit scheme within the required period.
Should I stay or should I go? deciding whether to renew commercial leases
As is always the case, lots of commercial leases will be coming to an end in the next 12 to 18 months and landlords are, unsurprisingly in light of the state of the commercial property market, rather concerned about whether their tenants are going to stay or go on expiry.
Whatever sector you are in, there is a glut of vacant space out there and plenty of landlords are prepared to offer very exciting incentives to persuade you to move. The termination of the lease term in a weak property market is therefore an ideal time for tenants to negotiate much better terms and tenants are very astute and can use tactics to make life much more difficult for landlords. With landlords now bound to pay empty property rates, there is every reason for them to incentivise their tenants to stay.
Most, but not all, business tenants have security of tenure under the Landlord and Tenant Act 1954. The Act provides that a business tenant’s tenancy will continue beyond the stated lease expiry date unless and until either the landlord or tenant actually serves a notice to bring it to an end. It also provides that a tenant is entitled to a new lease of the premises on substantially the same terms as the expired lease and at a market rent unless the landlord can (and wishes to) rely on a limited number of grounds for taking back possession, the most common being the landlord’s desire to redevelop.
We are getting a lot of requests from landlords to help them decide whether they should serve notice to bring their tenants’ current leases to an end so that they can commence negotiations for new leases. Unless the landlord has some specific plans for his property (he may wish to develop it or occupy it himself) a lot will depend on market factors. The property may have special features, rents may have gone up or down a lot in the area, there may be particularly high or low numbers of empty premises or similar types of tenant in the area. The area itself may be improving or it may be suffering from the construction of developments nearby which are attracting tenants away.
As lease terms near their end landlords often think they should be doing something proactive to secure their position, but more often than not the best advice we can give at the moment is “do absolutely nothing”. This may not feel very comfortable but it may well be the right thing to do. In a weak commercial property market stirring the pot by serving notice on your tenant under the Act towards the end of its lease might just encourage it to look at its options elsewhere. On the other hand if you do nothing there is always the chance that your tenant will sit tight.
The provisions of the Act are very complex. If you are a landlord or a tenant and are not sure whether the Act applies or you would like help in deciding whether to serve notice under the Act, please give me, Karen Chapman, Partner in Druces LLP’s Property team or Julian Johnstone, Partner in Druces LLP’s Litigation & Dispute Resolution team a call.
Chandler v Cape plc: Company’s duty of care to subsidiary company’s employees
In a landmark judgement handed down in the Court of Appeal, it was held that a parent company, in appropriate circumstances, owes a direct duty of care for the health and safety of its subsidiary’s employees.
In Chandler v Cape plc  EWCA Civ 525, the claimant contracted asbestosis through exposure to asbestos dust during the course of his employment with Cape Building Products Ltd. In considering the parent’s liability to the subsidiary’s employee, the Court held that the relevant question was whether the parent’s actions meant that it had taken on a direct duty to the subsidiary’s employees. In appropriate circumstances, the law might impose on a parent responsibility for the health and safety of its subsidiary’s employees. Those circumstances include where;
1) the business of the parent and subsidiary were in relevant respect the same;
2) the parent had, or ought to have had, superior knowledge on some relevant aspects of health and safety in the particular industry;
3) the subsidiary’s system of work was unsafe as the parent company knew, or ought to have known; and
4) the parent had known or ought to have foreseen that the subsidiary or its employees would rely on its using that superior knowledge for the employee’s protection.
For the purposes of the final element, it is not necessary to show that the parent is in practice of intervening in the health and safety policies of the subsidiary, the relationship between the companies would be viewed more widely. However, if the parent company had a practice of intervening in the trading operations of the subsidiary, for example, production and funding issues, that may be enough to satisfy the final element.
The court emphasised that there would not be an assumption of responsibility simply by reason only that a company is the parent of another.
GHLM Trading v Maroo: Directors’ loan accounts and void contracts
In the case of GHLM Trading Limited -v- Maroo and others  EWHC 61 (Ch) the High Court considered claims brought by a company against its directors and found that the burden of proof in relation to credit entries in a director’s loan account and in relation to expenses said to have been incurred on the company’s behalf was on the director. The Court also considered and made a finding that where a director caused his company to enter into a contract in his own interests and contrary to the interests of the company, its shareholders or creditors, and the counterparty had notice of that, the contract was void. Further details can be found in our briefing note:
If you require advice in relation to disputes concerning the management of companies or the actions of directors, please contact Marie-Louise King, a Partner in Druces LLP’s Commercial Litigation and Dispute Resolution team.
Corruption and bribery conviction
A company director has just been convicted of corruption in respect of a potato supply contract worth £40 million a year. He will be sentenced next month along with a Sainsbury’s Food Buyer and a company Accounts Manager who had both previously pleaded guilty to corruption.
The corruption involved the Sainsbury’s Food Buyer receiving benefits totalling £4.9 million in connection with the grant of a lucrative contract to one of Britain’s largest potato suppliers. In addition to payments exceeding £1.5 million made into a Luxembourg bank account, he received perks including a twelve day trip to the Monaco Grand Prix costing £350,000 and the payment of bills totalling over £200,000 for food and accommodation at top London hotels.
As the offences were committed before the Bribery Act 2010 came into force, the Sainsbury’s Food Buyer could not be prosecuted under that Act. If the rewards received in this case were repeated today, they would almost certainly be caught by the Bribery Act. Whilst giving or receiving bona fide hospitality is not an offence, Ministry of Justice guidance makes it clear that hospitality and promotional or other similar business expenditure can be employed as bribes. The level of hospitality the Sainsbury’s Food Buyer received far exceeded the bona fide threshold.
Speaking outside Croydon Crown Court, Sue Pattern, head of the CPS Central Fraud Group said that the message is clear: “there is no place for corruption in British business…this case demonstrates a clear distinction between reasonable business hospitality and that which is criminally corrupt.”
Please access our note Bribery Act 2010 – Are You Compliant for a summary of the steps your business should be taking in order to comply with the requirements of the Act. Please speak to Toby Stroh, Head of Druces LLP’s Corporate & Commercial Law team for more information.
PLUS closing down
On 14th May 2012, PLUS Markets Group, London’s exchange for smaller companies, announced that it would be winding down its operations and closing, after failing to find a buyer or secure fresh financing.
Companies seeking to transfer from PLUS should consider applying to AIM or GXG Markets.
If you would like to take this forward, please contact Toby Stroh, Head of Druces LLP’s Corporate & Commercial department or Christopher Axford, partner in the Corporate & Commercial department, for more information on this.
Alliance of Business Lawyers in Mumbai
Druces LLP was represented at the recent ABL (Alliance of Business Lawyers) conference in Mumbai. ABL is an international network of business lawyers across Europe, North America, South America, North Africa, the Middle East and Asia.
The conference was hosted by Mumbai ABL member, law firm Dave & Girish & Co supported by ABL member firms based in Bangalore (MMB Legal) and New Delhi (Singh & Associates). Two key themes of the conference were investing in India and investing out of India. The agenda included lively panel discussions of the merits of the various investment opportunities for Indian businesses to expand into other jurisdictions. Half of all Indian investment in Europe is channelled through the UK and the general absence of special regulations on overseas companies setting up in the UK makes the UK an ideal jurisdiction for Indian investment, both in the UK and as a headquarters for European expansion.
There were several presentations from local Indian businessmen highlighting the opportunities for foreign direct investment in India and the steps which are being undertaking by Indian policy makers to attract overseas investment. Participants interacted with a number of high-profile speakers, notably Dr. Mr. Veerappa Moily, Union Minister for Corporate Affairs of the Government of India.
To discuss your legal needs in relation to possible investments and businesses with Indian partners, please contact:
Toby Stroh (company/commercial/employment/IP)
Roy Campbell (private client)
Nick Brent (real estate)
Julian Johnstone (litigation/dispute resolution):
Spousal by-pass trusts
Spousal by-pass trusts are established to allow the lump sum death benefit of a pension to be paid by the scheme trustees to someone other than the deceased’s spouse or civil partner, while still giving them access to those funds. They offer certain inheritance tax benefits and are becoming increasingly popular. However changes in legislation relating to perpetuity periods (laws relating to how long it is permissible to tie up assets in a trust) have created a pitfall which in certain circumstances can invalidate the trust potentially resulting in an additional inheritance tax burden for spouses. Care needs to be taken to avoid this pitfall and Richard Monkcom, head of Druces LLP’s Private Client team explains how.
Doing business in England and Wales
An overview of the most important legal considerations for a foreign person or organisation wanting to do business in England and Wales (the law in Scotland and Northern Ireland may differ).
It describes aspects of the basic law relating to companies, partnerships, LLPs, distribution and agency relationships, financing business, taxation, intellectual property rights, e-commerce, freedom of information and data protection, the acquisition of property in the UK, planning, investment business, competition law, licensing, and employment law. It should not be relied upon as providing legal advice. Our firm has substantial experience in advising overseas organisations on UK matters and we can offer assistance in detail on any of the topics raised. Please call Toby Stroh, Druces LLP’s head of Corporate & Commercial law for more information.
How much rent do I have to pay!? – PCE Investors v Cancer Research
You are an occupier of commercial premises with a lease which requires rent of £190,000 per annum to be paid quarterly in equal instalments in advance on the usual quarter-days (25 March, 24 June, 29 September and 25 December ). You have a clause in your lease entitling you to bring it to an end by giving 6 months’ notice in writing to your landlord ending on 11 October 2011 (“the termination date”). The break will take effect provided that you have paid the rent in full “up to the termination date” and provided that you give vacant possession of the property to the landlord on 11 October 2011.
How much rent do you need to pay on 29 September 2011? You might think that you have to pay £6,767.12. That is the amount of rent that covers the period of 13 days between 29 September 2011 to 11 October 2011: (£190,000 / 365 days) x 13. That certainly seems logical because the break clause requires the rent to be paid “up to the termination date” and because it surely cannot have been intended that you have to pay rent for any time after the lease has come to an end on 11 October 2011.
Unfortunately for you that is not the right answer. The right answer is that the lease contains an obligation to pay a quarter year’s rent, that is to say £47,500, on each quarter day, so that is the amount that you should have paid on 29 September 2011. The reference to paying the rent due “up to the termination date” is actually a requirement to pay all the rent that is liable to be paid up to that date.
This scenario is a very common one and it never ceases to surprise commercial occupiers of property the first time they come across it. It never ceases to aggravate them either because in reality they are having to pay an amount of rent for a period of time after the lease has come to an end.
Not unnaturally I often get asked whether it is possible to challenge this in Court. My answer is no, because the law is very clearly on the landlord’s side on this issue. Nevertheless a tenant has recently tried to challenge this point in the case of PCE Investors Limited -v- Cancer Research UK and got badly burned in the process.
Having paid a lesser amount of rent for the period 29 September to 12 October, it has found that, in trying to save about £39,712.33, it has made itself liable for the full rent of £190,000 per annum plus all the other associated charges under the lease for the remainder of the contractual term to 27 September 2014, the Judge having ruled that its break notice was invalidated by its failure to pay the correct figure by the termination date. Its total liability for failing to get it right is likely to be more than £517,000 in extra rent to September 2014 and probably the landlord’s costs of the action.
This post emphasises again the pitfalls and bear-traps that lie in wait for tenants to seeking exercise break clauses in leases and follows on from Karen Chapman’s post on break clauses and our briefing note on the case of Avocet Industrial Estates v Merol Limited. The answer for tenants is to speak to a lawyer specialising in landlord and tenant law – and here that means me, Julian Johnstone, Head of Druces LLP’s Litigation & Dispute Resolution team.