The mis-selling of IRHPs (also known as ‘interest rate swaps’) to small and medium sized businesses (SMEs) has been frequently reported. It is a sensitive topic, as it is thought by many that SMEs will be responsible for carrying the UK out of recession. The financial consequences of IRHPs upon SMEs can be catastrophic.

What are IRHPs

IRHPs are designed to help manage interest rate risk and are often sold alongside business loans. The purpose of an IRHP is to protect against interest rate rises that could result in loan repayments becoming unmanageable. There are broadly four types:

Swaps - enable the interest rate to be fixed.

Caps - an upfront fee and/or ongoing premium is paid to place a limit (cap) on any interest rate rises.

Collars - interest rate rises are limited to within a simple range, referred to as having a ceiling (higher limit) and a floor (lower limit).

Structured collars -  interest rate rises are limited to within a range (with a lower ceiling than a simple collar) but involving more complex arrangements (resulting in higher interest rates becoming payable) if the base rate of interest falls below the floor limit.

What is wrong with IRHPs?

The Financial Services Authority (FSA) has estimated that 40,000 IRHPs could have been sold to SMEs since 2001, with many sales taking place between 2005 and 2008.  During that period, IRHPs were heavily marketed as the base rate of interest was around 5.5% and expected to rise.

However, the base rate fell sharply to an historical low of 0.5% and has remained there since. SMEs that have taken out IRHPs have been unable to benefit from this low rate of interest.  It has left those SME’s facing crippling monthly payments and/or exorbitantly high costs to exit the IRHP early.  The main complaints made about IRHP’s include:

• the IRHP was wrongly made a condition of being granted the loan;
• the duration and level of the IRHP did not match the underlying loan;
• if an IRHP is terminated early, a substantial break fee could be payable of up to 50% of the amount lent;
• banks failed to ascertain the customer’s understanding and knowledge of the IRHP, often explaining all of the benefits, but none of the risks.

FSA review

Due to the number of complaints received, the FSA carried out a review into IRHPs with the results published in June 2012. The review concluded that there were ‘serious failings’ in the sale of IRHPs to SMEs.  An agreement has since been reached with the banks to:

• provide fair and reasonable redress to ‘non-sophisticated customers’ who were sold structured collars;
• review the sales process of other IRHPs (except caps or structured collars) for ‘non-sophisticated customers’, providing fair and reasonable redress where appropriate;

• review the sale of caps if a complaint is made by a ‘non-sophisticated customer’, providing fair and reasonable redress where appropriate.

A ‘non-sophisticated customer’ is one that did not have the necessary experience and knowledge to understand the IRHP that it was being sold.  The FSA has formulated a rather complex and detailed ‘sophistication test’.  A useful flowchart containing an outline of the test can be found on the FSA website http://www.fsa.gov.uk/static/pubs/other/irs-flowchart-2013.pdf

Present  position

Before the banks commenced their full reviews into IRHPs the FSA carried out a small pilot with the results published in January and February 2013.  The FSA found that over 90% of cases reviewed did not comply with one or more regulatory requirements.  A significant proportion of the cases reviewed would have resulted in redress being offered.

The FSA now expects the banks to complete their full reviews of IRHPs within the next 6 – 12 months.  Those ‘non-sophisticated customers’ who have bought swaps, collars or structured collars should be contacted by the banks to explain that they fall within the scope of the review.

Legal Action

If an SME does not meet the requirements of a ‘non-sophisticated customer’ and falls outside the scope of the FSA review, it can pursue a civil claim against the bank through the courts.  In addition, an SME that does fall within the scope of the FSA review may be unhappy with the redress offered and could also seek to pursue a civil claim against the bank.  In either event, a civil claim could be pursued on the basis that the bank had breached the requirements set out in the FSA’s Conduct of Business Sourcebook (COBS).  Other causes of action may also be available.

Broadly, to comply with the COBS the bank will need to be able to show that it took into account the individual circumstances of the customer to determine whether it was reasonable to conclude that the features and risks of the product were understood.  This will involve a consideration of: the customer’s knowledge and understanding; the interaction of the customer during the sales process; the quality and nature of the information provided; and the complexity of the product.  The COBS is set out in full on the FSA website http://fsahandbook.info/FSA/html/handbook/COBS

Limitation

It is important that potential claimants appreciate that they have only six years to bring a civil claim through the courts against a bank.  This time will usually run from the date the IRHP was taken out, but there could be earlier trigger dates (i.e. if advice was given in pre-contractual meetings) resulting in the date of limitation being sooner.  As the majority of IRHPs were sold between 2005and 2008, it is vital that action is taken now.

The limitation period will continue to run despite the FSA review and the banks ongoing review.  If a civil claim is being considered, it is advisable to proceed in one of two ways: 1) issue a claim against the bank now and ask the court for a stay of proceedings whilst the bank concludes its review; or 2) attempt to reach a ‘standstill agreement’ with the bank, pausing the limitation period whilst the bank completes its review.

Changes to cost rules

Another time sensitive issue are the changes to civil litigation cost rules that are due to come into force on 1 April 2013.  At present, solicitors offer this type of work on a ‘no win, no fee’ basis with a policy of insurance being taken out to cover the banks costs, should the claim ultimately fail.

If the claim is successful, the cost of the policy (which is likely to be a 5 or 6 figure sum) is recoverable from the bank. However, the cost of any policy that is taken out after 1 April 2013 will no longer be recoverable from the bank and will have to be paid out of any compensation received. This may result in claims for smaller amounts no longer being commercially viable due to the prohibitive cost of an insurance policy.

Our top 10 tips are listed below: 

1. Know your customer

You need to identify exactly who you are carrying out business with i.e. an individual, partnership, or company. This is not always as straightforward as it should be and becomes very important when seeking to recover debts later on.   

You should screen potential new clients/customers:

• Individuals or partnerships. Collect evidence to confirm they really are who they say they are.  Request a bank statement or utility bill. Consider asking for references from other businesses that they use and carry out a credit check with a reputable source, such as Experian or Equifax.  They often use trading names and will contract in the trading name.  Make sure you name the proprietors of the business if it is not incorporated.
•  Companies.  Carry out a search on Companies House and examine the accounts.  Be wary if there are several companies with a similar name.  You can also discreetly ask others within the industry about the company.

 2. Terms and conditions

Take the time to provide clear terms and conditions.  This will make managing the business relationship easier and may confer benefits when looking to recover debts later on.  Your terms and conditions should include:

• a maximum credit period – 30 days is appropriate in most cases;
• a credit limit (see below);
• the right to charge interest (see below);
• the consequences of late payment e.g. no further credit
• a retention of title clause (keeping ownership of the goods until they are paid for);
• the ability to recover any expenses incurred during the debt recovery process;
• termination on events of default/insolvency;
• your business terms prevail (so there is no battle of forms)

You should ensure that your terms and conditions are acknowledged at the outset by requesting that a signed copy is returned to you.  This will avoid any confusion or dispute over whether they were provided.

3. Credit is a privilege, not a right

You should set appropriate credit limits, review them regularly and monitor monthly payment history.

You should consider asking for a deposit, or full payment upfront, especially if they are a new customer.  If dealing with a company, ask for a personal guarantee from a director.

4. Invoices should be accurate, detailed and promptly delivered

An accurate, detailed and promptly sent invoice should avoid queries and misunderstandings that may otherwise delay payment and interfere with your cash flow.  The invoice should:

• include details of how to pay;
• contain a full breakdown of all the costs, dates and details of the goods/services provided;
• emphasise the key points of your terms and conditions e.g. credit period and consequences of late payment;
• quote your businesses trading name, company number (if appropriate), address and VAT registration number.

5. Make it easy for payment to be made and encourage early payment

Promote simple and efficient payment methods e.g. BACS, direct debits and credit card payments.  Consider offering a discount for early payment.

Highlight that you will charge interest for any unpaid invoices.  The ability to charge interest should be set out in your terms and conditions, but if it is not, the Late Payment of Commercial Debts (Interest) Act 1998 inserts an implied right to interest in most business-to-business contracts for the supply of goods/services of 8% above base rate. 

6. Follow a procedure and be proactive

Have a set procedure for chasing late payments, with a defined policy of exactly when letters/calls should be made and who is responsible for taking these steps.  Debt recovery should be viewed as an important task and not a low priority.

Pursue outstanding payments as soon as credit terms are exceeded. It is a statistical fact that the longer you let a payment go, the less likely it is to be paid.

If you promise action, you must follow it through in order to preserve your legal position.  If you agree to any deferred payments/instalments or a reduction in price then document those new arrangements and dates for payment reserving the right to demand immediately the full amount of the original debt if there is further default.

 7. Use the telephone

 Many businesses automatically issue demand letters when payment is not made on time. However, picking up the phone is usually more productive.  A person ringing who is professional and friendly, but firm, is more likely to result in payment of the debt.

Make sure you speak to the person responsible for authorising payment.  You should know the history of the account and of all promises kept/broken.  Every call should result in a commitment to payment of a specific amount, by a specific date.   

8. Resolve legitimate problems, handle excuses and be flexible

It may be that the goods supplied were faulty or that the service received was not satisfactory.  These are valid reasons why payment might not have been made, however you should also be sceptical of excuses as they are often simple delaying tactics such as “the invoice was not received”, “the person who authorises payment is not here”, “the cheque is in the post”.  Confirm the conversation by email to the other party.

9. Keep commercial relationships in mind

How a debt is dealt with can make or break relationships with suppliers, customers and contacts.  Chasing payment can be a difficult and sensitive task. Having a clear and effective debt collection process will promote confidence in your business procedures as a whole.  If each party knows exactly where they stand, better business relationships can be formed.

If payment has not been made, do not be afraid to stop supplying goods/services, although you should review any contractual commitments before doing so.  Always ask yourself whether continuing business with this client/customer is in your best interests.  You want their business but not their debt.

10. Consider outside help

If you have been chasing a debt for a while, you should consider seeking outside assistance. This may involve additional expense and so might not be a good idea if the client/customer is in serious financial trouble or the debt is small.

A solicitor can send a formal letter before claim, requesting that the debt is paid, or court proceedings will be issued.  If proceedings are issued and the client/customer admits the debt is owed, or fails to respond, Judgment can be entered in your favour.  The judgment can then be enforced to obtain the outstanding funds.

Further information

 If you require any further information, or would like our help recovering a debt, please contact Derek Dawson, Sarah Armstrong or Matthew Moy in our Dispute Resolution department on 0151 282 2828.

 If an employer wishes to change an employee’s contract terms (and the change is not authorised by the contract itself), the employer can do one of the following:

• Seek the employee’s express agreement.
• Terminate the employee’s employment and offer re-employment under the new terms.
• Unilaterally impose the change and rely on the employee’s conduct to establish the employee’s implied agreement to it.

In respect of the third option, the burden is on the employer to show an ‘unequivocal act implying acceptance’ by the employee.

In the recent case of FW Farnsworth Ltd and another v Lacy and others [2012] EWHC 2830, the High Court considered whether an employee’s conduct following receipt of a new contract of employment after promotion was sufficient to establish his implied acceptance of it, despite the fact that he had not signed and returned the contract.

Facts

The employee was initially employed in September 2000 as a technical graduate and was later promoted to quality assurance manager.  In around April 2003 he signed his first contract of employment (the 2003 Contract). The 2003 Contract did not contain any post termination restrictions.

In April 2009, the employee was promoted to site technical manager. At the end of September 2009, the employee was sent a new contract (the 2009 Contract). The 2009 Contract contained post termination restrictions.  The employee did not sign or return the contract.  He briefly looked through it and then filed it in his desk drawer.

The 2009 Contract provided for additional benefits not available to the employee under the 2003 Contract. These included the right to:

• Join the company’s Self Invested Pension Plan, a defined contribution pension scheme.
• Apply for private medical insurance (PMI) cover for himself and his family.

The employee subsequently joined the defined pension scheme in around March 2010 and applied for and received PMI family cover from around April 2010.

In March 2012, the employee resigned in order to join a competitor.  His former employer brought proceedings in the High Court to enforce the post termination restrictions in the 2009 Contract, which prohibited him working for a rival business and soliciting defined customers in the six months following the termination of his employment.

Decision

The court held that the employee was bound by the 2009 Contract and, therefore, the post termination restrictions contained within it because his actions in voluntarily applying for the new PMI cover not previously available to him, without any form of protest or reservation, was ‘an unequivocal act referable only to his having accepted all the terms of the 2009 Contract from the date of that application (in March/April 2010)’.

The employee was therefore bound by the terms of the 2009 Contract from the date on which he had applied for the PMI cover.

The employee’s move to the defined contribution pension scheme was because he was required to do so, as the final salary pension scheme of which he was previously a member was to be closed down.  As the move was not out of choice, his acceptance of the 2009 Contract could not be inferred from this step.

Summary

This case highlights the importance not only of ensuring that an employee’s terms of employment are updated when the employee changes role or is promoted, but also the importance of ensuring that the new contract is actually signed and returned by the employee.  If the employee had not applied for the PMI, he may not have been bound by the 2009 Contract.

More information

If you have any questions about the content of this update, please contact Sarah Armstrong.

However, in most cases employers should at least consider whether a selection pool is appropriate.  This checklist sets out the key issues a business should consider when drawing up the pool of employees from which it will make its selection for redundancy.

What is a redundancy situation?

Redundancy can occur where a business decides to close or relocate, or if a business has a diminished requirement for employees to do work of a particular kind.

Identifying the correct pool

Before selecting an employee for dismissal on the grounds of redundancy, you must consider from which pool of employees redundancy selection should be made.  Otherwise the dismissal is likely to be unfair.

Discretion over the size of the pool

There are no fixed rules about how a redundancy pool should be defined.  As long as you can show that your choice of pool was reasonable in the circumstances, it will be difficult for an employee (or an employment tribunal) to challenge your decision.

It is not always unfair to choose a redundancy pool that is the same size as the number of redundancies being made.  However, you should only choose this option if there are strong reasons for doing so and you should remain wary of overstating the commercial risks of a wider pool.   

Considerations for identifying the pool

When considering the choice of pool, you should start by asking two questions:

• Which particular kind of work is disappearing?
• Which employees do the particular kind of work that is disappearing?

If there is a clear link between the kind of work that is disappearing and the group of employees doing that work, then the pool is likely to be easy to identify.  You should also consider:

• The extent to which your employees are doing similar work.
• The extent to which employees’ jobs are interchangeable.
• Whether the selection pool was agreed with union or employee representatives.

Look at the work your employees actually do

You should look at the day-to-day activities of your employees and the terms of their contracts.  You should concentrate on the reality of the situation, rather than what their contract says in theory they may be required to do. 

Consider interchangeable skills

Identifying the pool becomes complicated if your employees are multi-skilled and do different types of work, or can be required to do different types of work under their contract of employment.  In these cases, your employees are more likely to object to being labelled as redundant, particularly if they can point to other employees with whom they share interchangeable skills. 

It may be unreasonable for you to identify one employee as being in the pool simply because they are doing a particular type of work that is disappearing, and ignore another employee doing different work where the first employee could just as easily do that other work. 

If an employee has previously done other work (other than the kind of work disappearing), it is likely that their skills are interchangeable with your other employees, and so a wider pool may be required.

Where the work is “low-skilled”, the skills are more likely to be regarded as interchangeable.

Where an employee can point to another employee with interchangeable skills who also has less service than them, this may strengthen the argument that the other employee should be included in the pool.

‘Bumping’

You are entitled to widen the selection criteria for redundancy beyond those employees that are directly affected by the redundancy situation.  You can consider “bumping” out of their jobs employees whose roles are not redundant, to be filled by employees whose roles are redundant.  There is no obligation on you to consider “bumping”, but you may fall foul of unfair dismissal law if it would have been reasonable to consider it in the circumstances.

Commercial problems with a wide pool

You may be reluctant to draw up a wide pool, even if it would be technically correct to do so, because of the impact that it could have on the morale of your employees.  By identifying a narrow pool, or only consulting with those individuals provisionally selected for redundancy, you may be more vulnerable to claims of unfair dismissal.  You must decide whether the risks to morale and other costs of widening the pool outweigh the risk (and cost) of claims.

More information

If you have any questions about the content of this update, please contact Sarah Armstrong.

As a general rule,  a Notice of Appeal must be filed at the appeal court within 21 days after the date of the decision of the lower court unless the lower court orders otherwise. 

In a recent case[1], the Court of Appeal has considered whether an appeal made seven and a half months late should be allowed to proceed.  For the following reasons, the Court of Appeal held that it should not:

• It is a fundamental principle that the outcome of litigation should be final.
• Successful parties are entitled to expect that if they have won at trial, and the time for an appeal has passed, then the matter is at an end. 
• Appeals out of time will only be allowed in rare and limited cases where the facts justifying the exception can be strictly proved.  It would be unusual to find that such good reasons existed where more than two months have passed.  

The Court of Appeal noted the factors which the claimant said had contributed to the delay, including its attempts to fund the appeal.  It rejected the difficulties in securing funding as constituting a good reason for the delay.

Court of Appeal upholds findings based on the demeanour and credibility of witnesses

The Court of Appeal has held that a judge was entitled to decide a dispute relating to the ownership of property on the basis of the demeanour and credibility of the witnesses[2].

The judge had found that an agreement had been made transferring property from the deceased defendant to the claimant.  His decision that the claimant had proved his case was based primarily on his findings as to the demeanour and credibility of the witnesses.

 The Court of Appeal said that, given the difficulty in deciding whether a witness is telling the truth solely from his testimony, it is safer for a judge to consider the surrounding evidence, before reaching any conclusions as to the truth of particular facts.

In this case, the judge reached a conclusion as to the credibility of the witnesses before considering the circumstantial evidence.  Although he directed himself that he should not rely on credibility alone, but should consider what was said against objective evidence, he found that, on the facts, he was unable to do that.  There was circumstantial evidence supporting each of the parties’ cases.  Therefore, he decided the case primarily on the basis that he found the claimant and his daughter’s evidence to be truthful.  The Court of Appeal held that the judge had not erred in his approach.

Generally speaking the following legal structures are used by social enterprises;

• Unincorporated Associations
• Community Interest Company Limited by Shares or by Guarantee;
• Industrial & Provident Societies;
• Company Limited by Guarantee and registered as a charity

 Of course it is entirely possible for other structures such as sole traders, partnerships and companies limited by shares to be social enterprises but these are not as common.

The first question businesses need to consider is whether to incorporate.  Incorporation means that you set up a separate legal entity from the people or person who runs the business.  So for example if you are an unincorporated association there is no limited liability protection for the members when it comes to who will be responsible for paying the bills.   I.e. if the association hasn’t got enough funds then the members may become personally liable.

That is not to say that incorporation is a must, there are many small businesses that operate without incorporation and there can be less paperwork and more privacy for an organisation’s financial affairs.   An unincorporated structure is usually a social enterprise because of what it says in its constitution, e.g. its profits are going to be used for good causes.

One of the most common incorporated legal structures associated with the social enterprise movement is the Community Interest Company (‘CIC’).   The Community Interest Company can either be limited by shares or by guarantee.  That means that you can just have members (Ltd by Guarantee) or issue shares (Ltd by Shares) and can, if you choose, pay a dividend to investors, which is capped. 

With both types of CIC the assets that the business owns are locked into the company and can only be given to a nominated organisation (generally another CIC or charity) if the organisation ceases trading.   Directors of  CIC’s can also be paid for being a director of the company.  CIC’s are fairly easy to set up but they do require the business to pass the Community Interest Test to demonstrate their community interest.

An alternative model is to set up as an Industrial & Provident Society.  This model is often used by co-operatives; groups of people who want to collectively own and run a business as a workers’ co-operative or for the benefit of the community. 

A company limited by guarantee is one that cannot distribute any dividends.  Usually these company structures are used for organisations wishing to register as a charity and therefore these types of organisations are set up for charitable purposes, rather than as a social enterprise per se.

Before thinking about what sort of social enterprise you want to set up its important to consider;  what you want to do, who you want to benefit, how restricted you want to be in how you will distribute the profits and how much, if at all, you want to personally benefit from it.  

Heather Summers

Managing Partner

E: hsummers@jstlaw.co.uk

DDI:  +44(0)151 282 2835

Mob:  +44780 3002640

Iona Horsburgh

E:  ihorsburgh@jstlaw.co.uk

DDI:  +44(0)151 282 2869

Despite the sluggish economy we are increasingly seeing clients wanting to launch new businesses in the third sector, in particular social enterprises.  In this issue we have focussed on what a social enterprise is, and what legal structures might be appropriate.

Our next issue will be out in the New Year so if there is a particular article you would like covered then please email us at thirdsector@jstlaw.co.uk.

SOCIAL ENTERPRISES

 We are regularly approached for advice by clients on how to set up a social enterprise.  The first thing to establish is that there is no such legal structure as a ‘social enterprise’.  The term is a loose definition that is used by very many business structures; both for profit and not for profit including charities and co-operatives.

Generally speaking the following legal structures are used by social enterprises;

• Unincorporated Associations
• Community Interest Company Limited by Shares or by Guarantee;
• Industrial & Provident Societies;
• Company Limited by Guarantee and registered as a charity

Of course it is entirely possible for other structures such as sole traders, partnerships and companies limited by shares to be social enterprises but these are not as common.

The first question businesses need to consider is whether to incorporate.  Incorporation means that you set up a separate legal entity from the people or person who runs the business.  So for example if you are an unincorporated association there is no limited liability protection for the members when it comes to who will be responsible for paying the bills.   I.e. if the association hasn’t got enough funds then the members may become personally liable.

That is not to say that incorporation is a must, there are many small businesses that operate without incorporation and there can be less paperwork and more privacy for an organisation’s financial affairs.   An unincorporated structure is usually a social enterprise because of what it says in its constitution, e.g. its profits are going to be used for good causes.

One of the most common incorporated legal structures associated with the social enterprise movement is the Community Interest Company (‘CIC’).   The Community Interest Company can either be limited by shares or by guarantee.  That means that you can just have members (Ltd by Guarantee) or issue shares (Ltd by Shares) and can, if you choose, pay a dividend to investors, which is capped. 

With both types of CIC the assets that the business owns are locked into the company and can only be given to a nominated organisation (generally another CIC or charity) if the organisation ceases trading.   Directors of  CIC’s can also be paid for being a director of the company.  CIC’s are fairly easy to set up but they do require the business to pass the Community Interest Test to demonstrate their community interest.

An alternative model is to set up as an Industrial & Provident Society.  This model is often used by co-operatives; groups of people who want to collectively own and run a business as a workers’ co-operative or for the benefit of the community. 

A company limited by guarantee is one that cannot distribute any dividends.  Usually these company structures are used for organisations wishing to register as a charity and therefore these types of organisations are set up for charitable purposes, rather than as a social enterprise per se.

Before thinking about what sort of social enterprise you want to set up its important to consider;  what you want to do, who you want to benefit, how restricted you want to be in how you will distribute the profits and how much, if at all, you want to personally benefit from it.  

CIO UPDATE

A Charitable Incorporated Organisation is a new legal structure designed to allow an organisation to have limited liability and be a charity, without being a company limited by guarantee.  Unfortunately the delay in registering these new legal structures continues to drag on.  Originally due to be available from April 2011 and then rescheduled to April 2012, the Charity Commission are still not able to set a date for when organisations can start to use the new structures as parliament still need to pass legislation.  Unfortunately it doesn’t appear that parliament is in any hurry to set aside time.

The two CIO models are now published on the Charity Commission website for anyone wishing to review what is going to be available in the future.

However, for those organisations who were hoping to use the CIO structure imminently we would recommend that you set up within the currently available legal frameworks and look to convert in the future when and if these new structures become available.

SAFER CARING

The Charity Commission have just published their Strategy for Dealing with Safeguarding Children and Vulnerable Adults which can be found on their website; www.charitycommission.gov.uk. 

For anyone charity operating in these areas, the Strategy provides invaluable guidance regarding what the charity should be doing and links to further guidance to assist with the policies and procedures that your charity should have in place.

DATA PROTECTION

The Information Commissioner’s Office (ICO) has published its top five tips for small and medium charities for handling data safely.

• Tell people what you are doing with their data.
• Make sure your staff are adequately trained. 
• Use strong passwords.
• Encrypt all portable devices.
• Only keep people’s information for as long as necessary.

 The ICO is also offering a free advisory visits to charities that want advice on handling their personal data correctly.  More information can be found at www.ico.gov.uk

TRUSTEE BRIEFINGS

It is Trustees’ Week from 5-11 November, an event run by the Charity Commission to promote the work of trustees and highlight recruitment needs.

If you or your organisation have got new trustees and would like JST to run a FREE seminar for up to 8 of your trustees on Trustee’s Roles & Responsibilities then please get in touch.  Please visit our website or email events@jstlaw.co.uk to contact us.

KEY CONTACTS:

Heather Summers

Managing Partner

E: hsummers@jstlaw.co.uk

DDI:  +44(0)151 282 2835

Mob:  +44780 3002640

Iona Horsburgh

E:  ihorsburgh@jstlaw.co.uk

DDI:  +44(0)151 282 2869

The market is still difficult, especially in the North.  Most city centres have a multitude of empty commercial units and offices. There has been a shift in Landlords’ attitudes towards lettings in the last twenty years in a competitive market.   But some Landlords continue to be reluctant to change.

Notwithstanding the competition, tenants feel daunted and bemused, particularly for new start up companies. The key to successful new lettings is to offer simplicity, flexibility and fairness with no hidden pitfalls and then to wrap up the deal quickly.

Simplicity – It is important that the Lease is easy to follow and sticks to the terms agreed. Heads of Terms (HOT) should be precise and leave nothing to interpretation. The rent is obviously the most fundamental term of any letting.  HOT should confirm:-

• the yearly rent,
• the frequency of payment and
  • confirm whether the rent covers everything or if there is also an insurance rent and service charge.

If there is a rent free period, HOT should be clear as to whether this is to commence immediately or be staged over a period of time, i.e. it is more common nowadays for say six months rent free being documented by way of half rent for a year to assist with cashflow for both parties.

Flexibility – it is essential that you do not have a one size fits all attitude. One important consideration is as the tenants’ business grows or down sizes, can you ensure that the requirements of your tenant are met?  In respect of lettings of part, it can be hugely beneficial if you can provide ability for tenants to take more space on the same terms in the rest of the building.  Alternatively, you should consider if you can provide tenants with the ability to break the lease in whole or in part.  If you can provide flexibility this will enable you to convince Tenants to sign up for longer.

In respect of alterations, consider the effect on  Tenants. For a tenant with a good quality covenant taking a Lease of a whole building, why not give the Tenant flexibility to make whatever alterations they wish without your consent with the exception of structural alterations? Provided there is an obligation to obtain all requisite statutory consents and to notify you of the proposed works coupled with an obligation to put the premises back at the end of the term, this should prove acceptable.  You may need to check the terms of any charge on the premises to offer this flexibility.

Fairness – Landlords should ensure the terms are fair because otherwise they are unlikely to attract new lettings or keep hold of existing tenants. Can you induce tenants and help them be good occupiers?  One example would be the rent deposit which could be released after one or two years of continuous timely rent payments instead of at the end of the term?

One great bug bear for tenants is service charges.  Wherever possible, caps on service charges should be offered so that tenants know their liabilities.  

It surprises me that some Landlords in relation to new lettings still make it difficult for tenants to break the Lease despite agreeing to a break in the HOT. Break clauses have been used as a stick to beat over the head of tenants for too long.  A break clause should be easily operative and I would suggest only two conditions apply to a break clause being:-

• that the annual rent is up to date and
• that occupation is yielded up on the break date.

Can you induce a tenant not to break by offering further incentives such as another rent free period should a break not be exercised?

For existing Tenants, Landlords need to be proactive. Still many Landlords in the knowledge that a break is fast approaching, sit there and pray that the tenant does not approach them to discuss the terms of the Lease or worse still, serve a break notice. Wherever possible, Landlords should approach tenants before this happens.  The same as a   football players’ contract, you should try and ensure that the term of the contract is not run down as your negotiating position become far weaker the less the term has to run (that is unless you want tenant to leave).

Many tenants even in today’s market are concerned that Landlords may put the rent up and the earlier you can offer a tenant choice and act fairly.  The more comfortable a tenant will be and the less likelihood that they shall look elsewhere. The majority of Tenants prefer to stay where they are provided that the commercial premises are situated in the right location; you are a fair and reasonable landlord; and that their fundamental requirements be it for storage, parking or IT or whatever else are met.  It is always advisable to try and have tenants sign up to a longer Lease on more favourable terms now rather than run the risk of the premises becoming empty.

To discuss any issues you may have regarding this topic, either as a landlord or tenant, please contact Peter McHugh on 0151 282 2828 or pmchugh@jstlaw.co.uk

In the light of a recent Court of Appeal decision, businesses should ensure they allow workers to carry over their accrued holiday if they have been on long-term sick leave and have not had the opportunity to take the holiday.

The court held that a worker, who had been on sick leave for an entire year and had not taken any holiday during that period, was entitled to payment for that year’s unused statutory holiday entitlement when her employment was terminated.  Her failure to request holiday or ask for it to be carried forward during the previous year did not mean that she lost the right to payment.   It is important to remember that employees who are dismissed due to long-term sickness absence are entitled to be paid in lieu of untaken holiday, even where their entitlement to paid sick leave has ended.

This checklist sets out the steps your business should take if you are contemplating dismissing an employee for a sickness absence-related reason.  Although this can be a fair reason to dismiss an employee, it is important to follow the correct procedure.

Review and retain the correct documentation

• If your business has a sickness or absence policy make sure you check (and comply with) it.
• Review the relevant provisions in your employee’s contract of employment.
• Keep confidential records of medical certificates, correspondence, telephone calls and meetings.

Conduct an investigation

• Investigate the nature, extent and likely duration of the medical condition causing the absence.  Ensure you have up-to-date medical evidence that gives a clear prognosis (obtained with your employee’s written consent).
• If the absence is stress-related, refer your employee to your stress policy (if you have one) or any counselling services that are on offer.  Consider whether dismissal could be avoided by changing the employee’s role or duties.
• If the absences are short-term and intermittent, you should investigate whether there is an underlying cause (medical or otherwise).  If necessary you should follow a capability or disciplinary procedure, setting timescales for improvement and giving warnings where appropriate.
• Maintain contact with your employee throughout the procedure, especially when you:
  • receive medical evidence;
  • are considering what adjustments to make or whether an alternative position would be suitable;
  • are contemplating dismissing the employee.

Disability and reasonable adjustments

Consider whether:

• Your employee is disabled under the Equality Act 2010 (relying on medical evidence as required).
• Any adjustments to your employee’s duties or workplace would assist their return to work (or their taking less time off work if their absences are intermittent) and, if so, whether making those adjustments would be reasonable in the circumstances.
• There is another job within your business that might be more suitable for your employee.

Review the alternatives

Before taking the decision to dismiss, your business should consider:

• The importance of your employee and the position they occupy in your business.
• The impact their continuing absence is having on your business.
• The difficulty and cost of continuing to deal with their absence.
• Whether you can avoid dismissing the employee (for example, by offering them an alternative position).
• Their age, length of service and the circumstances surrounding your employee’s absence.
• Any action that has previously been taken in relation to other employees in similar circumstances.
• Claiming under the terms of any permanent health insurance (PHI) policy or ill-health retirement if your employee has been absent long-term and is unlikely to return in the foreseeable future.
• Whether dismissal would have an adverse affect on any PHI entitlement your employee currently receives.
• Reviewing the medical evidence to make sure it is up-to-date.

Make sure the correct procedure is followed

• Once you have decided to dismiss, write to your employee inviting them to a meeting, making it clear that you are contemplating dismissing them.
• Provide enough information about the circumstances you are taking into account and the possible outcomes to enable your employee to respond meaningfully.
• Hold a meeting with your employee and give them the opportunity to present their case against the dismissal.
• Confirm your decision in writing to your employee.  The letter should:
  • provide the reason for dismissal;
  • confirm their last day of employment; and
  • give the right to appeal the dismissal decision.
• Ensure your employee’s contractual and statutory entitlements are met and that they receive the correct pay entitlement, including notice and holiday pay.
• Hold an appeal meeting (if requested by your employee) and confirm the decision to your employee in writing.

More information

If you have any questions about the content of this checklist, please contact Sarah Armstrong.

Following the success of their Exmouth market, Miles, Chris & Laura wasted no time in developing plans for a No. 2 older brother, and after looking around West and Central London found the perfect site next door to the new St Martins Art College in the very impressive KingsX redevelopment.  Fountains and greenery stand out in Granary Square where the ‘Van entrance is hidden behind a hedge.  The proper front door along with the outdoor seating is to follow shortly.

Inside, the huge space is so impressive with a clever transformation from an 18th century storage warehouse to a 21st century food & wine factory.  All on one level this time with Miles’s kitchen and bar area behind grills giving a stylish interpretation of an industrial storage unit.  The long room with a high ceiling and featuring exposed pipe work and industrial lighting has a  bar dividing the space.

I guess the restaurant has seating for 100+ with additional higher perches on one side for drinking and overflow as in Caravan 1. Behind the bar is the second area where the awesome coffee roastery and vast sacks of beans lie.  Roasting coffee for others is part of the ‘Van trade mark and success.

Some of the staff have moved down the hill from Exmouth to the new home, dressed up a touch and are joined by equally stunning new faces . Friendly and attentive service from smiling faces makes for a good experience and the kitchen follows with Miles’s trusted formula of small plates with a selection of larger ones. The comfortably priced menu, like its new home, is a little more sophisticated and does not let you down.  Small plates of Oysters, Ox tongue and chickpea salad came and went down easily as did the pitcher  of wine served in a medical flask.

 The Caravan operation has now gently gone into sophisticated overdrive and joined Shrimpys along the canal as a super cool yet accessible venue. Congratulations to Chris, Laura and Miles it was a pleasure to work with you.

John Shield