Jo Pusey - Franklins Solicitors

In a rising market with good commercial property becoming harder to come by on favourable terms, there is a temptation to complete a lease quickly without the benefit of legal advice to avoid losing the property or suffering an increase in the rent. All too often we are asked to advise on matters where tenants have entered into leases without fully understanding the wider reaching implications of doing so and it’s only when there is a sudden downturn in business, or their circumstances change, that they realise they are contractually bound and there is little that can be done to get them out of it.

In the majority of cases, a commercial property deal will be one of the most valuable transactions you will complete in your lifetime and it is therefore imperative that you are fully advised before jumping in with both feet.

So why is it important to obtain proper legal advice before committing yourself to taking a lease of a commercial property and what sorts of things do we look for when advising our clients?

What name is the lease being taken in? If the lease is being taken in the name of a company, does the Landlord require any additional security such as a rent deposit deed or a personal guarantee from one of the directors? Does the director understand what this means and the extent of their personal liability?
What are the repairing obligations in the lease? If the lease is being taken on a fully insuring and repairing basis, do you understand what this means in practice and the risks of taking a property with existing wants of repair where your repairing obligations are not limited for example by way of a schedule of condition?
If there is the ability to break the lease before the end of the term, are the terms of the break capable of compliance? Is there an ability to recover any overpayment of rent?
Has the lease being excluded from the security of tenure provisions laid out in Section 24-28 of the Landlord and Tenant Act 1954 which allow a tenant to request the grant of a new lease at the end of the term? Is it important to the operation of your business that you have the ability to request a new lease from the Landlord?
How much Stamp Duty Land Tax (SDLT) is payable on completion of the lease? Are you able to comply with the 30 day filing requirement imposed by HMRC to avoid a fine?
Is the lease compulsorily registerable at the Land Registry? Are any plans attached to the lease Land Registry compliant?

Franklins Solicitors LLP have an experienced team who can guide you through the negotiation of a new lease and assist you with completing the same. Should you have any queries in relation to the grant of a new lease or any other type of commercial property transaction, please contact Jo Pusey and her team on 01604 828282 or 01908 660966 or e-mail jo.pusey@franklins-sols.co.uk .

Understanding your rights as a commercial tenant is essential prior to entering into a lease for your business.

What is the Landlord and Tenant Act 1954?

The Landlord and Tenant Act 1954 is a central piece of legislation which impacts the rights and responsibilities of both landlords and tenants. It governs landlords and tenants’ obligations in relation to premises occupied for business purposes. Whilst the Landlord and Tenant Act 1954 has significant consequences for both landlords and tenants, we shall consider it from a tenant’s perspective as it provides a degree of protection to those who wish to navigate the commercial property market.

Security of Tenure

Commercial leases currently benefit from ‘security of tenure’ ensuring that qualifying business tenancies do not automatically come to an end upon the expiration of their term. It provides a statutory right of protection to tenants allowing them to remain in occupation of the premises and renew their lease when the contractual term comes to an end. Where security of tenure applies, the Landlord will only be able to oppose the renewal of the new lease on certain limited grounds. Security of tenure, as a general rule, is automatic however, the tenant may agree with their Landlord to “contract out” of the security of tenure provisions (Section 24-28 of the Landlord and Tenant Act) from the outset if the correct procedure is followed. This requires the tenant to make a statutory or simple declaration confirming that they understand the rights that they are giving up.

Security of tenure provides stability and certainty for tenants who wish to remain in the premises for a longer period. It provides a sense of business continuity for the tenant’s future business plans, especially for those working in the retail sector but also for tenants who have established themselves with a market presence in a certain area. Tenants may also want to consider the amount of investment and planning that they require to put into the property to ensure that it meets the standard of their business. For instance, where the tenant will need to carry out fit-out works prior to the commencement of the contractual term and they may need to consider the expense in carrying out the same on a new premises. Where security of tenure is obtained, the tenant benefits from legal safeguards as the Landlord will only be able to object to the renewal of a new business tenancy on specific grounds in accordance with Sections 30(1)(a) – (f) of the Landlord and Tenant Act 1954.

By opting out of Section 24-28 of the Landlord and Tenant Act 1954, the tenant will have no statutory right to renew the tenancy at the end of the contractual term meaning that they will have:

No legal right to remain in the property after the expiry of the contractual term of the lease.
No right to remain in occupation of the property at the end of the term unless the landlord chooses to grant the tenant a new lease.
No right to compensation from the landlord on leaving the property at the end of the lease.
No right to ask the Court to fix the rent or the terms of the lease if the landlord choses to offer another lease.

Due to the nature and complexity of the security of tenure provisions, it is important that you seek clear advice from your solicitor prior to entering into a new lease to enable you to make the best decision for your business.

For further advice and assistance, please contact our Commercial Property team on 01604 828282 or email them at info@franklins-sols.co.uk.

Whilst many would agree that the Brexit process has been a protracted and frustrating one, it would appear that in the context of a lease entered into prior to the referendum, Brexit cannot be considered a frustrating event.

In the recent case of Canary Wharf (BP4) T1 Ltd v European Medicines Agency [2019] EWHC 335 (Ch), the European Medicines Agency (“EMA”) served notice on the Defendant that as and when the UK leaves the European Union, it would treat its 25 year lease, entered into in 2014, of its London headquarters as frustrated.

The doctrine of frustration is well described by Lord Radcliffe in Davis Contractors Ltd v Fareham UDC to state “Frustration occurs wherever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract”. The question before the court was whether Brexit had this effect on the EMA’s lease.

The High Court took a dim view of the challenge of the EMA. The EMA retained its power as conferred upon it by the EU to acquire and dispose of property whether within or outside of the EU, and the EMA had the right under the terms of its lease to assign or sub-let the premises. Furthermore, it was a decision taken by the EU itself to relocate the premises of the EMA from London to Amsterdam, which was considered by the court to amount to ‘self-induced frustration’. There was nothing to prevent an EU institution from maintaining headquarters in a country outside of its member states.

The case serves as a demonstration that Brexit will not be classed as a supervening event of sufficient gravity to frustrate a contract, unless it is specifically provided for within the said contract. The fact that a party is left with a bad bargain or that performance of their obligations has become more difficult is not sufficient to frustrate the contract. The importance of having a well drafted break clause within a lease is also highlighted by the case.

Leave was granted by Marcus Smith J to appeal and the result is eagerly awaited.

If you have questions in relation to leases and how they may be affected after Brexit, please contact our Commercial Property team on 01604 828282 / 01908 660966.

Tattoos and copyright

In July 2015, a YouGov poll identified that nearly one fifth of the British public had at least one tattoo. Of that 19%, 14% of the public with tattoos confirmed that they regretted at least one. Tattoos are becoming more and more popular it seems, but the laws of copyright have an effect on what designs a tattoo artist can ink on to their clients.

With an increase in the popularity of tattoos, an increase in disputes over their ownership can also be expected. Whether or not a tattoo artist tattooing the works of another artist onto their client could result in legal action will depend on the protection afforded to that specific work at the time.

Copyright lasts for different periods dependant on the type of work. Rights in relation to tattoos would fall within the category of artistic works and as such would last for the lifetime of the creator and then 70 years after the end of the calendar year of that creator’s death. For example, tattooing the works of an artist such as Vincent Van Gogh would not breach copyright, as opposed to Banksy which would be more likely to pose as problematic. In fact, back in 2014, Justin Bieber found himself causing issues and arguing that his Banksy tattoo was not a “carbon copy rip off. More subtle imagery”.

Famous tattoos

Mike Tyson’s facial tattoo was the centre of a legal dispute back in 2011, when the artist (Victor Whitmill) sued Warner Brothers for copyright infringement arising from the prominent display of the tattoo in The Hangover Part II and the film’s advertising. The artist claimed that he had drawn the tattoo, freehand, onto Tyson’s face and that there was signed paperwork where Tyson agreed that the copyright in the design vested in the artist.

However, what the artist did not (and could not) have was a right in respect of that part of Tyson’s face. The artist’s legal representation argued then that it was the parodic display of the tattoo on another character’s face which was an unauthorised copy. The case resolved, with Warner Brothers continuing to argue that in their defence the design was a parody, with a financial settlement being paid to the artist. This outcome has led to celebrities obtaining agreements to ensure that their rights are protected to prevent such future issues.

Tattoos and the general public

There is a common misconception that, as with many other works protected by copyright, upon the client paying for the tattoo the artist has inked on them, they own the work. This is not always the case.

Where a client comes in with an original design then this will likely, even once inked onto the client, remain their work and the rights would vest in the client. Alternatively, were a client to come in with an idea, rather than a design itself, then the waters appear more muddy. Essentially, without an agreement in place, the tattoo artist would be the creator of the work (despite the input of the idea from the client) and as such, the copyright would vest in the artist, even once tattooed on to the client. In circumstances which fall between these two examples, joint rights may be identified as vesting in both the client and the artist.

With this being said, formal agreements are not commonplace for tattoo studios and disputes will only likely arise where works are tattooed onto individuals with a higher profile.

Expert advice

It is always worth considering what, if any, implications may arise from any actions you are looking to take in respect of any original works. Whether that be looking to develop works without infringing the rights of the original material, or protecting your own original material from infringement by another.

If you would like further information in relation to copyright matters, whether that be protecting your own interests or ensuring you are not breaching the rights of others, our experienced Intellectual Property team would be delighted to assist.

O Office redevelopment verage agreements are entered into between a Seller and Buyer where there is a reasonable expectation that the land has the potential to be redeveloped or for planning permission to be granted for development. The Seller is then entitled to a slice of this increased value.

London and Illford Ltd (L&I) v Sovereign Property Holdings Ltd (SPH) (2018)

In this case L&I intended to redevelop the office space at the property into residential flats and so the purchase was subject to an overage agreement. L&I was required to pay SPH £750,000 if a “first trigger event” occurred during the overage period. This event was L&I’s receipt of prior approval from the Local Planning Authority for the Development relating to a minimum of 60 Residential Units at the property.

Development was defined as: “development of the Property comprising of a change of use … to a use falling within Class C3 (dwelling houses) of the Permitted Development Order.”

Residential units were defined as: “residential dwellings to be comprised in a development at the Property for residential use for sale or lettings…”

SPH claimed the sum of £750,000 from L&I once prior approval had been obtained. Unfortunately for L&I they had received the prior approval and therefore the trigger event had occurred. This was of little value to L&I as it was discovered that the construction of the 60 Residential Units would contravene building regulations because of incompatibility with fire escape provisions.

Judgment was granted in favour of SPH and an appeal by L&I was dismissed. The court held that the regime for planning permission and building regulations were entirely separate in purpose, legislation and enforcement. There was no mention of compliance with building regulations in the Overage Agreement. It was decided that both parties had attributed significant value to the receipt of the prior approval and the argument from L&I that the prior approval was of no value unless it related to the Residential Units that were capable of being built. In addition, both parties were experienced developers.

Always seek professional advice

This case highlights how imperative it is for professional advice to be taken when entering into an overage agreement and developers should be aware of this predicament when agreeing the heads of terms with the other party.

If you would like advice or guidance on Overage Agreements, or alternatively any aspect pertaining to commercial property or land development, please contact Jo Pusey, Associate Partner and Head of Commercial Property in Northampton on 01604 828282 or jo.pusey@franklins-sols.co.uk.

Highlighted contract A Contract forms the base of almost every business relationship, whether that be for the sale and purchase of goods, provision of services, or an agreement between Franchisor and Franchisee.

The Contract between the parties outlines acts each party shall perform and the terms upon which those acts should be made. So what happens when a party fails to carry out their side of the deal? Or acts against specific terms within the Contract?

Firstly, we will look at behaviour that constitutes breach of Contract, before exploring the remedies available.

What constitutes a ‘breach’?

Simply put, if a party to a Contract fails to follow through with their side of an agreement, or goes against a term within the Contract, they could be found to have ‘breached’ the Contract. Examples include a failure to pay for goods delivered or failure to provide specific services.

What remedies are available?

There are a variety of remedies available for Breach of Contract and the appropriate remedy will depend on a number of factors, as well as the desired outcome of the injured party. Often, particularly in commercial scenarios, it is important to try and maintain the business relationship between parties so far as is practicable, to preserve reputations and ensure that the opportunity for the parties to work together in the future remains. It is therefore important to take time to consider the most appropriate remedy in the circumstances.

Damages

Damages is the most common remedy found in a Breach of Contract case and is a monetary award intended to provide a form of compensation for the injured party.

Damages are most commonly awarded for financial losses which have arisen as a result of a breach, however in rare and exceptional circumstances, can be awarded for non-financial losses, such as mental distress and loss of amenity although such awards are more common in personal injury cases.

It is important to note that the aim of an award for damages is to put the injured party into the position they would have been in, had the offending party acted in accordance with all terms of the Contract, rather than to serve as a merely a ‘punishment’ to the offending party.

Specific Performance

Specific Performance is when an offending party is ordered to carry out his positive contractual obligations, or to put it simply, do what they had agreed to do in the first place. Specific Performance would usually only be ordered if damages would not be deemed a suitable remedy in the circumstances. It must also be proven that there is a valid and enforceable Contract between the parties for Specific Performance to be awarded.

An example of when Specific Performance could be appropriate would be when a skill or profession of an offending party is so rare or specialised, it would be difficult to find another person or company to enter into a like Contract with.

Rescission

Rescission is a remedy used to set aside the Contract to restore the parties to the position they would have been in had the Contract never been entered into in the first place. The most common grounds for rescission include:

Misrepresentation
When a party entered into the Contract under Duress or Undue Influence
A mistake had made by one or all of the parties as to a matter forming part of the Contract or relating to the surrounding factors of the Contract.

Contractual Liens

It is possible for a Contract to contain a clause entitling a creditor to a lien over goods or possessions in the event that an offending party (or debtor) fails to comply with their part of the Contract. If such a clause is contained within a Contract, the Creditor would have the rights to seize certain goods which have been provided to the Debtor, to make up for the lack of payment for said goods.

Arbitration Clauses

Often a Contract will contain an Arbitration or similar clause stating that the parties must attempt a suitable form or Alternative Dispute Resolution (“ADR”), prior to pursuing the other party for any alleged breach of the Contract. Failure to make reasonably steps to attempt ADR in the first instance could constitute a breach of Contract in itself and it is therefore important to identify and comply with such a clause.

Limitation Period

If an injured party wishes to pursue an offending party for breach of Contract they must do so within a period of six years from the date on which the breach occurred, or from the earliest date upon which the injured party could reasonably have become aware that such a breach has occurred. It is important that such limitation periods are diarised to ensure that an opportunity to pursue any potential Claim is not lost.

We are here to help

Our Dispute Resolution Department has vast experience with Breach of Contract disputes including disputes regarding Share Purchase Agreements, Franchise Agreements and Misrepresentation.

Should you have any queries or concerns in relation to a potential Breach of Contract whether relating to a Commercial Agreement or an Individual Contract please do not hesitate to contact us on 01604 828282 or litigation@franklins-sols.co.uk.

On 1 October the new Pre-Action Protocol (“the Protocol”) for debt claims is due to come into force which will provide a Debtor with a full 30 days to respond to a Letter of Claim before a Creditor is able to issue proceedings with the Court. Whilst this will not affect business to business debts, it will apply to any debt being claimed by any business, including sole traders, from any individual.

What is the purpose of the new Protocol?

The Protocol has been introduced to encourage early and clear communication between the parties in the hope that matters will be resolved without the need to issue Court Proceedings. The aim is that by following the Protocol, parties will agree to a repayment plan suitable for both parties or failing that, use an appropriate form of Alternative Dispute Resolution (“ADR”) to settle the claim. The benefit of this is that parties should be discouraged from running up costs disproportionate to the claim and subsequently, a solution could be reached sooner than if Court proceedings were to be issued.

The Protocol will ensure that all information regarding the debt is provided to each party at the outset of the claim, which will allow Debtors with the opportunity to raise any queries or disputes in good time.

Stages of the new Protocol

1. Letter of Claim

The Creditor should first send a Letter of Claim to the debtor which must provide them with at least 30 days to respond. Enclosed with the Letter of Claim should be; a template Information Sheet, a Reply Form, a Financial Statement Form and any relevant statements of account.

The following information should also be contained within the Letter:

The amount of debt and details of any accruing interest.
Details as to how the indebtedness has arisen.
Details of any written agreement relating to the debt, including the date of such agreement, names of the parties to the agreement and confirmation that a copy of the same can be requested from the Creditor.
If the debt has been assigned, details of the original debt and Creditor and confirmation as to when it was assigned and to whom.
If regular instalments are being paid or offered by the Debtor, an explanation as to why the Creditor is still considering issuing a Court claim.
Details of how the debt can be paid and how to proceed should the Debtor need to discuss payment options.
The address to which the completed Reply Form should be sent by the Debtor.

If no response is received, the Creditor may start Court proceedings.

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2. Response

The Debtor should use the Reply Form enclosed with the Letter of Claim and complete and return the same within the 30 day period. The Response should include the following:

A request for any documentation or information relevant to the claim that the Debtor wishes to see.
Confirmation of the intention to seek any debt advice if applicable. If the Debtor is in the process of obtaining or intends to seek debt advice, the Creditor is obliged to allow a ‘reasonable period’ for the Debtor to obtain such advice, even if the Debtor has indicated that this cannot be obtained within 30 days of their reply.
Confirmation as to whether or not the Debtor requires time to pay. If time is required, both parties should attempt to agree a suitable repayment plan which the Debtor can reasonably afford.
The Financial Statement Form enclosed with the Creditor’s Letter of Claim should also be completed and returned by the Debtor to provide the Creditor with information as to the Debtors current financial position.

Under the Protocol, the Creditor should not commence Court proceedings less than 30 days from receipt of the completed Reply Form or 30 days from providing the Debtor with any documentation/information requested by them (whichever is the later date).

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3. Making attempts to Settle or try ADR

If it has not been possible for the parties to reach an agreement or solution at this stage, the parties should consider the use of ADR. Appropriate ADR may just take the form of negotiation and discussion for general debts, however the more formal mediation process may be more appropriate for large debts.

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4. Agreement

Both parties should make all reasonable attempts to reach an agreement without the need to issue Court proceedings. When an agreement has not been reached but the Debtor has provided a response to the Letter of Claim, the Creditor should allow them with at least 14 days’ notice before commencing Court Proceedings. If an agreement is reached, the Creditor must not issue Court proceedings whilst the agreement is being complied with by the Debtor. If the Creditor has reason to issue Court proceedings in the future, a new Letter of Claim must be sent to the Debtor and the new Protocol must be repeated.

What should businesses to avoid penalisation for non-compliance?

Currently many businesses tend to allow Debtors with 3 – 7 days to respond to a Letter before Action. Consequently the 30 day timescale provided by the Letter of Claim is likely to have a big impact on how debt recovery matters are dealt with at the outset.

Non-Compliance with the new Protocol may result in the Court imposing a stay on litigation proceedings to allow for the Procedure to be followed or even sanctions on costs being imposed to penalise a non-compliant party. It is therefore important that all internal procedures and precedents relating to debt recovery are reviewed and amended to ensure that they are compliant and to allow the appropriate length of time for the Debtor to respond at each stage.

We would therefore advise that all businesses do the following prior to 1 October 2017:

Review your Credit Control Procedures;
Consider Reducing your ‘accepted’ Debtor days;
Amend any chaser letters to reflect the changes.

Should you have any queries or require any advice or assistance with regards to the new Procedure please do not hesitate to contact the Litigation Team here at Franklins on 01604 828282 or litigation@franklins-sols.co.uk who will be more than happy to guide you further.

London and Illford Ltd (L&I) v Sovereign Property Holdings Ltd (SPH) (2018)