Spring 2004
In this
issue
Meade King
News
Unlock the Value of Your
Home
Mobile Phones: the new
offences
New Rules for Business
Tenancies
Employment update
Adjudication decision clarifies payment certificates but raises
spectre of professional negligence
The
new individual insolvency regime: encouraging enterprise or debtor’s
charter?
Circumventing private
company share transfer restrictions
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Newsletter Archive
Meade King News
Charity event
We are delighted to be organising a Charity Ball this summer
to raise funds for the children’s charity CLIC. The Ball will take place
on 4th June at the Bristol Marriott on College Green and tickets will shortly
be available for tables of 10. We are hopeful that some of you may also wish to
donate prizes for the event.
If you feel able to make any suitable donation, would like
further information or wish to pre-order tickets, please contact Rebecca Briley
on 0117 926 4121 or by e-mail
rb@meadeking.co.uk
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Unlock the Value of Your Home
The newspapers regularly carry articles
and advertisements encouraging people to enter into equity release schemes to
unlock the value in their home.
“Equity” here is the difference between the value
of the property and any amount secured on mortgage. An equity release scheme is
a vehicle which uses the home to generate either a lump sum or a regular
income. According to the Council of Mortgage Lenders equity release is the
fastest growing sector of the mortgage market, with growth rates of over
30%.
Elderly people owning valuable property may face a problem
in funding their lifestyle on limited income. In recent years this problem has
been exacerbated by low interest rates and a falling stock market. Many people
are considering equity release schemes with a view to raising capital to
supplement income or as a tax planning tool to reduce their inheritance
tax.
There are essentially two ways in which equity can be
released. The first is by way of a home reversion plan where all or part of the
house is sold to the fund provider conditionally upon the borrower being able
to live in the property rent free for the remainder of his/her lifetime. If
part only of the property is sold, then the fund provider shares in any
increase in the value of the property proportionate to its interest. The equity
released can provide either a lump sum, or income or both.
The second scheme is the lifetime mortgage or equity release
mortgage. Here, the owner borrows against the value of the property, raising a
loan which can be used to provide income or a lump sum or both. This is similar
to the mortgage which the majority of us took out when we first purchased our
property, but with important differences. First, there is no fixed repayment
date so the loan is repaid on death or if the property is sold. Second, in the
majority of cases there are no interest payments made. Any interest is simply
rolled up.
The scheme best for any individual will depend on individual
circumstances. It is an area where both legal advice and advice from an
independent financial advisor is strongly recommended.
For more information please contact Richard Boulding
rjb@meadeking.co.uk
or Victoria Cook
vkc@meadeking.co.uk
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Mobile Phones:
the new
offences
The introduction of new offences relating to the use of
mobile phones by drivers was well-flagged in the media and most drivers will
have been aware that it has been an offence to drive whilst using a hands-on
mobile phone since 1 December 2003. However, the regulations create other
offences which have been less publicised.
The new regulations also make it an offence for any person
to ‘cause or permit’ any other person to drive a motor vehicle on a
road whilst using a hand-held mobile telephone, or any other hand-held texting
or communication device. The most obvious word of caution here is for employers
who expect, encourage, or even allow their employees to conduct business calls
on inappropriate equipment whilst travelling.
Another offence created by the regulations, which may not be
so widely appreciated, is that of supervising a learner driver whilst the
person supervising is using a hand-held mobile phone or other communication
device. Parents and friends supervising learners should therefore take care to
switch off their own mobiles before the lesson commences.
There is an exemption to the regulations for genuine 999
emergency calls, but only where it would be ‘unsafe or impracticable’
for the driver (or as it may be the learner driver) to cease driving in order
to make the call. An example would be where the driver is in fear of a
pursuer.
That’s it! Happy motoring!
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New Rules for Business Tenancies
As from 1 June substantial changes to the
law relating to business tenancies will come into effect.
Contracting out
First, it will no longer be necessary to obtain a court
order to contract out of the Act. Instead, the landlord must serve on the
tenant a prescribed notice containing a ‘health warning’ about rights
being waived by the tenant. The tenant must sign a declaration that he has
received the notice and accepts its consequences. The parties are then free to
enter into the agreement.
There will be a similar procedure for an agreement to
surrender a lease.
Lease renewal
New renewal procedures will apply:
- The landlord’s section 25 notice must set out his
proposals for a new tenancy, assuming he is not objecting to a renewal. That
brings a section 25 notice into line with a section 26 request by the tenant
which requires the tenant to set out his proposals
- It will no longer be necessary for a tenant to serve a
counter notice to a landlord’s section 25 notice. [For notices served
before 1 June, tenants will still need to be conscious of the two month
deadline for service of a counter notice]
- Applications to court. From 1 June, both landlord and
tenant can apply to the court for the grant of a new tenancy. Also, where the
landlord has objected to a renewal either in his section 25 notice or in
response to the tenant’s request for a new tenancy, he can apply for an
order terminating the current tenancy
At present, there are absolute time limits which apply to
applications for new tenancies providing a 2 month window during which the
application must be made. From 1 June, applications must be made within
‘the statutory period’ which will be at least 6 months and may be up
to 12 months after the notice has been served. Either party can apply to the
court if they wish to accelerate the process but they will still have to wait 2
months after a section 26 request, unless the landlord has served notice
objecting to a renewal on one of the statutory grounds.
It will be possible for the parties to extend the time
limits for court applications further (even indefinitely) by agreement,
provided they agree to do so before the end of the statutory period or before
the end of any agreed extension.
While, at first glance, the dangers of the present strict
time limits have been removed they have been replaced by further traps for the
unwary.
Interim rent
At present only the landlord can ask the court to fix an
interim rent - the rent payable after the old contractual arrangement has ended
and while the tenancy is being continued under the Act. From 1 June both
landlord and tenant can apply – a great help to the tenant if rents are
falling.
At present, interim rent is payable from the later of:
- the date of the landlord’s application; or
- the date specified in the section 25 notice; or
- the date specified in the section 26 request.
If the landlord applies late, he will lose out. Under the
new rules, subject to a long stop date, the interim rent will take effect from
the earliest date that could have been specified in the landlord’s notice
or tenant’s request, regardless of when the landlord makes his
application.
Under the new regime, the amount of interim rent in the
normal case where renewal is not opposed and a new lease is actually granted,
will be the same as the market rent payable under the new lease.
Provision of information
Finally, there is a change to section 40 which requires the
tenant and the landlord to provide each other with information in response to a
request in the prescribed form. From 1 June additional, more detailed
information must be given to any request made within 2 years before the end of
the tenancy. Time limits apply to the giving and updating of the information.
Both landlords and tenants will need to ensure that adequate records are kept
to avoid risking claims for damages which are expressly provided for in the new
section 40.
If you need any further information relating to the new
procedures or on any other commercial property issues, please contact Peter
Watkin
pjw@meadeking.co.uk
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Employment update
Essa v Laing
This was a race discrimination case. The applicant, a
Welshman of Somali ethnicity and an amateur boxer, worked as a labourer. A site
foreman of the employer made a racially abusive comment which caused him
immense distress. The applicant left the site soon after. He suffered severe
depression, lost interest in boxing and finding other work, and fell into debt.
He tried to recover damages for this injury to feeling and was awarded
£5,000 on the basis that he could only recover for damage that was
reasonably foreseeable. He appealed to the Employment Appeal Tribunal. The
Tribunal decided that he should be able to recover for psychiatric injury
flowing from an act of race discrimination even though his
reaction was wholly extreme and unforeseeable. The employer appealed to
the Court of Appeal which rejected the appeal, agreeing with the decision of
the EAT.
ACAS Draft Code and Guidance
ACAS have published a draft code for the new statutory
disciplinary and grievance procedures which come into force in October this
year. The code tells employers and employees what they have to do to comply
with the new statutory framework and how this sits with existing good
practice.
The new code is expected to come into effect at the same
time as the introduction of the legislation and a public consultation on the
draft code is due to be completed by 14 April 2004.
The code can be found at
www.acas.org.uk/publications/pdf/CP01.2.pdf
ACAS has also recently updated its guides to bullying and
harassment in the workplace.
The employer’s guide can be found at:
www.acas.org.uk/publications/AL05.html
The employee’s guide can be found at:
www.acas.org.uk/publications/AL04.html
Changes to the Disability Discrimination Act
1995
From October 2004 there will be substantial changes to the
DDA. These will mean that employers of less than 15 employees and most
previously excluded occupations will be brought within the scope of the
employment provisions of the DDA. In addition to this, service providers will
be required to make physical changes to their premises to make access for
disabled people easier.
For further information on these or any other employment
related issues, please contact Richard Holmes or Ben Thomas
rwfh@meadeking.co.uk
or
bt@meadeking.co.uk
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Adjudication decision clarifies payment
certificates but raises spectre of professional negligence
Now well established as a mainstream form of dispute
resolution, adjudication has attracted some serious attention, not just from
contracting parties but also from their professional advisers: lawyers,
surveyors, architects and claims consultants alike.
Developments in this arena have led to complex arguments and
interesting decisions. Although most adjudications receive little publicity, a
considerable number have been tested through the Courts and a reasonable body
of case law has developed.
Two recent decisions will have an important effect on how
adjudicators deal with certain types of dispute and, consequently on how
parties should make their contractual arrangements.
Rupert Morgan Building Services (LLC)
Limited v David Jervis and Harriett Jervis (Jervis) was the seventh case
to be considered by the Court of Appeal under the Housing Grants Construction
& Regeneration Act 1966 (“the Act”).
The contractor carried out building works for Mr & Mrs
Jervis at their cottage. The parties had agreed upon the use of a standard form
contract provided by the Architecture and Surveying Institute (ASI). Under the
contract, Mr & Mrs Jervis employed an architect to issue interim
certificates whereby the contractor would receive interim payments whilst works
were ongoing. The issue of the certificate was based upon the architect’s
scrutiny of the application for payment presented by the contractor.
On one application, Mr & Mrs Jervis disputed part of the
sum claimed by the contractor. Unfortunately, they failed to give notice of
intention to withhold payment, either under the ASI contract or under Section
111 of the Act.
The contractor contended that in the absence of notice they
could not withhold payment - a contention raised previously in the cases of
SL Timber Systems v Carillion Construction (S&L) and
Debeck Ductwork & Installations Limited v T&E;Engineering
Limited (Debeck). These cases decided that whether a withholding notice
had been given or not, a party seeking payment still had to justify its claim
for that payment.
The Court of Appeal in Jervis approached the argument in a
fundamentally different way. In an ASI contract, the sum to be paid is
determined by the certificate issued by the architect, not by the work proved
to have been done. This was not the case in S&L and Debeck. In those cases,
the contractor had actually to prove the work he had done to the value he
claimed. In Jervis, that was the job of the architect and, once the certificate
was issued, payment fell due unless a withholding notice was served. This was
so even though the architect’s interim certificate was not itself
conclusive evidence of the work done for which payment was sought.
The terms of the contract are clearly crucial and
contractors are best advised to seek payment terms similar to those provided
for in an ASI type contract.
This case may well create a further maze for the paying
party. Of greater concern to professional contract administrators however were
the comments of Jacob LJ who said that an architect should inform his lay
client about the possibility of serving a withholding notice and the
consequences of not doing so. He also said that the architect may also have a
duty to do so, giving rise to the spectre of professional negligence claims
where he fails in this duty.
The case highlights that payment clauses should be read very
carefully and at all times the withholding notice and the time for service of
it must be in the forefront of the paying party’s (and its advisor’s)
mind.
A similar situation was reviewed in the case of
Watkin Jones & Sons Ltd v Lidl UK. The contract
in that case did not provide for an architect’s certificate but stated
simply that the contractor’s application for payment would be the sum due.
Once again, the withholding notice was all important. The paying party was in
the same position as in Jervis.
For further information, please contact Phil Burbidge
pjb@meadeking.co.uk
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The new individual insolvency regime:
encouraging enterprise or debtor’s charter?
The introduction on April Fools Day 2004 of the reforms to
personal insolvency law introduced by the Enterprise Act 2002 has met with a
mixed response from commentators.
The proposals form part of the Government’s objective
of “prosperity for all” and their stated aims are to promote the
enterprise economy, empower consumers, modernise the insolvency regime, promote
a “rescue culture” and help make UK markets more competitive.
The changes can broadly be summarised as follows:
Automatic and early discharge from bankruptcy
Those made bankrupt after 1 April will be automatically
discharged after one year, (currently 3 years, or 2 years where debts do not
exceed £20,000). Discharge may be possible even sooner if the Official
Receiver is satisfied that any investigation work is unnecessary or concluded.
Objections may be raised to early discharge in appropriate cases.
Bankruptcy restriction orders
Alongside the new early discharge regime the Act creates
bankruptcy restriction orders (“BRO’s”). These restrict the
activities of a bankrupt, and may last for between 2 and 15 years. An
application for a BRO must be made within 12 months of the making of a
bankruptcy order, and will prevent former bankrupts from obtaining credit over
£500, trading other than in his or her own name and acting as director of
a limited company.
Income payments agreements
The new regime will allow bankrupts and their trustees in
bankruptcy to enter into Income Payments Agreements, running for 3 years. No
court order is needed to enter into such an agreement but the court will
enforce the agreement should payments fall into arrears. Any application to the
court will usually be accompanied by an application for the suspension of
discharge from bankruptcy.
New proposals to deal with bankrupts’ homes
From 1 April, trustees will have a 3 year time limit to take
steps to realise the value of the bankrupt’s interest in his home. Failure
to do so will result in the home revesting in the bankrupt. This is a radical
change from the present bankruptcy regime, where property owned by a bankrupt
vests in his or her trustee in bankruptcy permanently and by operation of
law.
The new bankruptcy regime has been criticised by many
commentators as tipping the economic balance too far in favour of debtors, at
the expense of those who are owed money. Whilst the removal of crown preference
will be abolished in all insolvencies as from 1 April, we are not convinced
that taken as a whole the new regime will result in an improvement of the
position for unsecured creditors in general.
For more information on the new bankruptcy regime or for any
other insolvency related issues, please contact Keith Mahoney
kwm@meadeking.co.uk
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Circumventing private company share transfer
restrictions
The recent case of Rose v Lynx Express
Ltd is another example of how important the distinction can be between
the transfer and the sale of shares.
A transfer has been consistently held to mean the transfer
of legal title to the shares. A buyer only becomes the legal owner of shares
once they have been registered in his name. Until then the company and the
other shareholders must treat the registered owner alone as the member for the
purpose of dividends, notices of meetings and voting at general meetings.
Beneficial ownership however passes to the buyer when the
sale has been agreed which can be a considerable time before the shares are
registered.
Once a registered holder of shares has agreed to transfer
shares to a third party he becomes a constructive trustee or nominee for the
buyer and may be bound to account to the beneficial owner for any dividends
paid on those shares and to exercise the votes attaching to those shares in
accordance with the wishes of the beneficial owner.
A buyer will usually want to make sure that the shares are
registered in his or her own name at the earliest opportunity rather than rely
on the registered holder acting as he directs but there are some situations
where a buyer may prefer or indeed have no alternative but to trust the
transferor:
- If the buyer wants to avoid his or her interest in the
shares becoming public knowledge since the name of the registered owner is that
which appears on the public record.
- It is relatively common practice for articles of
association to require any transferee to be approved by the directors or the
other shareholders so as to protect the company’s shareholders as a whole
from an unacceptable person being admitted to membership. However it is far
rarer for standard articles to restrict the transfer of beneficial ownership.
The object of the share transfer restriction can often be by-passed simply by
delaying the registration of the transfer.
Even if a company’s articles do prohibit the
unauthorised transfer of beneficial ownership, it may still be necessary to
give the directors the power to investigate suspected breaches of the transfer
article and to penalise an offending shareholder by disenfranchising his or her
shares or triggering compulsory purchase powers.
If you would like to discuss how you can protect your
business from unwelcome shadow participants please contact James Hawkins
jnh@meadeking.co.uk
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Whilst every effort has been made to ensure accuracy,
information contained in the Orchard may not be comprehensive and should not be
acted upon without professional advice. |
