Commercial FAQs

Whilst landlords do have on paper some draconian remedies against tenants who fail to pay their rent, it is a brave landlord who will forfeit a lease in the current market. As well as a loss of income an empty property means you as Landlord will have to bear ratings liability in addition to the costs involved in finding a new tenant in a difficult market.

There are a number of practical solutions that should be considered by Landlords if faced with a tenant in difficulty. The first thing to remember is that you need to be open for communication and negotiation.

Increasingly tenants are approaching landlords with requests for rent to be paid monthly or weekly rather than quarterly to assist with their cash flow. If this means that your tenant has a better chance of making it through the economic storm then consider being flexible.

To help your tenant stay afloat you may be prepared to accept a reduced rent for a period. A reduced rent is better than no rent especially if it means your tenant stays in business. Where there are previous tenants or guarantors who retain a liability to your tenant's obligations, then you need to take care to preserve your rights against these parties. You must notify such parties of any arrears in a prescribed manner and if any rental concessions are made, then you would be well advised to ensure that the previous tenants and any guarantors are made parties to those concessions.

It is clear that the inability of a tenant to pay its rent is a problem for both the tenant and the landlords and whilst landlords will generally expect tenants to evidence their financial difficulties, there are mutual benefits to be gained from them working together.

It is open to the Landlord and Tenant of a Lease to renegotiate the terms and renewal as they wish. The general rule is that the Lease will remain the same other than to the annual rent and other minor changes for modernisation. If the parties fail to reach an agreement the Court will decide the terms. The Court must have regard to the terms of the current tenancy and to all relevant circumstances. The rent will be for the amount which the premises might reasonably be expected to be let in the open market.

If either party wishes to propose a change to the Lease they must prove that it is fair and reasonable. However, while the wishes of a party in the market ought fairly to be considered they are not necessarily sufficient grounds for the Court to depart from the terms of the original Lease. The Landlord and Tenant Act 1954 does not invite the Court to draw on current market practice to determine the terms of a Lease.

As a Tenant, therefore, you are entitled to insist that all terms of the Lease remain the same other that the renegotiation of the rental figure. You can resist any onerous changes which your Landlord may try to incorporate. Be sure to take legal advice so that the old Lease and new Lease can be compared and considered carefully.

This is a very difficult yet common situation. As you and your partner have never drawn up a partnership agreement, formally or informally, the partnership is called a partnership at will, which means that it is governed by the Partnership Act 1890. The Act sets out that in the absence of any express agreement the partnership is capable of being dissolved simply by your friend giving notice to you that she wishes the partnership to end. This notice need not state any reason for the dissolution and can have immediate effect. Dissolution consequently ends the partnership. The business would then be sold either as a going concern or the individual assets would be sold. In either case, the proceeds are used to pay off any debts, then, the balance is used to return the capital to the partners. Any final balance would then be distributed equally amongst the partners. If you wished to continue in the partnership I would suggest that you try to negotiate with your friend in an attempt to settle your differences. I would then recommend that you seek legal advice and have a formal partnership agreement drawn up which would deal with, amongst other things, what would happen to the partnership if one of you decided to leave.

The current law states that it is a criminal offence which can result in a fine of up to £5,000 (and/or a prison sentence of up to 6 months), to:

• supply (which includes retail sale) unsafe fireworks;
• sell fireworks to persons under the age of 18 (except caps, cracker snaps, indoor fireworks, novelty matches, party poppers, serpents and throwdowns which can only be supplied to persons over 16); or
• sell fireworks all year round without a licence to supply. For Bonfire Night, the relevant period for sale is from 15th October to 10th November.

Suppliers of fireworks must display, in a prominent position, an A3 notice stating the following:

It is illegal to:-

1. Sell adult fireworks or sparklers to anyone under the age of 18
2. It is illegal for anyone under the age of 18 to possess adult fireworks in a public place

In addition, before storing fireworks, suppliers must either register or licence their storage premises with their local authority or, where large quantities are concerned, the Health and Safety Executive (HSE).

Steps to be taken to ensure you meet your obligations under the Firework (Safety) Regulations include:

• Displaying appropriate posters, point of sale material and window stickers.
• Ensuring that staff are fully and regularly trained on the legal requirements.
• Instructing staff to ask for proof of age from any customer looking under the age of 25.
• Ensuring staff are supervised. Make sure that a senior member of staff is always available if a problem situation arises.
• Keeping a log of 'refused sales' and support staff if refusals are made.
• Using CCTV cameras to spot potential problems early.
• Contact your local HSE office or local authority if you have any concerns.

When setting up a relationship with an intermediary it is vital that a supplier decides whether to appoint the intermediary as an agent or a distributor.

The difference between the two is that an agent will represent the supplier when seeking, negotiating and concluding contracts with the customer, but the ultimate contract will be between the supplier and the customer. Whereas, in a distribution arrangement the distributor will buy the goods from the supplier and then contract directly with the customer.

In both cases, it is sensible to have a written agreement. However, attempts to regulate the relationship in the case of an agency are somewhat restricted by the Commercial Agency (Council Directive) Regulations 1993 (“the Regulations”).

The Regulations infer a number of stringent obligations on suppliers. The most onerous obligation is the entitlement of an agent to an indemnity or compensation for the damage suffered as a result of the termination of the agency contract. Such a right arises even where the agency is terminated as a result of the agent's death or where the agent terminates the agency as a result of retirement or ill health.

The courts' recent interpretation of the Regulations has been heavily favourable to agents at the expense of the supplier. It is therefore essential that business's seek legal advice before entering into arrangements with intermediaries.

First you should clarify the full terms of the offer and whether it is to buy the business from the company (in which case the company will receive the purchase price) which is known as an asset purchase, or the shares in the company from you (in which case you will receive the purchase price) which is known as a share purchase. As the difference in terms of your net return can be significant, you should talk to your accountant beforehand. For a seller it is generally better and more tax efficient to sell the shares in the company. A purchaser buying shares will acquire all the assets and liabilities of the company. A purchaser buying a business can cherry pick the assets it requires and may leave behind certain liabilities.

A purchaser will normally require information regarding your business. This is known as the Due Diligence process and will involve the purchaser providing you with a set of pre contract enquiries about different aspects of your business. Before you start releasing information to the purchaser you should ensure that there is a confidentiality agreement in place. If the purchaser is buying the shares then, as they will be taking all the potential liabilities, the pre contract enquiries will be extensive.

The purchaser's solicitors will usually prepare the sale agreement which will contain warranties (statements of fact by you regarding the company upon which the purchaser can sue you if they are incorrect) which can be qualified by you in your disclosure letter to the extent you know the warranties are untrue.

The process of selling a company can be very stressful and complicated. You should seek advice at the earliest opportunity from a lawyer experienced in dealing with such transactions. To neglect to do so can, and does, result in many people failing to realise what can be a lifetime's work and effort.

All UK directors and company secretaries must file their usual residential address at Companies House and this information must be available for public inspection. A principal reason for this is to make it more difficult for unscrupulous directors to wind up a company and disappear without trace; the existence of a register gives creditors a way to pursue directors.

At present the only exception to having your home address on the register is if you believe that having your home address available publicly will create, or is likely to create, a 'serious risk' to you or your family. If you believe you fall under this category you can apply to the Secretary of State for a “Confidentiality Order”.

With a Confidentiality Order in place, your home address will be kept only on a separate, secure register, to which only certain authorities such as the police and specified other public sector regulators have access.

Changes on the horizon

Whilst the above might be of understandable concern to some directors, the present system will soon change. This could come as a welcome relief to directors concerned about their information being public but who are unsure whether they qualify for a Confidentiality Order.
New rules coming into force on 1 October 2009 will enable directors to file a service address (e.g. their work address) for the public register, keeping their residential address on a private register available only to specified organisations. There will be no need to show the present requirement of “serious risk”.

As the recession bites and more and more businesses are suffering we are getting an increasing number of enquiries regarding directors duties and potential liabilities. The following is a helpful reminder of the duties and obligations and potential liabilities of a director.

The Companies Act 2006 codified directors duties owed to their companies into seven statutory duties. They are:

1. Duty to act within the powers conferred by the company's memorandum and articles of association (constitution) and to exercise the powers for proper purposes..
2. Duty to promote the success of the company.
3. Duty to exercise independent judgment.
4. Duty to exercise reasonable care, skill and diligence.
5. Duty to avoid conflicts of interest.
6. Duty not to accept benefits from third parties.
7. Duty to declare interest in proposed transactions or arrangements with the company.

A director still has a fiduciary duty to his company to act in the best interests of the company and to act in good faith.
In the current climate a number of businesses may find themselves in or close to an insolvent position and under the Insolvency Act 1986 offences for which directors can be personally liable include:

• Preferences
• Wrongful Trading
• Fraudulent Trading

A director should take every reasonable step to minimise loss to creditors once he is aware that the company is unlikely to avoid liquidation and it is essential that in the period preceding liquidation all creditors are treated equally.

If you, as a director, are worried about the financial position of your company you should take urgent advice regarding next steps.

If, as is usual, the lease made you responsible for repairing the property, then the landlord can claim for the cost of “dilapidations” when the lease ends, but there are a number of factors which may limit your liability.

Check the repair clause in the lease carefully – the extent of your repair obligations will depend on the precise wording of the clause. The age and nature of the building may also be relevant. A tenant cannot be expected to return an old building in the condition which may be expected of a newer or modern building. If the shop was part of a larger building, ensure the landlord is not seeking costs for repairing part of the building which it was not your responsibility to repair.

Consider the actual costs claimed as landlords sometimes claim inflated sums . It may well be possible to argue the repair could be carried out more cheaply.

Perhaps more importantly, s.18 of the Landlord and Tenant Act 1928 limits the amount the landlord can claim to the amount by which the value of his interest has reduced because of the failure to repair. This may be substantially less than the costs of repair. For example, if it is likely the landlord would have to modernise the shop before letting it, or a tenant would necessarily have to carry out a refit, your failure to repair may not have affected the value or rental value . If the landlord is planning to redevelop the building, then you may not be liable for any dilapidations, because redevelopment would render repair work unnecessary.

Be sure to consider seeking professional advice as it is likely to be money well spent.

Firstly, you may wish to consider instructing a solicitor to send what is known as a 'Letter before Action', allowing the debtor 7 days to make payment in full or put forward proposals for settlement, failing which court proceedings will be issued. You may also be entitled to request from the debtor, compensation and interest pursuant to the Late Payment of Commercial Debts Act, which will be added to the original debt.

If payment is still not forthcoming, then you can issue a claim for the debt, together with compensation, costs and interest in your local County Court. A claim form will be served on the debtor, informing them of the court proceedings and giving them a deadline to respond. The debtor may fail to respond, admit the debt and make an offer of repayment, or file a defence and/or counterclaim. Alternatively, you may be referred to mediation in order to try to resolve the issues in dispute, without the need for a court hearing.

Once judgment has been decided, you will have a number of enforcement options available to you. These are attachment of earnings, instructing a High Court Enforcement Officer to levy on goods owned by the debtor, placing a charge on any property owned by the debtor, a Third Party Debt Order, or bankruptcy / winding-up.

It is advisable to seek specialist advice from a solicitor.

The introduction of new legislation in the UK is set to clamp down on unfair marketing and sales practices. Unlike the majority of the EU, the UK has never had its own general law requiring fair dealing in business to consumer transactions. Rather, consumers have had to rely on a wide variety of laws and codes of practice in the event of a dispute. This is now set to change with the implementation of The Consumer Protection from Unfair Trading Regulations 2008 ('CPRs').

The principle objective of the CPRs is to prohibit unfair commercial practices that impact on consumers. There are four main categories which are seen to be unfair.

• 'General unfair conduct' is intended to ensure that traders use 'professional diligence' when dealing with consumers. Professional diligence requires that a trader uses honest market practices and acts in good faith at all times. This general prohibition is intended to regulate conduct which is not covered by the more specific prohibitions below.
• The CPRs sets out 31 commercial practices which are banned and always considered unfair. This includes practices such as imposing false time limits for supply in order to force consumer decisions and inaccurately describing goods or services as free without charge when in fact the consumer has to pay for other costs such as collection.
• The CPRs prevents misleading acts and omissions. A commercial practice is misleading if it contains false information which is likely to deceive the average consumer. This also includes confusion between traders' products or trade marks with that of a competitor.
• Aggressive practices are prohibited and prevent traders from using heavy handed tactics to force sale. This would include threatening or abusive language or more subtle aggressive techniques such as preventing consumers cancelling subscriptions or obtaining refunds. Misleading the admission will involve hiding material information which will impair the average consumer's freedom of choice.

Breaching any of the prohibitions above is likely to be a criminal offence carrying a fine and/or imprisonment for up to 2 years. The Office of Fair Trading has powers to investigate companies which they believe do not comply with the CPRs.

Businesses should review their current consumer practices to ensure fairness and honesty at all times.

If you think that this is complicated you are 100% correct. Perhaps a few pointers might help:

1. The idea behind stamp duty land tax as we are now supposed to call it is that the stamp duty on a lease should reflect the capital value of the property.
2. As the calculation of the duty is so complicated the Inland Revenue very helpfully has a calculator on its web site to assist.
3. A lease of more than 7 years has to be registered at the Land Registry and stamp duty has to be paid before the lease can be registered so there is no escape from paying the duty.
4. When a rent review takes place another stamp duty land tax form has to be completed within 30 days and sent in to the Inland Revenue. This is to prevent a lease being granted at a low rent for say the first year (to avoid stamp duty) and the rent then being increased dramatically in year 2.
5. What happens you may ask if you don't notify the Revenue of a rent review ? When they find out you are liable to pay a penalty as well as the stamp duty and interest for late payment.

Yes and straight away! The Regulatory Reform (Fire Safety) Order 2005 came into force on 1 October 2006 and obliges anyone who has control over premises used for non-residential purposes to carry out a fire safety risk assessment. This includes owners, company directors, managers, and occupiers.

It is very important you carry out your assessment immediately to ensure the risks of fire are minimised, failure to comply with the regulations is a criminal offence. In addition, a common condition in buildings insurance policies is that you will comply with all legislation, therefore if you haven't carried out a fire safety risk assessment you risk not being able to claim against your insurance policy.

There are various professional organisations which will carry out fire assessments for you, at a cost, but you can also do your own assessment. If you do your own assessment you will need to consider the following 5 steps:

1. Identify fire hazards. E.g. Naked flames, heaters, or fuel.
2. Identify people at risk Make a list of those people who may face a particular risk e.g. People in isolated areas.
3. Evaluate, remove or reduce, and protect from risk. Sources of ignition must be kept away from flammable materials.
4. Record, plan, inform, instruct and train. Make a record of those risks identified in step 3 and what action you did to remove or minimise them.
5. Review. The fire risk assessment needs to be regularly reviewed and updated.

Detailed guidance on how to carry out your own fire risk assessment is available at www.communities.gov.uk or from DCLG Publications, PO Box 236, Wetherby LS23 7NB. Tel: 0870 1226 236, Fax: 0870 1226 237. Email: communities@twoten.com.

Under the Companies Act 1985, a company is required to state its name on all business letters and official documentation. A company is also required to state on business letters and order forms; the company's place of registration, company number, registered office and, if the company is a limited company.

In addition to the requirements of the Companies Act 1985, the Companies (Registrar, Languages and Trading Disclosures) Regulations 2006 require all companies and LLP's to:

• State the name of the company on all order forms;
• State the name of the company, place of registration, company number, registered office and, if appropriate, whether the company is a limited company on all of its websites.

References to business letters and order forms now include documents in hard or electronic form and will include any letter or order form sent by email or by facsimile transmission.

The penalty for failure to comply with these new regulations is a fine which can be levied against any officer of a company, or any other person who authorises the issue of the document or website in breach of the new regulations.

You are right to be suspicious. As a tenant of business premises the starting point is that when your lease comes to an end you are entitled to a new lease on the same terms (as to repairs) but at a new market rent. The landlord can only refuse to grant you a new lease if either before you signed the lease, you agreed to exclude your rights of renewal, or in one of a limited number of circumstances which are set out in the 1954 Act. Those circumstances include that you have proved a bad tenant and not looked after the premises, not paid your rent promptly, or that the landlord wants to demolish the building or perhaps occupy the building himself.

If you agree to exclude your rights under the Landlord and Tenant Act now that will mean that at the end of whatever lease you are signing (3, 5 or however many years) you will have no right to a new lease and will have to leave the premises. The landlord will be under no obligation to grant you a new lease and if he is prepared to do so, he can charge you whatever he likes. You should therefore resist the landlord's solicitor's requests. I would advise you to take advice from an experienced commercial property lawyer or surveyor. The principle is that if your present lease has the benefit of the Landlord and Tenant Act, you cannot be compelled to sign a new lease which excludes the benefit of the Landlord and Tenant Act.

The current law states that it is a criminal offence to sell intoxicating liquor to a person under the age of 18 and as the licensee you are responsible for the sale of alcohol from your premises whether you actually make the sale or not.
Such a sale could result in you being prosecuted together with the person who actually makes the sale. A fine of up to £1,000 can be imposed and if you are found guilty of further offences then you may forfeit your licence.
The law also gives powers to Local Authorities to make test purchases. If caught selling to young people under age, Trading Standards Officers would assess whether you had taken all reasonable steps to avoid committing the offence.
Steps to be taken to meet your obligations under the Act include:

• Displaying appropriate posters, point of sale material and window stickers.
• Ensuring that staff are fully and regularly trained on the legal requirements.
• Instructing staff to ask for proof of age from any customer looking under the age of 25.
• Ensuring staff are supervised and a senior member of staff is always available if a problem situation arises.
• Keeping a log of 'refused sales' and support staff if refusals are made.
• Using CCTV cameras to spot potential problems early.

When setting up a relationship with an intermediary it is vital that a supplier decides whether to appoint the intermediary as an agent or a distributor.

The difference between the two is that an agent will represent the supplier when seeking, negotiating and concluding contracts with the customer, but the ultimate contract will be between the supplier and the customer. Whereas, in a distribution arrangement the distributor will buy the goods from the supplier and then contract directly with the customer.

In both cases, it is sensible to have a written agreement. However, attempts to regulate the relationship in the case of an agency are somewhat restricted by the Commercial Agency (Council Directive) Regulations 1993 (“the Regulations”).

The Regulations infer a number of stringent obligations on suppliers. The most onerous obligation is the entitlement of an agent to an indemnity or compensation for the damage suffered as a result of the termination of the agency contract. Such a right arises even where the agency is terminated as a result of the agent's death or where the agent terminates the agency as a result of retirement or ill health.

The courts' recent interpretation of the Regulations has been heavily favourable to agents at the expense of the supplier. It is therefore essential that business's seek legal advice before entering into arrangements with intermediaries.

The provision of hire purchase facilities, like most credit agreements is governed by the Consumer Credit Act 1974 (“the Act”). The Act imposes strict obligations on businesses when providing credit to consumers, and it is strongly recommended that firms revisit their terms of credit, particularly in the light of recent amendments to the Act, in the form of three sets of amending regulations.

• Licensing – a business providing credit to consumers must obtain a license from the Office of Fair Trading. It is a criminal offence to provide credit without one
• Form of the Agreements – the Act (as amended by the Consumer Credit (Agreements) (Amendment) Regulations 1994) sets out the particular form agreements should take, so that credit terms are clear and unambiguous to consumers. Failure to include such terms will mean that the agreement is unenforceable against defaulting customers.
• Disclosure – the Consumer Credit (Disclosure of Information) Regulations 2004 have placed an obligation on credit providers to give consumers an advance copy of the main terms of credit agreements before they sign. Again, failure to disclose such information may lead to the agreement becoming unenforceable.

To be sure that your terms are compatible with the new legislation it is strongly recommended that you seek legal advice on the content of your terms of credit, particularly, if such terms have been used for twelve months or more. Please contact us for further information.

Unfortunately, corporate identity theft has become more and more prevalent in the last twelve months. Various networks of fraudsters submit letters to the business register in Cardiff, requesting bogus changes to legitimate company addresses and details. They then redirect a firm's deliveries to the fake address, or order easily disposable consumer goods to the fake address.
To combat this, Companies House have introduced a new “PROOF” (PROtected Online Filing) service enabling companies signed up to the new service to only file specific forms electronically, such as appointment/termination/change of particulars of directors and change of registered office. Companies House will then reject any paper versions of those forms and send them back to the company unless specifically authorised to accept them by such company.
Companies House also provides a subscription service, as part of its “Companies House Direct Package” which enables subscribers to monitor any filing which is carried out on behalf of a company.
Wilkin Chapman have put together a package, where, by incorporating the above two services, we will assist companies in taking appropriate precautions. Please contact us for further information.

The Freedom of Information (FOI) Act 2000, which became law at the beginning of this year gives a general right of access to all types of recorded information held by public authorities. Public authorities have a statutory duty to release all recorded information to anyone who requests it unless it is exempt.

Private business tend to overlook the fact that such information applies to any dealings public authorities have with private entities. This could have serious implications if competitors are able to get hold of commercially sensitive information, such as contract terms, pricing, invoices and correspondence.

There are exemptions under the Act which allow public authorities to refuse to disclose certain confidential or commercially sensitive information. However, the exemptions are somewhat narrow, and in some circumstances public authorities may be obliged to disclose information if there is an overriding public interest in disclosure. It remains to be seen how the exemptions under the Act will be applied by public bodies in practice and interpreted by the Information Commissioner and the Courts in disputed cases.

There are a number of steps which businesses can take to reduce the risks posed by FOI such as agreeing in advance with public authorities that information is confidential before disclosing it. Although a contractual confidentiality agreement does not in itself guarantee that information will not be disclosed under FOI, carefully drafted provisions relating to specific information are most likely to be successful in preventing disclosure. Other options include conducting an information audit, putting systems in place to control the movement of sensitive information to public authorities.

This is a matter upon which you should seek advice from a solicitor.

Incorporation means the transfer by you of the business to a new company owned and controlled by you. In legal terms this means that from incorporation, the company, being a separate legal entity from you, owns the business, however as you will be the sole shareholder of the company, you will own the company.

The two main reasons for incorporating a business are:-

Taxation: As the company owns the business any profits will be liable for Corporation Tax which is currently lower than Income Tax on the money you take out by way of salary and/or distribution of profits: and

Limited Liability: As the company owns the business, it will be liable for any debts and liabilities incurred after incorporation. This means that unlike at the moment where you are liable for all the debts and liabilities of the business, you will only be liable to creditors to whom you have given a personal guarantee, such as your bank and landlord and if you incur debts when the company is insolvent.

Because incorporation causes a change in ownership of the business it is essential that professional advice is obtained on matters such as the tax and stamp duty ramifications of the incorporation itself, banking arrangements, transferring insurance policies, notifying customers and suppliers and employment issues.

Implemented effectively the incorporation of a business can provide a tax effective means of achieving an element of personal protection, however, unless professional advice is obtained the benefit of incorporation can easily be lost through simple mistakes.

The Act provides that where a contract entered into after 11th May 2000 either confers a benefit on or expressly provides a right for a third party, identifiable whether by name or description, then that third party is entitled to enforce the terms of that contract as if were a party to it.

Previously, only parties to the contract were entitled to enforce or be sued on the terms of that contract.

In addition, where that third party has altered its position in reliance upon the terms of that contract, its terms cannot be varied without the consent of the third party.

Whilst this gives third parties the right to sue you, it does not give you the right to sue the third party (e.g. the client where the main contractor goes bust), however any defences available to you in an action brought under the contract would be available to you in any action brought by the third party under the Act.

As the Act does not confer any benefit on you, my advice would be to try and exclude the provisions of the Act in your subcontracts.