The Equality Act 2010 outlaws discrimination in employment in relation to nine “protected characteristics”:

age
disability
gender reassignment
marriage and civil partnership
pregnancy and maternity
race
religion or belief
sex
sexual orientation
Employers must ensure that the process they use to decide who they will offer employment to is free from discrimination which includes consideration of, for example, the way in which vacancies are advertised, the arrangements for interviews and the wording of job and person specifications.

Someone who has not even applied for a job can, theoretically, bring a discrimination claim and employers can be liable for the discriminatory acts of their recruitment agents in some circumstances.

At the very least employers should:

Identify the vacancy carefully – does the role really need to be done full time or can you be flexible around hours or place of work so as to open up the opportunity to a wider group of people including those who might have caring responsibilities that prevent them being able to work the usual 9 – 5?
Advertise across a wide range of publications so that a wider cross section of the public have the opportunity to apply but before you advertise externally check whether there are any reasons why the role should stay ‘in house’ for example planned redundancies or a need to consider alternative employment for a sick or disabled employee.
Use the appropriate job title – phrases like ‘office junior’ and ‘shop girl’ should be avoided as they indicate an intention to exclude certain people on the grounds of their personal (protected) characteristics.
Focus on the skills required to carry out the role as opposed to requiring a certain number of years’ experience. If you must specify certain qualifications (such as A Levels in English and Maths) add the words ‘or equivalent’ so as to not indirectly discriminate.
Avoid using words such as ‘energetic’, ‘active’ and ‘mature’ when preparing a person specification.
Don’t ask applicants to provide photographs.
Make reasonable adjustments to your entire recruitment process so that disabled people aren’t disadvantaged.
Wherever possible use an interview panel with differing protected characteristics.
Don’t make stereotypical assumptions about a person based on their protected characteristics.
Remember that any notes you make during the interview process are likely to be disclosable so always be objective.
If you would like advice on any of the matters raised in this article, please contact Samantha Dickinson or Martin Williams on 01273 775533.

There is an implied obligation on both employer and employee not to act in any way that is calculated to, or likely to, breach trust and confidence.

The concept of trust and confidence has developed over time through case law and can encompass a wide range of factors. While it is a mutual duty, allegations that trust and confidence have been breached are more commonly raised by an employee about the actions or behaviour of their employer.

A breach of trust and confidence can be a one off act or it can be something that amounts to the last straw; effectively the ‘straw that broke the camel’s back’.

If an employer fundamentally breaches the obligation not to damage trust and confidence, an employee may chose to accept that breach and treat the employment contract as repudiated.

That employee may then (if they have 2 or more year’s continuous employment) bring a constructive unfair dismissal claim on the grounds that they were effectively forced out of their job. Depending on the circumstances of the breach they could also bring a discrimination claim, regardless as to their length of service.

If an employee breaches their duty to the employer, that breach could give rise to an allegation of gross misconduct and ultimately dismissal.

Examples of conduct by an employer that might amount to a breach of trust and confidence include:

making unfounded negative comments about an employee,
making it impossible for an employee to do their job (for example by giving them too much work or not responding to their requests for help with their workload),
unfairly taking disciplinary action,
exercising discretion (for example to award a bonus) in bad faith, and
using (or permitting others to use) foul, offensive or discriminatory language in the workplace.
An employee may be found to have breached their duty of trust and confidence if they make disparaging comments about their employer on social media or falsely claim sick pay.

Acting reasonably and in an even handed manner at all times is the key to ensuring trust and confidence isn’t breached.

Employers would be well advised to ensure that they have up to date anti-harassment and anti-discrimination procedures, ensure these procedures are updated regularly and ensure that they are communicated to all staff and enforced where necessary.

A written disciplinary and grievance policy is imperative and managers should be given training so they know how to deal with such matters in order to stop those small niggles (that are present in all workplaces) becoming big Tribunal claims.

Employees are well advised to use the policies that are available to them and put any concerns they may have in writing at an early stage.

If you need advice on your employment situation or you would like to discuss your internal policies and training needs please contact Martin Williams or Samantha Dickinson on 01273 223252

Why you should not delay extending your Lease

Essentially, a lease is a contract between two people which enables the ‘tenant’ to occupy the leased property to the exclusion of all others and to use the property in line with the terms set out in that contract. Most leases are granted for a set period of time, known as the ‘term’ of the lease. Residential leases are granted for various lengths but the most common tend to be 99, 125 or 999 years.

Over time, the lease term begins to run down and, if the tenant took no action at all, the lease would eventually run out and the tenant would no longer have a right to occupy the property. At this point, the property would return to the ownership and occupation of the landlord.

Clearly, this would be a terrible situation for the tenant which is why tenants of residential properties have a legal right to extend their leases – i.e. a tenant can pay money to their landlord to buy extra years to add to their lease term.

A short lease will also decrease the value of the flat or house because it becomes less attractive to buyers, and their mortgage lenders, who know that they will eventually have to pay to add more years to the lease term to protect their property.

There are two ways that an extension can be achieved – the landlord might be willing to offer a lease extension to you or if you have owned your leasehold property for at least two years, you are entitled to compel your landlord to give you a 90-year extension to your existing lease at a ‘peppercorn rent’.

The main point to note here is that the shorter the term of the lease, the more money you will have to pay the landlord to extend it.

The general view is that you don’t have to extend a lease with 85 years or more remaining on the lease term. Certainly, that term length would be enough to satisfy most lenders and therefore buyers. However, bearing in mind the above, we would always recommend that you extend your lease at the earliest possible. Taking early action will save you money AND hassle in future.

Should I extend my lease before trying to sell?

Extending a short lease can add to your property’s market value. Generally, the shorter the lease, the lower the market price you will achieve

You are unlikely to be able to realise your property’s true market value with a short lease term particularly where it has dropped below the number of years which a lender would find acceptable – i.e. 80-85 years remaining. This is because buyers will quickly realise that they will shortly have to take on the expense of extending and will factor that into the price they are willing to pay. In addition, when the lease gets too low, lenders will not be willing to lend buyers money to purchase the property and so you will only be able to sell to cash buyers.

Whether to extend your lease before selling largely depends on how long you have left on your lease at the point of sale. The general rule of thumb in the past has been:

+90 years = not worth extending
90-85 years = worth extending (this will improve saleability)
85-80 years = worth extending (or getting the lease extension process started)
Less than 80 years = you will need to extend or accept a much lower sale price
Most buyers are alive to the issue of term length now due to the press coverage surrounding leasehold properties and where a 99 year term was deemed acceptable previously, more purchasers want to see 110-125 years left on a lease.

Many owners of leasehold properties make the mistake of delaying obtaining a lease extension until they want to sell. The inevitability of this, is discovering that potential buyers don’t want to purchase a short lease or cannot get a mortgage unless the lease has been extended.

Trying to obtain a lease extension at this point can be very challenging. It can take anything from 2-18 months to complete a lease extension. This kind of delay would put most buyers off! Conveyancing is complicated and delays can lose you your buyer. Don’t wait until sale to extend. Ideally you should try to deal with any lease extension at least 6-12 months before selling if you can.

Should I extend my lease before obtaining a re-mortgage?

A short lease will affect your ability to re-mortgage your property if the term isn’t long enough for your lender. You may well have seen an attractive mortgage product on offer, but if your lease is unacceptably short for the lender, you could miss out on a lower interest rate. Worse still, you might get to the end of your fixed rate and have to pay a much higher rate until the lease extension is sorted out. If your lease is below 85 years – you are likely to encounter an issue.

Should I extend my lease to avoid ground rent issues?

Ground rent is a fee you must pay to the freeholder of your property as a condition of your lease. Unlike service charge payments, the payment of ground rent does not go towards the services in the building that you have the benefit of. It is purely a source of income for your landlord.

Ground rents have been payable on leasehold properties for many years and one of the arguments for retaining them is that without them, why would the owner of the freehold continue being interested in managing and maintaining the estate for the benefit of the tenants? There may be some merit to that argument, however, in recent times the level of ground rent payable by a tenant has gone from £50 or so a year, perhaps doubling 3 times in a 99 year term, to increases every 5 or 10 years starting at £250 which lead to thousands, if not millions, being payable by the end of the term which would clearly be unaffordable.

Not all doubling ground rents are unacceptable, particularly where they started low and don’t increase very often. However, if your lease contains a troubling doubling ground-rent clause, it will be more difficult to sell your property. Again, this will impact on the marketability and mortgageability of lease when you come to sell. Some high-street lenders may not agree to offer a mortgage on a property with a doubling ground rent clause, so this is something to watch out for.

Importantly, leases with a ground rent of over £250 per year (outside of London), or £1,000 per year (in London) automatically become Assured Shorthold Tenancies. This gives the Landlord the right to seek possession of the property more easily than usual if the ground rent is unpaid for more than 2 months. Lenders and lawyers have become increasingly wary of this unintended impact of higher ground rents.

One way to resolve the issue of an unsatisfactory doubling ground rent is to exercise your right to a statutory lease extension. In addition to adding years to your lease term, you can also reduce your ground rent to a peppercorn (whether your landlord likes it or not!).

An alternative is to try to agree a variation to your ground rent with the landlord. We have found that most landlords are sympathetic to the problems that tenants are experiencing with doubling ground rents and are keen to try to come to a satisfactory solution.

Call us if you would like to discuss this further.

Should I extend my lease to amend any defects in my lease?

Some leases are drafted in such a way (primarily older leases) where they could be defective against modern conveyancing standards. This could be because there is some error/emission in the lease, covering matters such as a repair/maintenance clause etc. This can cause problems when trying to sell a property as it can affect a potential buyer’s ability to obtain a mortgage. Some lenders may refuse to lend money to purchase a leasehold property if the lease does not cover certain provisions, forcing the buyer to withdraw.

Our experts will review your lease and consider whether there are any problems or defects as part of the lease extension process. If we spot any issues then we will let you know and we will seek to negotiate a variation of your existing lease as part of the lease extension process to resolve the defect if possible. Not all solicitors will take this extra step for you – some will only extend the term and change the ground rent – but we consider this a crucial opportunity to try to avoid future problems.

Should I extend my lease in order to avoid the ‘marriage value’ trap?

‘Marriage Value’ is the increase in the value of the property following the completion of a lease extension – i.e. it reflects the fact that a longer lease has a greater market value than a shorter one. It is a rather complex area which is outside the scope of this article, but put simply, when a lease falls below a term of 80 years, the freeholder is automatically entitled to an increased premium.

This means that the day before the lease term falls below 80 years the freeholder isn’t entitled to receive the marriage value, the day after he is! This can increase the premium considerably.

You should always look to extend a lease before it hits the 80-year mark. Check your lease now and make sure you’re well above 80 years. If it’s coming up – get in touch immediately to avoid spending more on a lease extension than you have to!

If any of the above applies to you, or you would like further advice in this matter, please contact one of our specialist Leasehold Enfranchisement team at Mayo Wynne Baxter. We are experts in the field and members of the Association of Lease Extension Practitioners (ALEP). Our team can provide advice you can rely on.

My Landlord hasn’t been collecting ground rent from me – what do I do?

I regularly come across situations where tenants are very concerned that their Landlord does not collect ground rent even though it is actually payable under the terms of the lease.

This can be for a number of reasons including: because the Landlord does not know that they are entitled to ground rent from the tenants, perhaps doesn’t know how to demand it, or even because the Landlord abandoned the freehold many years ago and takes no interest in it.

If you own a flat but your Landlord doesn’t collect any ground rent from you – what should you do?

When do I have to pay my ground rent?

Your lease sets out the level of ground rent that you must pay annually. Your lease is always the starting point when you are trying to work out what you need to pay.

There may also be a deed of variation that was put in place after your lease was completed which increases or decreases the rent. You can check whether your lease has been varied by looking at your Land Registry records – known as your ‘title deeds’ or ‘office copies’ to lawyers. Any deed of variation will be recorded in the Proprietorship Register. Your lease cannot be altered without your agreement so these documents are fairly conclusive.

The ground rent provisions are usually included in the first couple of pages, or in the definition of ‘Rent’. You should be able to identify the amount that you are required to pay, any clauses which enable the Landlord to increase the rent during the term of your lease, and the date on which the amount is charged each year.

Ground rent is not the same as service or maintenance charges. Ground rent is a payment that you make to the Landlord for their benefit.

Service charges are charges that you pay for services you receive. For example, you benefit from the roof being watertight and in good condition and so the Landlord fixes the roof and then you pay for your share of the repairs via the service charge set out in your lease. You don’t get anything back from your Landlord in return for your ground rent payment. It is a source of ongoing income for the Landlord and some Landlord’s argue that this source of income is what incentivises them to continue managing and maintaining the freehold estate or block. The service charge is meant to be a means for the Landlord to recover their expenses from the tenants who have the benefit of the services it provides. It was never intended that Landlords should profit from the collection of the service charge which is held on trust for the benefit of the tenants.

Even though the lease tells you how much ground rent you have to pay, you do not have to pay it until the Landlord has sent you a ground rent demand in writing that complies with the requirements of section 166 of the Commonhold and Leasehold Reform Act 2002. The ground rent demand must be in the form required by the Act and must specify:

The amount of the payment
The date on which the tenant is liable to pay it (which must be at least 30 days after the notice is given, but no more than 60 days)
The date on which you would have been liable to pay it in the lease (if different to point 2)
Your name
The period covered by the demand
The name and address of the person or company the payment should be made to;
The name and address of the landlord (or agent if this applies) who is giving the notice; and
Some supporting information (included as notes to the notice).
The Landlord can send the notice by post to the address of the house or flat it relates to unless you have already given the Landlord a different address for sending correspondence. This is why it is crucial to keep your correspondence address updated in your Landlord’s records (and at the Land Registry).

How many years can the Landlord seek back payments for?

The Limitation Act 1980 states that the ‘limitation period’ for recovery of ground rent is six years. This means that if ground rent hasn’t been paid in the past the Landlord can look to recover backdated ground rent going back for a period of 6 years.

Service charges differ; the Landlord must demand any service charge for retrospective expense within 18 months of that expenditure being incurred. In other words, if your Landlord incurs some expense in providing the services under the lease and wants to get it back from you, it can’t ask you for service charge sums to cover that expense once 18 months have passed.

I would strongly recommend that if you know your Landlord is not sending ground rent demands, you put aside funds each year to cover this eventuality.

Can my Landlord charge interest or late payment fees on back payments of ground rent?

The Landlord cannot utilise the provisions in your lease which relate to non-payment or late payment of ground rent until after they have sent you a valid ground rent demand and the date for payment in that demand has passed, regardless of what your lease says about the date it falls due. This was confirmed in a 2018 case called Cheerupmate2 Limited v. De Luca Calce.

This means that if your Landlord is seeking to charge you interest or late payment fees on sums that they failed to demand previously then you can refuse to pay them. For example, if they haven’t demanded rent since 2015, and they serve a demand for backdated ground rent from 2015-2019 on 1st September 2019, then you are only liable to pay the ground rent after you have received the demand dated 1st September 2019. Any interest or late payment charges can only be applied when you have missed the deadline for paying that demand.

If the Landlord serves ground rend demands retrospectively and also tries to charge backdated interest or late payment charges retrospectively then you should refer them to s.166(4) of the Commonhold and Leasehold Reform Act 2002 and explain that you don’t have to pay anything beyond the ground rent set out in your lease.

What if I can’t pay the whole of the amount owed?

The Landlord can demand the last 6 years’ worth in one lump sum and then if you don’t pay by the deadline it may be able to charge you interest and late payment fees if your lease allows them to. It would be best for you to pay the full sum owed as soon as you receive the invoice unless it is clearly invalidated.

If you can’t pay the whole sum then contact the Landlord and see whether you can arrange to pay in instalments. The Landlord is not obligated to agree this but most Landlords are fairly reasonably.

I haven’t owned my flat for the last 6 years – do I have to pay the former owner’s ground rent?

Your conveyancer should have ensured that when you purchased the property the seller had paid all sums of ground rent and service charge owed up to the date that you took over ownership. That means that you should only have to pay ground rent for the period of time that you have owned the property. However, sometimes it is not possible for a conveyancer to check this because the Landlord won’t reply to their enquiries at the time of the purchase. If this is the case, your conveyancer should have explained this to you when you bought.

Occasionally, after you have purchased, a Landlord will serve retrospective ground rent demands out of the blue for previous periods. Technically, in most instances, you are only liable to pay the ground rent due during the period of your ownership and the seller is liable for their period of ownership. However, in some circumstances it is possible for a Landlord to bring forfeiture proceedings against the new owner of the flat and in such situations paying up may be the easiest resolution.

If you find yourself in this position you should seek professional advice as the consequences can be very serious.

Right to Manage Company (RTM) involvement

Where the tenants have exercised their right to manage and are responsible for managing the building and collecting service charge some Landlords think that the RTM company is also responsible for collecting ground rent. That is incorrect.

The responsibility for collecting ground rent remains with the Landlord unless the Landlord specifically asks the RTM company to undertake the collection of ground rent on its behalf. Given that the RTM is collecting the service charge, this does seem like a sensible compromise.

If you are an RTM director and you know that no ground rent demands are being sent to tenants, I would strongly advise you to consider the impact on the tenants of having to pay 6 years arrears in one go. If those sums are likely to cause the tenants issues, you might want to get in touch with the Landlord to try to encourage them to serve the demands at regular intervals.

How do I get rid of my ground rent?

If you’re fed up of paying ground rent, or if you have a ‘toxic’ doubling ground rent, then it is possible to buy yourself out of it by either agreeing a deed of variation with your Landlord, or extending your lease under the Leasehold Reform Housing and Urban Development Act 1993.

Alternatively, you could get together with your neighbours and force your Landlord to sell the freehold to you but to do so a majority of flat owners in your block would have to exercise their right at the same time. This process is known to lawyers as ‘collective enfranchisement’.

You will have to pay a premium to your Landlord whichever way you proceed and will also have to pay valuers and legal fees but it may be worth it if your ground rent is having a negative impact on your property.

MWB have a specialist Leasehold Enfranchisement Team that will be able to assist you if you have any queries about your leasehold property. Please get in touch if you have any questions that we can help with.

Challenging a Will

Dealing with a loved-one’s Estate after their passing is always a difficult time. It can be more difficult when their Will provisions are unexpected or unusual. Sometimes family members have concerns about a will, and it is necessary to look into the matter a bit more.

A will might have unusual or unexpected provisions, or it was executed at a time when the deceased was ill, vulnerable or in hospital. It might benefit one person more than others which was unlike previous wills or how they treated their family, or the person who benefits was involved in the creation of the will in circumstances which might raise concerns.

Finding out more about the Will, how it was drafted and what the circumstances were at the time will often answer most questions and address any concerns. It can give family members piece of mind that they looked into the matter and have satisfied themselves that the Will is valid and their Estate can be distributed under that Will.

However sometimes the suspicions about the Will increase, circumstances come to light which are unusual or even more concerning, and family members can have real doubts about whether the Will is valid.

A Will might not be valid if:

It was not executed properly – for example if it was not witnessed properly, if changes were made after it was executed, or it was not signed.
The person making the Will did not know and approve the contents – eg if the Will was not read back to them before signing and/or they didn’t know or fully understand its provisions.
The person making the Will lacked capacity at the time of the Will – eg if they were ill or taking medication which made them confused, or if they had mental health issues or an illness which affected their testamentary capacity (the capacity to make a valid Will).
The person making the Will was being so pressured or influenced by another that they made a Will which did not reflect their true wishes.
The Will itself was forged or faked so that it is not a real Will by the deceased.
Investigations into a Will and how it was drafted and executed are very useful to find out more and determine whether the concerns are real or whether they can be explained. Evidence is crucial if a Will is going to be challenged; a Will will not be overturned or invalid simply because someone does not like its provisions or there are suspicions – evidence is needed to prove any concerns or doubts. Obtaining medical records, the Will file, witness statements and looking through the deceased’ correspondence will be important to understand what happened and whether a successful challenge might be able to be made.

If concerns are raised and evidence can be obtained to show that those concerns are genuine and that the Will may not be a valid Will, these need to be put to the Administrators of the Estate or the beneficiaries, so that questions can be realised and hopefully answered and documents can be provided. Most challenges to a Will can be resolved between the parties and a settlement negotiated and reached so that the administration of the Estate can continue. If a claim cannot be resolved through correspondence, mediation is often very successful to enable the parties to resolve the dispute and avoid court proceedings. Taking the matter to court is usually a last resort, because it is so expensive, lengthy and stressful for all involved. Most claims can be settled which will reduce family fall-outs and avoid expensive legal proceedings.

For more information or just a chat, please contact our team on: 01273 477071

Death of a sole shareholder director

Preparation, preparation, preparation is the often-cited mantra of many successful businesses but preparing for the death of a sole shareholder director of a business is often overlooked. This can then lead to difficulties in ensuring the operation of the company as a going concern after the death of the sole shareholder director and can lead to the company being struck off, long-established business relationships being broken, and any assets of the company becoming bona vacantia- in essence ownerless property passing to the crown.

It is not uncommon for small companies to have a sole director shareholder at the helm of the business. Although this can aid in providing the company with pin-point focus and efficiency owing to the fact that the legal authority to make decisions on behalf of the company rests with one individual, it can pose significant problems when that individual passes away.

Given that many business owners envisage the company as being part of their legacy and wish for it to be continued after their passing means that preparation is key to ensuring that this transition happens as seamlessly and smoothly as possible in what is already a time fraught with difficulties.

When a shareholder dies, their shares will generally pass to their personal representatives (PR) who will either need to be entered into the company’s register of members and appoint a new director, or transfer the shares to a beneficiary of the deceased’s estate who can then do the same.

In the case of a sole director shareholder company, this can bring about a chicken-or-egg type dilemma. Company law states that a person is only entitled to be recognised as a shareholder of a company once their details have been entered into the register of members. However, registering a new member requires the approval of the directors. If there are no directors, there is no one who can approve a new member. On the flip-side, if there are no members, there is no one who can appoint directors.

This can have fatal consequences for the running of the company. For example, the sole person with authority to make payments from the company account may be the director which means suppliers and employees may not be able to receive payment. The filings that a company is required to present to Companies House may need signing off by a director, and without this they are unable to be filed leaving the company at risk of being struck off. Also, there is a statutory requirement that there is always at least one director of a company. When the sole director shareholder dies, it can leave the company in breach of its statutory requirement and at risk of being struck off.

This can be seen in the case of Kings Court Trust Limited & Others v Lancashire Cleaning Services Limited. Following the death of the sole director shareholder, as there were no directors, the bank froze the company’s bank accounts which meant wages, invoices and VAT which were due were unable to be paid.

A majority of companies incorporated after October 2009 will have the appropriate mechanism within their Articles of Association which will allow the PRs of the deceased shareholder director to appoint a person to be a director.

However, companies incorporated before this October 2009, as was the company in the above-mentioned case, do not automatically have the mechanism mentioned above that more recently incorporated companies benefit from.

In this instance the PRs would need to make an application to the Court to request rectification of the register of members so that they could be recognised as members of the company. Only then would they be able to pass a resolution to appoint a new director to ensure the ongoing operation of the company as a going concern. This is a time-consuming and costly route which can be avoided with some preparation.

Although preparing for one’s death is not the most thrilling part of running a commercial enterprise, death is an inevitability and should be prepared for accordingly. Company owners work hard to build the value and success of their business and preparation for this inevitability in life can ensure that value is preserved and increased for future generations.

If you are a sole shareholder director, you should consider whether your current company constitutional documents are in line with your current needs and fit for purpose. If you were to pass away unexpectedly, what would happen to your company? It may be a good time to consider having a corporate governance health check on your company where issues can be identified and addressed.

You should also consider your thoughts and plans for the company to continue trading in the event of your passing. Is there anyone in particular who you would like to take the reigns after you are gone?

You should also consider whether your PRs will have the required authority to step up to the mantle of the company and take necessary steps to ensure your company is not left in an authority vacuum and vulnerable in your absence.

A small amount of preparation in advance can pay dividends in the long run, not least of all ensuring a company’s continued survival during a difficult period of change.

Asim Arshad, Solicitor within our dispute resolution and commercial teams.

Can I rent my flat on Airbnb?
If you have a bit of extra space or a second property, then you might have considered renting it out through Airbnb. It’s a popular platform to let rooms or whole apartments to those looking for a short term stay. Homeowners can list their property on the website with photos, house rules and of course – a price. It might seem like a low hassle way of renting your extra space, but if you own a leasehold flat then you could be at risk of breaching your lease.

Can your lease only be used as a private residence?

Iveta Nemcova owned a leasehold flat in Enfield which she frequently let through Airbnb and other rental sites. Neighbours in the block complained to the freehold owner, Fairfield Rents Limited, who then issued court proceedings.

The lease contained several covenants which are commonly found in a residential lease, namely:

“(1) Not to use the Demised Premises or permit them to be used for any illegal or immoral purpose or for any purpose whatsoever other than as a private residence.

(2) Not to do or permit to be done any act or thing in or upon the Demised Premises or any part of the Property which may be or grow to be a damage nuisance or annoyance to the Lessor or the Company or any of the occupiers of other flats in the Property or to the occupiers of any neighbouring or adjoining property.”

You might have noticed that the first covenant states that the property was only to be used as a private residence. Ms Nemcova argued that, as she paid bills and rents relating to the property, it was still her main residence even though she let it out for short periods. Unfortunately for Ms Nemcova, the Court decided that she was indeed breaching the terms of her lease by engaging in these short term rentals. The Judge ruled that “in order for a property to be used as the occupier’s private residence, there must be a degree of permanence going beyond being there for a weekend or a few nights.”

So, what exactly does ‘a degree of permanence’ mean? Ms Nemcova usually rented the flat for a few days a week, either to holidaymakers or those visiting the city for business. The duration of these lets was deemed to be relevant, and the Judge felt that this type of renting was more akin to booking a hotel room rather than guests taking on the flat as their own short term private residence. The Court stressed that each individual case would depend on the duration of the lets as well as the wording in the residential leases. Nevertheless, Nemcova v Fairfield Rents Limited has subsequently been dubbed ‘the Airbnb ruling’.

What other clauses might affect you?

“A private residence” is not the only wording that could ground your Airbnb dreams, and other common clauses to look for include:

– A clause which prohibits you from causing or permitting a nuisance. If your lease states that you’re not to play loud music or cause a disturbance, then that clause extends to any guests you allow in the property as well. You mustn’t permit any visitors who cause a nuisance and as the leaseholder, you’ll be held responsible if the freeholder brings a claim against you.

– A clause which restricts subletting of the whole or part of the property unless by way of an Assured Shorthold Tenancy agreement. You will want to be sure that the form of agreement your guests enter into does not fall foul of this provision. This wording effectively restricts the duration of lets to a minimum of six months, meaning short term guests could be a problem.

– A clause stating that the property must not be used for business or trade. Arguably, short term lets which generate an income could constitute a business and may be seen as change of use. If you do this without planning permission, you can face a hefty fine so check with your local authority before you start letting.

Disregarding any of the above clauses could not only upset your neighbours, but could also have serious consequences if you end up in breach of your lease terms. As Ms Nemcova found, the freeholder may issue legal proceedings against you and ultimately they could decide to seek forfeiture of your lease. The legal costs can be substantial if litigation ensues and you don’t want to have to pay out because you weren’t aware of your obligations. Not only that, but short term lets could also put you in breach of mortgage conditions. If you haven’t received consent from your lender where you need to, it could lead to repossession proceedings or a demand for repayment in full.

So before you advertise your property for an Airbnb style let, you should check your lease and its terms carefully. Review any restrictions on use and what consent you might need to obtain, and be sure to seek specialist advice before you start letting.

Doubling Ground Rent Clauses – How to Fix Your Lease and other FAQs
What is ground rent?

The owner of a leasehold property is known as the ‘tenant’ who has the right to exclusively occupy that property for a period of time. The owner of the leasehold will often be required to pay a ground rent to their landlord. The term ‘ground rent’ is essentially a rent which is paid to the person who owns the ground that the property is built on. This should not be confused with the ‘service charge’ which is a sum to be paid to the landlord which covers their expenses in maintaining and providing services in the building for the benefit of the tenants.

What is a doubling ground rent clause?

A doubling ground rent clause is a clause in a lease which states that the ground rent payable by the tenant will double on fixed dates during the term of the lease.

For example, if a lease is for 125 years and contains a clause that states that the ground rent is initially £150 and doubles every 10 years, the ground rent that will be payable over the term of the lease will be:

For years 1 – 10 of the lease, ground rent will be £150 per year

Years 11 – 20 – £300
Years 21 – 30 – £600
Years 31 – 40 – £1,200
Years 41 – 50 – £2,400
Years 51 – 60 – £4,800
Years 61 – 70 – £9,600
Years 71 – 80 – £19,200
Years 81 – 90 – £38,400
Years 91 – 100 – £76,800
Years 101 – 110 – £153,600
Years 111 – 120 – £307,200
Years 121 – 125 – £614,400
Doubling ground rent clauses can reach extremely high levels by the end of the term of the lease. Using the example above, while an initial ground rent of £150 may seem reasonable, by the end of the term the leaseholder would need to pay £614,400 each year to the freeholder!

Why is a doubling ground rent clause a problem?

Doubling ground rents can rise to incredibly high levels over the term of a lease, which is likely to make the property unattractive to buyers and mortgage providers. Even where a doubling ground rent clause does not reach sums as high as the example above, the clause can still have an impact on the marketability and mortgageability of a property. If you are looking to purchase a property with a mortgage, your solicitor will need to advise your mortgage provider that there is a doubling ground rent clause in the lease. Mortgage providers are wary of lending on properties where the lease contains a doubling ground rent clause and you may find that the mortgage provider refuses to lend to you. It may be more difficult to sell a property with a doubling ground rent clause in the lease as buyers may have difficulty obtaining a mortgage, or may be concerned that they would not be able to resell the property in the future.

Another issue with doubling ground rent clauses is that where the ground rent in a long residential lease is over £250 (or £1,000 in London) the lease falls within the definition of an Assured Shorthold Tenancy (‘AST’). The main concern with this is that if the ground rent is unpaid for 21 days, the landlord will have a mandatory ground to repossess the property in accordance with the Housing Act 1985. This means that if the rent is unpaid for 3 months and the landlord makes a court application, the court must terminate the lease and give possession back to the landlord if they demonstrate that the tenant is in rental arrears. The court has no discretion to decide not to order possession on the grounds of unfairness or for any other reason. This is different to the ordinary right of forfeiture that a landlord would have under a lease that is not classified as an AST. Where a landlord makes an application for forfeiture and the lease is not an AST, the court may grant a tenant ‘relief from forfeiture’ – i.e. it does not have to order that the landlord obtain possession of the flat and the lease ends in circumstances where it would be unfair to do so.

I want to buy a property with a lease that contains a doubling ground rent clause – what should I do?

It is important that you consider your options before you purchase the property. The options you should consider include:

Ask the seller to agree with their landlord to amend the doubling ground rent clause to a fixed ground rent before completion. The landlord is likely to want a premium to be paid to him by way of compensation, as amending the clause will reduce the value in their freehold. However, you can ask the seller to bear this cost.

If the seller cannot agree with the landlord to amend the clause, then you could consider asking the seller to serve a notice under Section 42 of the Leasehold Reform, Housing and Urban Development Act 1993, and assign this right to you on completion. This exercises a statutory right to obtain a lease extension, which will add 90 years to the lease and reduce the ground rent to a peppercorn (i.e. nil). If this option is taken, you should ensure that the price you pay for the property reflects the costs that you will incur in obtaining the lease extension after completion of the sale. It is important that the seller serves the notice before completion and assigns it to you, as this right can only be exercised by a tenant who has owned the property for a minimum of two years.
Our leasehold enfranchisement team are specialists in this area and can work with your conveyancing solicitor to ensure that you can amend the doubling ground rent clause after you have purchased the property.

I did not know about the doubling ground rent clause when I purchased the property and now I cannot sell/remortgage my property, what can I do?

It may be possible to come to an agreement with your landlord to amend the ground rent provision in your lease. It is likely that your landlord will want to receive a premium for this, as amending the ground rent provision will reduce the value of the freehold.

If you cannot come to an agreement with your landlord, once you have owned the property for a minimum of two years, you can exercise a statutory right to obtain a lease extension. The landlord will be required to add 90 years to the term of your lease, and the ground rent will be reduced to a peppercorn (i.e. nil).

You may be able to bring a claim for professional negligence against your solicitor if they failed to advise you on the impact of a doubling ground rent clause when you purchased the property.

If you would like to discuss any of these options in more detail, please get in touch with our leasehold enfranchisement team who would be happy to go over these options with you. They can also refer you to our professional negligence team.

My landlord has said they will replace a doubling ground rent with a ground rent linked to RPI. Should I agree to this?

Because of the controversy surrounding doubling ground rent clauses, some landlords offer to replace the doubling ground rent clause with a clause which states that ground rent increases with the Retail Price Index (‘RPI’). A few years ago, RPI ground rent clauses were considered to be the industry standard but I suspect that in the future these ground rents may also fall out of favour. Ground rent linked to RPI may result in a marginally lower ground rent than a doubling ground rent clause, but they are fraught with their own difficulties – the main one being the difficulty in calculating what the ground rent actually is every year!

It is also impossible to predict what the RPI will be in the future, so the clause does not provide you with any certainty in relation to ground rent. The Office of National Statistics has reported that RPI has lost its status as a National Statistic as it is not a good measure of inflation, and they no longer encourage its use. It is likely that a lease which contains a ground rent linked to RPI will be viewed unfavourably by mortgage providers, which will have a negative impact on the marketability of the property.

A better course of action would be to obtain a lease extension which will have the effect of reducing the ground rent to a peppercorn (i.e. nil) either by agreement with your landlord (if possible) or by exercising your statutory right to a lease extension.

Who should I contact at Mayo Wynne Baxter in relation to any of the issues above?

Our Leasehold Enfranchisement team is led by Jo Ironside. Please call 01273 407464 to speak to a member of her team or email jironside@mayowynnebaxter.co.uk.

Buying the Assets of a Business – Key Considerations.

When purchasing a business it is important to decide at the outset whether you are buying the shares in the company that runs the business in question or if you are buying the assets of that business. This is something which you should discuss with an Accountant, however, if you decide, following advice, that you are going to acquire the assets in the business then you should consider the following;

What assets are you buying?

When you agree a purchase price for the assets of a business it is important to be clear from the outset what you are buying. This seems like an obvious statement but many people often believe they will acquire certain assets which the seller then excludes from the sale once documentation is drafted.

The assets of a business (amongst other things) can include;

Goodwill
Equipment
Stock in Trade (in some instances stock will be valued at completion and the price of the same will be payable in addition to the agreed purchase price).
Property
How will income of the business be divided between the Buyer and Seller?

The standard position is that any amounts received on or before completion so far as they relate to a service to be provided after completion belong to the buyer and seller must pay the buyer such sums. Any amounts which are paid after completion for services received before completion belong to the seller and the buyer will need to pay such sums to the seller.

In essence a line is drawn at close of business on the day of completion. Any payments made or received before that line is drawn are for the seller, after that time everything belongs to the buyer.

You should therefore consider if the nature of the business is such that this standard position should be altered and that the ‘Business Sale and Purchase Agreement’ properly deals with this.

Are there any employees of the business?

It is extremely important that you ascertain at the outset whether you will be acquiring any employees of the business when purchasing its assets.

If any employees are transferring with the business the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) will apply and you should seek the advice of a Employment Law Solicitor to ensure that the correct steps are taken in accordance with TUPE (Mayo Wynne Baxter have a specialist Employment Team who can assist).

Are there any business contracts which will continue post completion of the purchase?

This question is often answered as part of the due diligence process which you should instruct your solicitor to undertake for you before you commit yourself to the purchase of a business.

A business contract would be described as any or all contracts, arrangements, licences and other commitments relating to the business entered into before completion which remain to be performed by any party to them in whole or in part.

It goes without saying that you should be aware of any business contract which remains to be performed as this will be your responsibility and a potential liability for you following completion.

Are there any tax implications associated with the purchase?

This is something which should be discussed with your Accountant however some tax considerations include;

Whether the seller is VAT registered and whether the transaction will be treated as a ‘Transfer of a Going Concern’ (a TOGC).
Whether the seller has opted to tax the property (if they hold a freehold interest) or whether the landlord of the property has opted to tax it (if the seller has a leasehold interest) as VAT will then be payable on any payments due under the lease.
Whether Stamp Duty Land Tax is payable on either the acquisition of the freehold of the property or any lease of the same.
Restricting the Seller

In order to protect the assets which you are purchasing you may need to restrict the seller’s actions moving forward i.e. to restrict the seller from:-

Carrying on the same business as is being sold within a give time frame of completion and within a certain area e.g. within 2 years following completion in Brighton and Hove
Seeking the custom of any client or customer of the business within a certain period of time from completion
Engaging or employing any employees of the business.
Using the business name or any other domain name, design, logo or trademark of the business.
If you do not restrict the seller you could in theory find yourself in a situation where the seller sets up an identical business next door to the business which you have just bought and this would, of course, have an impact on the performance of your new business.

Next Steps

A properly drafted ‘Business Sale and Purchase Agreement’ will cover all of the points highlighted above and you should ensure that you instruct a solicitor to undertake a full review of the business including the title to any property which will be occupied (whether that be freehold of leasehold) before committing yourself to the purchase of a business (this process is known as ‘due diligence’). Your solicitor can then advise you on any potential liabilities and ensure that suitable warranties are included within the ‘Business Sale and Purchase Agreement’ to safeguard you moving forward.

If you are looking to purchase a business (by way of shares or assets), please contact the specialist Commercial Team at Mayo Wynne Baxter, who will be happy to assist you.

What is it?

Overage, clawback and uplift are terms used interchangeably. They describe agreements made between a seller and purchaser of land or property and provide for the seller to receive a share in the uplift in value of the land if a certain future event occurs. The future event is often the grant of planning permission although it can be tailored to apply to any number of circumstances. This article will focus on overage being payable on the grant of planning permission.

When may it be appropriate to make use of overage?

With an ever growing population and shortage of good quality housing Local Authorities are having to change their planning strategies to cater for the demand. Consequently, land which you would never have dreamed would be developed is now being considered for housing.

It is therefore important for sellers to consider the likelihood of their land being developed in the foreseeable future. If there is a reasonable prospect that the land will be developed the seller may require the buyer to enter into an overage agreement.

Overage Payment

The overage payment can be any amount agreed between the buyer and seller; it could be a fixed amount but is usually calculated as a percentage of the increase in the value of the land as a result of the grant of planning permission.

Trigger Events

Arguably the most important aspect of the overage agreement to a seller is when they will receive a payment. The overage agreement will require the buyer to make a payment to the seller when a certain event occurs; this is known as the trigger event. The trigger event can be negotiated between the parties but examples of the most common triggers are: –

Sale of the property with the benefit of planning permission
Implementation of a planning permission
Grant of planning permission for change of use or development
The earlier of implementation of planning permission and sale of the property with the benefit of planning permission
Duration

The duration of the overage agreement can be any length of time as agreed by the seller and buyer. The seller will want the agreement to last for as long as possible to increase the prospects of planning permission being granted. On the other hand the buyer will want the agreement to come to an end as soon as possible so that planning permission can be obtained without the burden of making a payment to the seller.

What if the land is sold during the overage period?

To offer the best chance of return the seller will want the terms of the overage agreement to last for the duration of the overage period even if the land is sold to a third party.

The overage agreement creates a positive obligation on the buyer to make payment of a sum of money if planning permission is granted. The issue here is that positive obligations do not automatically burden the land and therefore any future purchaser would not be automatically bound to observe the terms of the overage agreement. This is unlikely to be acceptable to most sellers as the land could be sold after a short period of time to a third party who could freely obtain planning permission without the need to make an overage payment to the original seller.

To overcome this issue a well drafted overage agreement will include a requirement for the future purchaser to covenant with the original seller that they will observe the provisions of the agreement for the duration of the unexpired term.

A well drafted agreement will allow for a restriction to be placed on the buyer’s title to the land which requires the buyer to obtain the seller’s consent before any sale can proceed. Consent will only be given if there have not been any breaches of the agreement by the current owner and if the new purchaser covenants to observe its provisions following completion.

Why do you need appropriate legal advice?

Poor drafting of the agreement could result in ambiguity and risk the seller losing an overage payment.

It is important that the provisions of the overage agreement are drafted with care, are appropriate to the transaction and accurately reflect the terms that the seller and buyer have agreed. The trigger for payment needs to be clear and the calculation for determining the overage payment needs to be correct.

The Commercial Property team at Mayo Wynne Baxter have the experience and expertise needed, whether acting for buyer or seller, to ensure that the overage agreement is prepared correctly and that you understand how the agreement operates. If you would like assistance with an overage agreement or any other commercial property matter please do not hesitate to contact a member of our team.