Category: Uncategorized

What is a leasehold?

A leasehold is a type of property ownership where an individual owns the right to use and occupy a property for a specified period of time, but does not own the land on which the building was erected. Instead, the land is typically owned by a separate entity known as the freeholder (or landlord).  A lease agreement outlines the rights and responsibilities of both the leaseholder and the freeholder, including any ground rent and maintenance charges the leaseholder may be required to pay. When the lease term expires, ownership of the property reverts to the freeholder, unless the lease is extended or renewed.

The system of leasehold property ownership in England dates back to 11^th Century. It was created to ensure someone (the freeholder) takes responsibility for the maintenance of common structures and areas thus relieving homeowners from the burden of directly managing and funding significant repairs. Professional management can also help ensure that properties meet certain standards, and help avoid potential neighbour disputes.

Nevertheless, there is general agreement that the system requires reform, and the new Bill should make it easier for leaseholders to:

• Extend their leases
• Buy their freeholds
• Take over management of their buildings.

What is changing?

The Leasehold and Freehold Reform Bill proposes to:

• Increase the standard lease extension to 990 years (up from 90 years in flats and 50 years in houses) with ground rent at zero.
• Remove the so-called ‘marriage value’, which makes it more expensive to extend leases when they’re close to expiry.
• Remove the requirement for a new leaseholder to have owned their house or flat for two years before they can benefit from these changes.
• Allow leaseholders in buildings with up to 50% non-residential floorspace to buy their freehold or take over its management (up from 25%).
• Set a maximum time and fee for the provision of information required to make a sale to a leaseholder by their freeholder.
• Require transparency over leaseholders’ service charges.
• Replace building insurance commissions for managing agents, landlords and freeholders with transparent administration fees.
• Require freeholders who manage their properties to belong to a redress scheme so leaseholders can challenge them if needed.
• Grant freehold homeowners on private and mixed tenure estates the same rights of redress as leaseholders.
• Build on the legislation brought forward by the Building Safety Act 2022.

The Response

Most of the proposed reforms constitute a mere expansion of the leaseholders’ protections which are already in place but theoretically will make it simpler and less expensive to own and maintain a flat. At the same time, the concept of leasehold as a contract between the Landlord and the Tenant in principle remains in situ and there will still be service charges and management charges, Landlord’s control on alterations and underletting and premium payable for lease term extension or purchase of a share of the freehold. Last but not the least, the most controversial issue of leasehold houses has not been resolved as the latest draft does not include the long-awaited ban.

Where are we up to?

The Bill is expected to become law before the next general election.

Affected freeholders should seek legal advice to prepare for the new legislation. For example, things to consider include:

• Whether the proposed cap on ground rent in existing residential leases will affect income.
• What might happen if more leaseholders decide to take over the management of their buildings and freeholders lose control.
• Whether less-experienced individuals managing buildings will lead to increased risks, higher insurance premiums, and devalued properties.

If you would like to know more about how the Leasehold and Freehold Reform Bill will impact you, please do not hesitate to contact Anna Severtoka or Mark Smith in our real estate team.

This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances.

 

More often than not, a landlord of a House in Multiple Occupation (HMO) will know that it is being used as one where residential premises are concerned. However, the use of property guardians to occupy vacant commercial properties to offer security to their owners may also require licensing oversight from local authorities.

The recent case of Global 100 Ltd v Jimenez and others (2023) EWCA Civ 1243 highlights that an HMO licence pursuant to Part 2 of the Housing Act 2004 (HA 2004) may still be required where a vacant commercial property is occupied as living accommodation by so called “property guardians”. We discuss the key takeaways from the judgement.

What is an HMO?

Section 254 of the HA 2004 generally defines that an HMO is a building (or part of it) that consists of living accommodation occupied by tenants who do not form part of the same household; at least one of the tenants pay rent; such accommodation is used as their main or only residence; and the tenants share facilities in the premises, such as toilets, showers and kitchen facilities. HMO licences are normally required where the property is occupied by at least five people and the above criteria apply.

HMO licences cannot be assigned. If a purchaser acquires a property that is already used as an HMO and continues to be used as one at the time of their purchase, they will need to obtain their own licence or a temporary exemption.

Property Guardians

In brief, these are private individuals who occupy vacant properties that are not intended for residential use. Examples of these include warehouses or office space and the intention of such occupation is to provide a degree of security to the property owner and mitigate the risk of squatters.

Background to The Global 100 case

This was a Court of Appeal case following on from the Upper Tribunal’s decision to uphold Rent Repayment Orders against the landlord and guardian firms’, Global Guardians Management Ltd (GGM) and Global 100’s, failure to hold a valid HMO licence (Global Guardians Management Ltd & Ors v London Borough of Hounslow & Ors (UKUT 259 (LC)).

On 31 March 2016, the owner of the property, a vacant commercial building, contracted with GGM to provide guardianship services at the property at a monthly licence fee of £600 and a minimum term of four months (determinable at four weeks’ notice). GGM then contracted with Global 100, a sister company, who would identify occupants to act as “guardians”, paying a monthly licence fee. GGM converted the building to create 30 bedrooms, 4 kitchens, and 4 lavatories. The rooms (and the provision of keys to access these rooms) were then licenced to guardians who paid varying licence fees depending on the size of their rooms. The local authority inspected the property and satisfied itself that it was occupied as an HMO. At least 29 of the 30 rooms were occupied at the time of the inspection. The issues in dispute concerned the ‘sole’ purpose of occupation and whether this purpose was as living accommodation. The tenants argued that this threshold was met. However, Global 100 and GGM had advanced the following arguments:

• that the property was not solely occupied for residential use for the purposes of s.254(2)(d) HA 2004;
• that GGM had not been granted a tenancy of the property; and
• neither GGM nor Global 100 were persons having control or management of the property.

The FTT rejected the above arguments and the FTT’s decision had been upheld on appeal before the Upper Tribunal. Global 100 and GGM subsequently appealed to the Court of Appeal.

At appeal, Global 100 and GGM argued:

• That residential occupation by the guardians did not constitute the only use of their living accommodation.
• That the Upper Tribunal had erred in finding that GGM had a tenancy of the property and that GGM was a person in control of that property (in that they would receive the rack-rent if let at a rack-rent); and
• The Upper Tribunal erred in its finding that Global 100 was a person in control because of its receipt of the rack rent.

Global 100’s appeal was ultimately dismissed for the following reasons:

On (1), the Court of Appeal kept their dismissal of Global 100’s argument brief. The Court held that the tenants ‘had no responsibilities as property guardians save to live in the accommodation. The presence of the property guardians in their living accommodation and the property may have deterred persons from entering the property, but it did not convert the use made of the living accommodation. In these circumstances…the Upper Tribunal was right in both appeals to find that the occupation of the property guardians of the living accommodation constituted the sole use of that living accommodation’ [1].

On (2), the Court of Appeal also dismissed GGM’s argument regarding whether they had a tenancy of the property as the FTT had originally found that GGM was, in fact, being granted the exclusive right to exploit the whole of the property[2], and had therefore been granted exclusive possession of it. As to whether GGM was a person in control of that property (in that they would receive the rack-rent if let at a rack-rent), a decision on this was not made as they were liable as the person managing the property.

On (3), the Court of Appeal dismissed Global 100’s argument in that together, GGM and Global 100 arranged for the modification of the property for habitation and subsequently licensed property guardians to live in it, generating £15,000 per month from licence fees. Global 100 was in the business of making money and not acting as a charity. The property guardians were also willing licensees of living accommodation, Global 100 was a willing licensor, and there was nothing to suggest that anything more could be obtained from letting or licensing the property in terms of obtaining a rack-rent. In any event, Global 100 was the only person who could charge the guardians for living in the property, if let at a rack-rent for the purposes of section 263(1) of the Housing Act 2004.[3]

Commentary:

The decision in Global 100 Ltd v Jimenez & Orz reaffirms the court’s position on the occupation of commercial premises by property guardians and where this can fall foul of the HA 2004’s licensing requirements. Where properties are occupied by property guardians, they may unintentionally be subject to HA 2004 licensing requirements which, if breached, can result in the landlord and/or the guardian firm being subject to rent repayment order applications and possible criminal prosecution.

It is important to seek legal advice before putting any such arrangements in place due to the material financial and criminal consequences landlords or guardian firms may be subject to for failing to obtain an HMO licence where one is required.

If you have any queries regarding any of the real estate issues covered in this blog, please do not hesitate to contact Sharado Watson or Deepak Ohri in our real estate team.

This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances.

 

[1] Global 100 Ltd v Jimenez & Ors [2023] EWCA Civ 1243 (27 October 2023), para. 51

[2] Ibid, para.57

[3] Ibid, para. 63

From the broad spectrum of Gary Lineker, a public figure, tweeting political views from his personal X (formerly known as Twitter) account, or an employee posting support for political movements or viewpoints on Facebook, Instagram, or their platform of choice  – similar rights and issues are at play. Namely, to what extent do employees have freedom of speech on social media, where their posts could either (a) reflect poorly on their employer, or (b) negatively associate their employer with controversial messages, particularly where the employer would not wish to adopt a particular stance.

In this article we will briefly explore the balance of these issues, noting their importance in the current economic and political climate.

Employer’s Rights

The first consideration would be whether a private social media post could amount to misconduct, or gross misconduct. Gross misconduct is naturally the more serious breach by an employee.. Both can, however, be grounds for dismissal dependent on the situation.

Gross misconduct are acts which ‘are so serious in themselves or have such serious consequences that they may call for dismissal without notice for a first offence’ (ACAS Code of Practice 1, paragraph 23). Dismissal for misconduct, however, requires notice and would typically follow warnings prior to dismissal.

In actions such as social media use, if the post is incredibly damaging (or has the potential to be incredibly damaging) to the employer’s business, then the employer may wish to terminate the employee’s contract immediately in order to protect its reputation. As such, they would need to establish that the post amounted to ‘gross misconduct’.

The case of Walters v Asda Stores Ltd explores the difference between ordinary misconduct and gross misconduct stating, among other things, the need for a clear social media or internet use policy to be in place. By having such a policy in place, an employer can reasonably specify those actions on social media usage which would conduct misconduct or gross misconduct in relation to the employee’s position in the workplace. As such, it is important to firstly, implement a policy, and secondly, make all employees aware of this.

On the other hand, if such a post did not amount to misconduct or gross misconduct but that the employee’s actions were sufficiently serious that continued employment would damage the employer’s reputation, the employer may decide that their dismissal is justified for ‘some other substantial reason’. However, in practice dismissing for reputational risk under this potentially fair reason for dismissal is difficult to establish, and in any event if sufficiently serious would likely be a conduct matter.

Employee’s Rights

The right to freedom of expression is a qualified right, meaning that it is subject to, among other things ‘the protection of the reputation or rights of others’ (European Convention of Human Rights, Article 10(2)). Consequently, if an employer wishes to dismiss an employee over a social media post which could bring the company into disrepute, it must have reasonable grounds to believe that the specific post would do so.

In the European Court of Human Rights case Herbai v Hungary (Application no. 11608/15), the Court considered the following points needed to be addressed by an employer where they are restricting an employee’s freedom of expression:

• The nature of the speech
• The motives of the author
• The damage caused by the speech to the employer
• The severity of the sanction imposed

So, how can this be established? The answer is subjective and will turn on the facts of each case. For instance, posts of an offensive nature. In the case of Webb v London Underground Ltd, an employee was dismissed due to posting offensive remarks on her private Facebook page. The dismissal was deemed fair as the interference with the employee’s freedom of expression was justified to protect the employer’s reputation. Despite only having 200 ‘Facebook friends’, the post was widely circulated and had offended other members of staff of the employer, as well as the employer’s standing as a public body.

Consequently, as an employer it is important to consider the balance of your employee’s rights as well as the importance of the reputation of your business if you decide to dismiss an employee based on their conduct on the internet. In these times where social media use amongst many staff is constant the temptation can be for employees to offer their personal views on a range of world affairs instantaneously adopting the approach of “type first, think about it later”, getting the balance right can be more and more challenging for employers.

If you need assistance with matters of a similar nature to this article, please contact Michael McDonnell, William Gubbins, Darcy Still or your usual contact at the firm who would be happy to assist.

This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances.

With the aim of providing more clarity and fairness in the legal process, the changes to the FRC regime affect a wide range of claims.

 

What are fixed recoverable costs (FRC)?

 

Fixed recoverable costs represent the predetermined legal costs the winning party can recover from the losing party.

The main benefit of FRC is that they provide certainty over how much legal costs will have to be paid. FRC are also structured to maintain a sense of proportionality with the amounts being claimed. However, as costs are fixed, the amount recovered by the winning party may fall short of covering the full expense of their case.

Traditionally applied in low-value personal injury cases, from October 2023, FRC have been extended to cover most civil litigation claims. This extension includes all fast track cases and those within the new intermediate track (with certain exceptions such as relevant housing claims).

FRC and civil litigation tracks

Your case will be allocated to a particular ‘track’ when making a civil litigation claim. The track assigned will depend on the amount being claimed and the complexity of your case.

Small Claims Track. Cases with claims up to £10,000 fall into this category. Here, both the claimant and defendant are typically responsible for their respective legal costs.

Fast Track. Covering cases valued between £10,000 and £25,000, the fast track deals with uncomplicated matters expected to conclude in a one-day trial. FRC have been extended to this track.

Intermediate Track. This newly introduced track deals with cases valued between £25,000 and £100,000 with moderate complexity. FRC will be applicable in the majority of cases. The intermediate track is further divided into four complexity bands, each with an associated grid of costs.

Multi-track. More complex/higher value cases will continue to be allocated to the multi-track, and FRC will not apply.

The recent changes have significantly increased the number of cases where FRC apply.

How might these changes affect those bringing civil litigation claims?

The extension of the FRC does mean an increased certainty as to costs exposure and recoverability for parties, a significant advantage to the extended regime.   There may perhaps be process and efficiency savings in litigation for parties because of the streamlined procedure in FRC cases on the fast track and intermediate track.

However, these rules go to costs recoverability, they do not dictate what costs parties incur.  Parties could find themselves facing significant legal costs which they have no longer have a prospect of recovering, irrespective of success.  With those facing significant risk of irrecoverable costs there is even more reason now to seriously consider mediation and other forms of ADR.  Already heavily endorsed by the Courts, use of mediation and ADR by parties subject to the FRC is likely to increase, which is no bad thing; a well-managed mediation can be highly effective.

It is important to note that further revisions to the FRC regime are anticipated, and we are closely monitoring these developments.

For anyone now bringing a claim in either the fast or intermediate track, understanding the recoverable costs is vital.  Please contact Aoife Reid or Paul Twomey in our dispute resolution team if you would like to discuss the impact of these changes for you or your business.

This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances.

 

Employers are increasingly using Artificial Intelligence (AI) technologies in the workplace. However, while AI offers enhanced productivity, streamlined processes, and cost savings, it is not without challenges. In addition to ethical and data privacy concerns, there is genuine trepidation about AI and potential employee discrimination. As such, AI raises some important legal questions when it comes to employment law.

 

In response, the House of Commons Library has recently published a report on Artificial Intelligence and Employment Law. In particular, the report looks at the thorny issue of algorithmic management.

 

What is algorithmic management?

Algorithmic management describes the use of AI and other technologies to make management decisions. For example to:

 

• Automatically score tests as part of the recruitment process
• Assist with performance management reviews
• Allocate tasks and schedule shifts
• Monitor the productivity of their workforce
• Monitor health and safety in the workplace.

 

There is growing unease about how some employers are using AI and algorithmic management, and there have already been legal challenges.

 

In February 2021, Uber lost a judgement in the Netherlands after the ‘robo-firings’ of some of its drivers. The Court of Amsterdam ordered Uber to reinstate drivers who claimed they were unfairly terminated by algorithmic decision-making that was solely automated. Uber was also ordered to pay compensation. In this case, the drivers claimed that Uber’s technology cost them their livelihoods as the software was incapable of recognising their faces.

 

Here in the UK, the Independent Workers’ Union of Great Britain (IWGB) and the App Drivers & Couriers Union (ADCU) have both taken legal action against Uber, alleging that its software is inherently racist as it has difficulty accurately recognising people with darker skin tones and has unfairly dismissed drivers.

 

What does the law say?

Currently, no UK laws exist to specifically govern the use of AI and other algorithmic management tools in the workplace. Instead, regulations built for other purposes attempt to cover these new technologies and restrict how they can be used. These include:

 

• Common Law. To ensure mutual trust and confidence, employers must be able to explain how they make decisions that affect their employees. Automatic decision-making can make this problematic, thus undermining the employment contract.
• Equalities Law. The law prohibits employers from discriminating against their employees on the grounds of any protected characteristic. However, AI tools can exhibit bias, resulting in unlawful workplace decisions.
• Employment Law. The law protects employees with at least two years of continuous service from unfair dismissal. However, flaws in AI could lead to unfair dismissal decisions.
• Privacy Law. This places restrictions on the use of surveillance tools to monitor workers.
• Data Protection Law. Article 22 of the GDPR concerns “automated individual decision-making, including profiling”. Under this legislation, people “have the right not to be subject to a decision based solely on automated processing, including profiling, which produces legal effects concerning him or her or similarly significantly affects him or her”.

 

The latest AI report goes into these laws in more detail.

What does the future of AI regulation look like?

In the ministerial foreword of the Government’s 2023 policy paper on AI regulation, Nadine Dorries, the then Secretary of State for Digital, Culture, Media and Sport said that a ‘pro-innovation’ regulatory attitude was key to translating AI’s potential into societal benefits. In short, the Government wants a non-statutory ‘light touch approach’ to AI regulation.

 

The Opposition has criticised the Government’s stance and has called for a more interventionist approach. And the TUC has recently launched a new AI task force that aims to publish a draft “AI and Employment Bill” with new legal protections for workers and employers. According to the TUC, the UK is “way behind the curve” on the regulation of AI, with UK employment law failing to keep pace with technological development.

Safeguard your business from the risk of AI

When it comes to employment law and AI use, the matter is far from settled. But there are steps employers can take now to safeguard their businesses. In particular, where AI has the potential to make or inform decisions about individuals, employers must understand how it could impact their legal obligations. In addition, we advise all employers to:

 

• Conduct an impact assessment to identify and mitigate any risks before introducing new technology.
• Carry out an impact assessment to identify where AI is currently being used and how it impacts employees/workers (and potential employees/workers)
• Establish policies to cover the use of AI in the workplace. This should include where it isn’t acceptable to use AI and the appropriate use of AI.
• Make sure humans are involved in the decision-making process, with a final say in all determinations.

 

Underwoods’ employment and data protection solicitors will work with you to create an AI policy that protects your business from harmful claims. Providing straightforward advice and practical solutions, contact us today to find out more.

 

This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances.

 

 

On 13 July 2023, the UK government announced that it was increasing the cost of UK visas. The increase will see an additional cost burden placed on employers and visa applicants. The government expects to generate over a billion pounds in revenue via the new fees, with the money earmarked to cover pay increases for public sector workers following a period of strikes and disputes.

Here is a short summary of the expected changes:

• Work and visit visa application fees will rise by 15%
• Fees for student visas, certificates of sponsorship, settlement, citizenship, wider entry clearance, permission to stay and priority service applications will increase by at least 20%
• The cost of priority services and student visas will be the same whether applicants apply inside or outside the UK.
• The main Immigration Health Surcharge (IHS) rate is also likely to increase to £1,035 per year (currently £624), with the discounted rate for students and those under 18 is rising from £470 to £776 per year.

The IHS is a mandatory tax on sponsors that ensures applicants can access the NHS in the UK. There are a few exemptions to paying the surcharge; for example, Health and Social Care Visa workers do not pay this tax.

What should employers do now?

The implementation date for the increase has yet to be confirmed. However, the changes could happen as early as late summer or early autumn 2023 when Parliament resumes.

There is no doubt that some employers who rely on foreign national workers will struggle with the increased costs, especially amid a cost-of-living crisis. As such, we advise relevant employers to take the following steps to minimise the impact as much as possible:

• Review upcoming recruitment plans and (where possible) encourage workers to make their visa applications early, before the fee changes take effect.
• Evaluate their visa application procedures. For example, while the IHS surcharge is payable by the applicant, not the sponsor, some businesses agree to pay this as part of the recruitment package. Employers may need to consider whether they can continue to do this.
• Implement ‘clawback agreements’ which require employees to repay specific immigration fees if they leave their jobs early. A specialist lawyer must draft these agreements to ensure they are legally enforceable.
• Factor in the higher costs in their wider budgetary planning.

 

If you require further information about anything covered in this briefing, please contact Aoife Reid or your usual contact at the firm on +44 (0)20 7526 6000.

This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances.

According to Insolvency Service statistics, 4,262 construction firms became insolvent in the 12 months up to 30 June 2023. Continuing a worrying trend from 2022, construction saw more insolvencies than any other sector during the six months of the year, with construction firms accounting for nearly one in five company insolvencies.

It’s bad, but according to a report from Red Flag Alert^[1], it could get even worse.

Estimating that there is around £300 million of bad debt within the UK construction sector, the report predicted that “a perfect storm of factors could lead to more than 6,000 company insolvencies in the UK construction sector during 2023”.

There are many reasons why the sector is facing large-scale administrations, including:

• Significant increases in material costs (way in excess of inflation)
• Supply chain disruption/ difficulties procuring materials in reasonable timescales primary due to Covid-19, shipping issues etc.
• Bad debt (with failing companies dragging others into difficulty)
• Having to repay Covid-era loans
• High energy costs
• Inflation and interest rate increases
• Staff shortages.

Facing the risk of insolvency, whether it’s your own business or one of your contractors, customers or suppliers, can be extremely difficult and complicated to handle. And all too often, the stress, disruption, and uncertainty can lead to contractual disputes. For example:

• Disputes over payment for completed work, materials, or services provided;
• Difficulties in meeting contractual obligations, such as delays in project completion or a failure to adhere to project specifications often leading to claims for extended project durations and additional costs;
• Disputes over the ownership of materials on-site;
• Disputes over any existing bonds or guarantees.

Furthermore, if one party faces insolvency, it’s not uncommon for the other party to consider terminating the contract. However, this can be complex and lead to additional disputes about the validity of any termination notices.

 

Early warning signs

 

A company becomes insolvent when it is no longer able to meet its debts and/or when its liabilities exceed its assets. And this doesn’t often happen without warning.

Early indications that a building contractor may be struggling financially include:

• Late payments. If a contractor is consistently late making payments to subcontractors, suppliers, or staff, this is a red flag that they might be experiencing cash flow problems.
• Payment demands/changes. If a construction firm starts to negotiate early payment, more frequent instalments, or unjustified charges, this could suggest it is in financial difficulty.
• Subcontractor/supplier disputes. Subcontractor and supplier disputes can be a clear warning sign that things are not as they should be.
• Safety concerns. Financial struggles might lead to a lack of focus on safety, resulting in potential accidents or violations.
• Quality issues. If the standard of work is compromised, this could be due to a shortage of resources. This includes instances where essential quality upgrades are not taking place as expected.
• Disappearing materials. If resources start vanishing from site, it could be a reason for concern.
• If a project suddenly starts experiencing delays and a shortage of labour, financial problems could be behind the holdup. Businesses should also watch out for any delays to the filing of accounts or annual returns.
• Communication problems. If you cannot get hold of key employees or management, if they suddenly leave a company, or if you find increasing aggressiveness in communication, this could be due to financial instability.
• Rumours about a firm’s financial position. Often, even if you do not spot any warning signs, there will be rumours about a company’s financial struggle.

By paying attention to these early warning signs and seeking communications and clarification from construction firms, you may be able to protect your interests and stop a bad situation from escalating.

 

Top tips for dealing with insolvency

 

For businesses facing insolvency

For most construction businesses in financial dire straits, it might be possible to rescue the company. Should issues occur, the following steps could help:

• Reviewing your business plan, budgets, and credit control policies to establish how to generate sufficient cashflow to keep the business running and stop its credit position from deteriorating (e.g. invoicing on time, chasing up any outstanding debts, renegotiating more favourable terms, etc.).
• Speaking to your bank, funders, and major creditors (e.g. HMRC) to ensure you give the company the best possible opportunity to continue trading. Very few creditors stand to gain financially from making you insolvent, so most will agree to an affordable repayment plan, even if over an extended period.
• Consider administration to give your business the breathing space needed to rescue the company as a going concern.
• Seek early professional advice. The earlier specialist legal advice is sought, the more options will likely be available to the business and the more control it can exercise over the process. Legal advice is also recommended to protect directors of insolvent construction companies from potential claims.

For suppliers and clients of businesses facing insolvency

Any business entering a commercial relationship with a construction firm should always undertake robust due diligence to assess the risks – especially given the high level of insolvencies in the sector.

At Underwood & Co, we seek to include provisions in all our client’s construction contracts to protect them in worst-case scenarios. For example, clauses to safeguard funds, express termination provisions, and collateral warranties. We also include lien waivers to stop subcontractors and suppliers from making claims against our clients should their contractors fail to honour their debts.

Nevertheless, sometimes things go wrong. As such, if you find yourself in a business relationship with a struggling company, we recommend that you:

• Communicate openly to address your concerns and get clarity on any plans to address the situation;
• Document everything and make sure you have clear records about any contracts, the status of the works on site, and any materials already paid for (including those that have not arrived and any that have disappeared);
• Ensure you retain ownership of materials/IP if you know that the construction business is in trouble. This will help to protect your financial position should the firm become insolvent. If possible, secure physical assets or materials on-site;
• Make sure the construction firm has all the necessary insurances/protections in place (e.g. professional indemnity insurance);
• Monitor the situation. For example, by looking out for early warning signs, any escalation of difficulties, and keeping an eye on the London Gazette and Companies House so you will know if the contractor officially enters the insolvency process;
• Look at whether you can diversify your suppliers/contractors to reduce dependency on a single entity facing financial issues (depending on your contract, you may be prohibited from doing this);
• Seek legal advice to ensure you understand the contractual rights and obligations placed on you and the other party. Once you know what you are dealing with, an expert lawyer will help you to negotiate and navigate the situation to your best possible advantage. This includes checking your termination rights and insolvency provisions, negotiating performance bonds or guarantees to ensure completion or compensation, and establishing new payment terms to reduce the risk of losing large sums of money.

It is also important to be aware of how intrinsically linked construction matters often can be with development finance obtained from lenders.  The collapse of a contractor often triggers an event of default under a lender’s facility agreement.  Navigating a solution with the lender is not straightforward but is something that we at Underwood & Co have extensive experience with.

If you require further information about anything covered in this briefing, please contact Aoife Reid, Mark Smith or your usual contact at the firm on +44 (0)20 7526 6000.

This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances.

 

On the 24^th of July 2023, the Protection from Redundancy (Pregnancy and Family Leave) Act 2023 (the “Act”) will come into force. Under this new Act, pregnant employees and employees recently returning from parental leave will have priority in terms of being offered suitable alternative vacancies should their employer be carrying out a redundancy process.

What is the current position?

At present, employers are required to offer employees on maternity leave, shared parental leave or adoption leave, redeployment opportunities, should such a role be available, over other employees whose positions have also been confirmed as redundant when the employer is looking for suitable vacancies for these employees as part of the redundancy process.

What will change with the new Act?

The Act extends this priority status to employees who:

• are in a “protected period of pregnancy”;
• have recently suffered a miscarriage; and
• have recently returned from maternity leave, shared parental leave and adoption leave.

However, the Act itself contains little detail and further regulations are awaited to clarify how the extension of these rights will work. These regulations are not expected to come into force until April 2024.

The Act does not specify what amounts to recently returned from maternity leave or adoption leave, though, based on the consultation period and government press release in respect of the Act, employees are expected to benefit from an additional 6-month period after returning from maternity or adoption leave.

For employees returning from shared parental leave, employers will need to wait for the regulations before it is clear for how long they will be entitled to this new redundancy protection. The consensus from the consultation was that 6 months would be disproportionate if the employee had taken only a week of shared parental leave, but there must be some protection that is proportionate.

It is also not yet certain how the “protected period of pregnancy” will be determined, though, it is likely to be from when the employee informs their employer that they are pregnant until 6 months after they return from maternity leave (pending confirmation in the regulations of the 6-month period). The Act does make clear however, that the protected period may commence after the end of the pregnancy, to ensure that employees who have suffered a miscarriage and then inform their employer, are covered by the protections, where their employer was not aware they had been pregnant until after the miscarriage. Currently, the law only recognises miscarriages that take place after 24 weeks (when the maternity leave entitlement is granted).

The new law does not offer the redundancy protection to employees on paternity leave.

It is likely that the regulations will also contain details of the implications for failure of an employer to be compliant with the Act. It is expected that the employee will have a claim for automatic unfair dismissal, which is the case for employees on maternity leave, shared parental leave and adoption leave at present.

Impact on employers

Employers are not required to take any action in response to the Act just yet, as we wait for the regulations to be published next year. However, they should be aware of the expanded coverage of the redundancy protections which will now last from when an expecting mother tells their employer that they are pregnant to 6 months after they return from maternity leave and the potential implications this may have on their business.

Employers undertaking a redundancy exercise will, under the Act, be required to give priority to a wider group of employees for suitable alternative vacancies and will need to be aware of which individuals will now be captured by the protections. It also poses an issue that, if a redundancy is pending, employees may feel pressured to inform their employer that they are pregnant earlier in order to be covered, perhaps even before their 12-week scan. Employers should also identify available and suitable vacancies for those with priority.

The merits of protecting new and expectant parents from competing for redeployment opportunities at this vulnerable time are clear, though this may disadvantage high-performing employees without priority status, which could present management difficulties, that employers should be prepared for.

 

If you require further information about anything covered in this briefing, please contact Michael McDonnell, Will Gubbins, Elena Kadelburger or Paddy Cox  or your usual contact at the firm on +44 (0)20 7526 6000.

This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances.

Devised to help transform the rental housing landscape in England, the Renters’ (Reform) Bill had its First Reading in the House of Commons on 17 May 2023. The Bill aims to provide “safer, fairer, and higher-quality homes” for millions of tenants, and forms part of the Government’s wider levelling-up strategy.

As yet, there is no confirmed date when the Bill will have its Second Reading. It is at this stage that the reforms will be given proper debate and scrutiny in the Commons. Nevertheless, when pressed on the Bill’s progression, Penny Mordaunt, the Leader of the House of Commons said she was “optimistic” that we would “not have long to wait”.

With no set timeline, what do we know about the Bill so far?

While not a comprehensive summary, here are some key takeaways landlords and tenants should know about the Renters’ (Reform) Bill.

The Bill will abolish no fault evictions 

One of the most talked about parts of the Bill is the commitment to abolishing section 21 ‘no fault’ evictions. The change aims to provide greater security to tenants as landlords will only be able to evict them in very specific circumstances (e.g. missed rent payments, antisocial behaviour, if they are moving into or selling the property). According to the government, this change will empower tenants to challenge poor practices and unfair rent increases without fear of eviction.

On the flip side, the Bill also proposes the introduction of more comprehensive possession grounds to make it easier to repossess properties where tenants are at fault.

The Bill will introduce a new Private Sector Property Portal

If passed, the Bill will pave the way for a new digital property portal, with landlords legally required to catalogue themselves and their properties on a new register. Initially, this system will be a database of landlords and their properties. Later, this database will be used as the basis of a more comprehensive “Privately Rented Property Portal” service. The service will help landlords better understand their legal obligations, while giving tenants more insight into the standard of the properties they are renting.

Similar portals already exist for private landlords in Scotland and Wales.

The Bill will introduce a new Ombudsman

The Bill also requires all private landlords to join a non-voluntary government approved Ombudsman redress scheme – designed to bring ‘quicker and cheaper’ resolution to disputes.

The Ombudsman will empower tenants to seek free redress, should their landlords fail to deal with a legitimate complaint about their tenancies. Where landlords are found to be at fault, the Ombudsman will have the power to put things right, including “compelling landlords to issue an apology, provide information, take remedial action, and/or pay compensation of up to £25,000”.

The Bill will abolish fixed term assured tenancies

While most rental agreements start as fixed term tenancies (assured shorthold), the Bill aims to change this. If the reforms are implemented, all new tenancies will be rolling month-by-month (periodic tenancies).

Purpose-built student accommodation will be exempt from these changes. However, the National Residential Landlords Association (NRLA) has raised concerns that plans to abolish fixed-term tenancies will “decimate” the student housing market.

The Bill will make changes to the procedure for rent increases

Under the new Bill, landlords will only be able to increase rents once per year, and they will have to give tenants two months’ notice before doing so (the current notice period is just one month).

The Bill also aims to safeguard tenants against “backdoor evictions”, and stop landlords from implementing excessively above-market rents to force renters out. While landlords can still increase rents to the market price, tenants can appeal any excessive increases, and an independent tribunal will rule on the matter.

The Bill will give tenants the right to request permission to keep a pet

One part of the Bill that has been very warmly received by tenants is the right to request that they can keep pets in their rented homes. This means that, rather than strictly prohibiting animals in rented accommodation, landlords will have to carefully consider each request. While they cannot unreasonably refuse applications to keep a pet, landlords will be able to ask that tenants pay a premium or insurance to cover any potential pet-related damage.

The Decent Homes Standard will apply to the private rented sector

When it comes to housing, the Government is also committed to further reforms. This includes applying the Decent Homes Standard – through which social housing landlords must ensure that their properties are in good repair and free from health and safety issues – to the private rented sector.

In addition, private sector landlords will no longer be permitted to blanket ban certain renters (e.g. those receiving benefits).

Landlords should act now

While the Renters’ (Reform) Bill has been described as a ‘once-in-a-generation overhaul’ of England’s housing laws, it has not been without controversy. Tenant groups such as the Nationwide Foundation have called for the Bill to be made even tougher to help tenants, and there are questions about how and if landlords will be supported during any transition period.

With the Bill expected to become law by the summer of 2024, if you would like more information or advice as to how the Renters’ (Reform) Bill could impact you, our experienced team is here to help; please contact Aoife Reid areid@underwoodco.com, Paul Twomey ptwomey@underwoodco.com.

 

This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances. 

For most people the closest they get to cryptocurrency is when it makes the news. As an asset class it comes with confusing terminology and jargon, not all of which has a precise legal definition. Yet for all the talk of its imminent collapse or fundamental risks, since 2018 Bitcoin, the most famous crypto out there, has seen an increase in value of some 334 percent (as of 20^th June 2023)[1] and is trading at around £21k per ‘coin’. Other currencies such as Ethereum have seen similar increases in value. Increasingly, investors in virtual currencies have been looking to utilise this uplift in value in the real world.

For most individuals the most significant investment and their most valuable asset is real estate, often their home, but perhaps residential investment property or commercial property. Can the cryptocurrency investor therefore utilise their coins or their profits in a real estate transaction? The short answer, should be yes. It is of course well known that a fundamental rule of contract is that consideration does not automatically connote money. It must simply be sufficient. Therefore a willing seller and a willing buyer could agree to use a cryptocurrency as consideration for a real estate transaction (although considering price volatility this carries its own risks which we shall not dwell on here). What is more likely, and has been experienced by this author, is that a buyer in a transaction wished to use proceeds gained from the conversion of cryptocurrency to fund a real estate purchase.

There lies the rub. Law firms are required to comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (as amended) alongside the Proceeds of Crime Act 2002 and the Terrorism Act 2000. As anyone who has sent funds to a solicitor will know, we are liable to ask some quite intrusive questions about the source of those funds. It is not just a case of “they’re from my bank account..”, rather like school maths lessons the sender must “show their workings”. From the solicitor’s perspective that means that we must be shown evidence of the accumulation of the funds, be that from savings, inheritance, sale of a property or even a lottery win. Whilst it can be invasive and a touch forensic, it is not that difficult to provide the required evidence. This is where cryptocurrencies fall down.

The Problem

Crypto,  quite literally means hidden or secret. One of cryptocurrency’s great strengths, at least to its advocates, is that they are essentially anonymous, decentralised, with no national or supranational entity that regulates use. This also makes it of great use to money launderers. The anonymity provided by the online ‘wallets’ that most traders in cryptocurrencies use to hold their assets means it is almost impossible to adequately trace exactly where the funds originated from. If you are considering using funds raised from trading in cryptocurrencies to finance a real estate transaction, it is important that from the very outset you are prepared to evidence the source of the funds used to acquire the cryptocurrency, that you have had control over the cryptocurrency throughout and it has not been ‘mixed’ or stored in an unhosted wallet and that the cryptocurrency has performed in such a way to align with any increase in value over the original investment

The Future

Horizon scanning may be, for the most part, a fool’s errand, yet cryptocurrency continually weathers the storms that hit it and it is becoming clear that it will form part of the financial landscape of the future. Until there is a much more stringent regulatory framework in place which brings cryptocurrency trading into the existing money laundering regulations the use of funds generated from this asset class will mean that the legal sector, especially in transactional real estate, will continue to view these funds with suspicion.

If you require further information about anything covered in this briefing, please contact Oliver Whitehead or your usual contact at the firm on +44 (0)20 7526 6000.

[1] Yahoo Finance Bitcoin GBP (BTC-GBP) price, value, news & history – Yahoo Finance accessed 20 June 2023.

This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances.